DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies.

Ricardo Hausmann: I’m Ricardo Hausmann, and this is one of our development talks in our development series. And I’m really, really pleased and honored to have Suman Bery with us, the head of the National Institute for the Transformation of India, which is a new institution that it’s taken sort of like the senior think tank of the government, where he’s going back to India with this amazing accumulation of experiences. A, to really think hard about these issues. I’m going to to lead the conversation for the first half of the of this session and then I’m going to pass it on to Akshay Mathur, one of our own Mason fellows. I had the honor and the privilege of having him in my in my course. He’s a senior fellow at the Center for International Governance Innovation based in Canada, and his own research focuses on issues of international relations, international financial architecture, global trading systems, global economic governance and global digital governance. And some of those issues will be relevant for the discussion today. The session has been titled Investment in the Energy Transition Global and Domestic Dimensions. I’m going to start that conversation by first asking Suman Bery issues of where is India going, where is India’s growth going before we tackle sort of like India’s energy transition and the global aspects of that transition. It’s sort of like the F.T. chapter, though. The Economist chapter is very optimistic on India’s growth. I would say that there’s a consensus that India is likely to be a fast growing country. Everybody has their own opinions. Actually, you know, we have the utmost of economic complexity. We calculate country’s economic growth potential. And in India, as always, it comes out at the top, at the top for our own logic and reasons. But in a you know, a lot of the talk is about India having a big domestic market, demography being in the right direction, with fertility rates coming down, with urbanization going up and with educational levels going up and so on now. And unfortunately, that’s so first of all, India has been a big country for a long time. And so with China and and, you know, they had periods in which they were not growing and periods in which you were growing. Many countries have similar features of India in terms of demographic transition, urbanization, education and so on. And they’ve managed not to make much of it. So how optimistic are you about the growth of India going forward? And what are the sources of that optimism?

Suman Bery: Well, Ricardo, firstly, thank you for hosting this. And you know, I’m as you sort of, as you mentioned and so discreetly avoided, from the other place from what used to be called the Woodrow Wilson School. And the Kennedy School was always the other pool. So it’s I am in that sense, both pleased but slightly nervous about exposing myself here. But it’s terrific to be on a platform with you because of the enormous respect I have for you and for your very lateral view on the issues of of growth. And let me thank all of those in the room for giving their time to be present. Now, I am now here not as an analyst, not as a think tanker, but frankly, as a member of of my country’s government at a fairly senior level. So what I would say is that. People look at the same data through different prisms, different lenses. So let it be said that, you know, I will indicate the both the reasons for optimism and also to some extent, but not extensively counter why there may be reasons or some of the cases that are put out for a less optimistic view. I think the first where one has to start is with institutions, including political institutions. Well, where one should start is actually from the fact which I became particularly aware of as the chief economist of Shell, which is that over the long run, there are two characteristics of India. And by the long run I mean about 25 years. One, which. While, of course, eclipsed by China. It has been amongst the top ten fastest growing emerging markets for quite a long time. Okay. And this is in the face of various shocks. And I would also say from the yen, now that where we are and you know this well is in response to various to a number of shocks, COVID and the war in Ukraine being the most important. Now, what does that say to me? It said it’s also the case that. The amplitude of Indian growth has narrowed over time, which. Marks a transition from an economy which was very much dominated by weather shocks to an economy which is much more integrated into the world. And that has led to more resilience. And I think a topic that we should discuss is resilience. So I think the first question to ask is, so, you know, why has India continued to be a reasonably strong performer? And I would argue that it is because Indians themselves have a reasonable amount of faith in their institutions, particularly their political institutions. And also, as we were discussing before coming in here, there are other strengths, such as the quality of of the bureaucracy. Now, none of this is. Going to be different into the future. We’ve got to talk about a different future. But what I’m saying is that up till now, India has had full critics of India, some of whom have been associated with the Harvard Kennedy School. Will. On the basis of their own analysis, argue that the recent growth numbers have been overstated. They would argue that Indian institutions are not as strong as they previously were, and we can get into that conversation. But I’m just saying that one metric on these side and I want to hear from you, so let me shut up soon. So the. The reality is that India, which is a very diverse polity, has had five continuous full term parliamentary session. So all the way from 1998 to 2004, they have been parliaments that have completed five terms. And those of you who know your British politics know that in a parliamentary system that’s not something you can take up. So the first point is that there is form and that that reflects faith in Indian institutions. The second point is that. There are so many things that. Keep India from its full potential, that if we have been performing reasonably well with all of these headwinds, with all of these drags, then you need to ask the question of whether the impediments to those have, you know, are being addressed. And I would argue that they are. I would say, though, that at the end of the day, you may want to focus on growth, but I think the real running sore of India over many years has been the issue of employment. So there’s the question of whether in the future we can maintain in a much more troubled global environment a growth of the kind that we have have demonstrated in the past. And then there’s the question about how whether the employment piece will accompany that. And I must say that the Kennedy School and in the work of yourself, Dani Rodrik, Robert Lawrence, I think are making us think about how the development model of the future might be different in terms of trade and manufacturing. And then, of course, the topic we are here to discuss, which is how does the energy transition affect any of this? A long answer to a short question.

Ricardo Hausmann: No, no. Well, it was it was great. So let me make a, I mean I’m tempted to make a very, I would ask you for a very quick answer, but in there is this debate going on whether the world is kind of like de-globalizing and consequently we can be less reliant on outward looking growth and so on. But there are other people who emphasize that the world is moving from trade in goods to trade and tasks and that the business services are growing very significantly and that India actually is a leader in these business services as it has, you know, global players like Wipro, that consultancies and business process outsourcing, increasingly knowledge intensive business process, outsourcing, coding and so on and so forth. So, so that in some sense counts as as a new phase of globalization that we’re where India put its foot in a long time ago. And now the trends are benefiting that that dynamic. It’s true that these tend to generate higher risk of jobs relative to the current endowment of labor in India. But is this or is this sort of like an important engine of growth going forward for India?

Suman Bery: Well, what, I think the deeper point that it raises is that the structure of India’s balance of payments has for some time been quite atypical, quite unlike the rest of Asia. What do I mean by that? We’ve got a floating exchange rate and we bought my boat more or less run the economy for a current account deficit of about 2% of GDP because that’s what we feel we can safely finance. Okay. So the current account you can think of is either the difference between saving and investment or you can think about the various elements on the receipts and the expenditure side. What we have is. A trade deficit of a merchandise trade deficit of around 7% of GDP, which is compensated for by what are called unrequited transfers, remittances and net service exports. Now, why is any of this important? It’s important because it suggests that it’s not necessarily a Dutch disease type of but that the economy has adjusted, including through the trade account, to to what is happening to foreign exchange markets and otherwise. So I’m saying that the balance of payments is advantaged by what’s happening on the services side. It’s less clear how inclusive growth and employment will react. And then the issue becomes what instruments you assign to the employment issue. If you know, if that’s not being delivered to the structure of your balance of payments. And I think, well, it was Brazil a little bit like that as well, namely a large trade deficit, because they had no but but they don’t have service exports.

Ricardo Hausmann: So you’re quite unique in that. But in so a now let’s move closer to the topic at hand. We know that there’s a very strong relationship between a GDP and energy use. And yes, the world is becoming a little bit less intensive in energy, but still there is the dominant factor is that if India is going to grow a lot, it’s going to need more energy. And we’re in the context of this energy transition. So, on balance, would you say that the energy transition complicates India’s life or does the energy transition have a silver lining that might facilitate the growth of output and employment in India?

Suman Bery: First of all, as you said, there is a need for energy because we intend to grow and want to grow. Second. I would say there has been more than I think is appreciated outside India, a very strong commitment to supporting all kinds of non-fossil sources of energy, particularly imported sources of energy. Since we import 80% of our oil and slightly less than that of gas. So from an energy security point of view, India has strong motivations to go down the renewables route. However we have been. Circumspect. From an energy security point of view, and also because of uncertainty in terms of technologies about exactly how fast that should go. And so at the moment, I would say we aren’t hedging our bets, but we are backing a number of technologies while using public policy to initiate experiments in green hydrogen in electric vehicles. Your question is again really about, employment. I think whether India believes that as a consequence of embracing new energy sources. Whether this would actually be substituting for employment in some of the old industries, I would say that. That that is not a clear element of strategy just yet for one final reason, because I know you have to go, which is that India still believes that it cannot abandon the quest for a more vibrant manufacturing sector. Now, why it wants a more vibrant manufacturing sector is something we can talk about. We’ve already discussed that maybe the employment dividends will be somewhat weaker than they have been for past countries. But I think in terms of increases in productivity, in terms of skill levels and frankly, in terms of national security, because you need a strong manufacturing sector to support a domestic defense industry, we are going to continue down that path. So our needs of energy for industry are, if anything, going to rise. And what we are attempting to do through particularly green hydrogen, is to try and find decarbonizing technologies that allow us to reconcile the manufacturing impetus with the with decarbonization. But all of this is relatively new. And another technology that we are working on is carbon capture, utilization and storage. There are. You know, advocates of accelerating the green transition who basically say that they are going to be many more secondary jobs connected with rooftop solar, this, that and the other. I think India is cautious on this rather than betting the ranch on it at this point. But before you leave me, perhaps I could talk about what was in the title of that that I proposed for this talk, which was investment in energy transit, in the energy transition, global and domestic dimensions. Because what I’ve already talked about, the, you know, the particular construction of all of our balance of payments. But underneath the balance of payment are saving and investment growth. To come back to your first question, one reason to be optimistic about growth for the future is that certainly by Latin American standards, India has had a relatively high investment rate. We want to push it even higher. But embracing green technologies is going to mean. A big boost to capital expenditure, even if it substitutes for other capital expenditure, maybe one or two percentage points of GDP. And so the international dimensions are really. Does the world, does the world have the machinery for directing foreign, say, savings to the energy transition? And I think much of the discussion that took place in Washington last week was about financing the green transition, where a lot of it is going to have to be domestic, but a fairly substantial part is going to have to be global. And again, before you leave, I know that you are of the view that there are important opportunities for developing countries. Can I just hear from you why you think that accelerating the transition, rather than being cautious, may be in the interests of countries?

Ricardo Hausmann: Well, my view is that too much attention is being focused on what should each country do to lower its emissions. And not enough attention is focused on what each country can do to help the world lower its emissions. Because the world is going to need a lot of stuff if India is going to do an energy transition, it’s going to need a lot of it’s going to need to electrify many things. It’s going to need to generate that electricity in clean ways. It’s going to need a lot of stuff. Who’s going to make all that stuff? The solar panels, the windmills, the transmission lines, the capacitors, the batteries, etc., etc. And somebody has to do it. And then and those people are going to have a booming market. Who’s going to be in that booming market then? And so far.

Suman Bery: The answer is China. Right.

Ricardo Hausmann: Well. But you know, that’s an interesting question for you that I’ll let Akshay follow-up. But how is India going to play the fact that the world is trying to reduce its dependence on China and is that generating an opportunity for friend-shoring? How friendly do you want to be in the context of a world attempting to lower its dependence on China? But the other thing is that you know the world is going to to need to make things in a greener way. And green energy is very hard to transport. So maybe you want to use green energy where it hits instead of trying to transport the energy, use the energy where it hits. So that, then in, you know, you put solar panels where there’s sun rather than putting them in Germany but where you know capital is cheaper so. So I’m very much interested in hearing your ideas on mechanisms to make more capital available for developing countries so that they can fund whatever investments are needed in a decarbonizing world. But let me ask Akshay to come over and I’ll follow up with you after this session. But it’s a fascinating conversation. You know, the world has this dower attitude and so on. But, you know, when you think of India, it’s hard not to be optimistic.

Suman Bery: I think so.

Akshay Mathur: I’ll ask one question and we’ll open it up, which is this question. The topic today is investments in energy transition. And so the question at the heart of it is the capital. And where, in your mind, global or domestic or both are you seeing capital possibly come from? So in the global, we have multilateral development banks, the big asset managers, possibly some FDI within the domestic. We have our commercial banks, development financial institutions. Where do you see the capital come from for the investments that we need globally and domestically?

Suman Bery: Before I answer that, I think that sort of seduced by the fact that Ricardo was my interlocutor, I may have thrown too much economics at people. Can I just get a sense of, you know, how many people with an economics background are in the audience and stuff? So. So that was not inappropriate. Okay. So the. I’ll build on, as it were, the conceptual framework that I laid out to try and answer your question. Everybody asserts that the world is not short of capital. Everybody asserts that individual green projects in emerging markets meet a rate of return test. So in a world with smooth financial intermediation. The, you know, the pools of capital that exist out there should find their way to high-return projects. And so the question becomes of a, is that set up correct? I mean, is it really the case that there’s a lot of capital chasing good projects and B, you know, what can the global community do to facilitate that? Some of you may have heard Larry Summers talk about secular stagnation. Some of you may have heard of Ben Bernanke 15 years ago. Talk about the savings glut. And I think all of that is quite relevant to the discussion at a global level that we’re having right now. Why do I say that? So. The concept of Bernanke of a savings glut went back to 2006, shortly after a lot of Asia had its difficulties, something called the Asian financial crisis in the late nineties. And the consequence of that, as with most financial crises, was that investment in Asia plummeted because financial crises cause disruptions. And so Bernanke was trying to explain why the U.S. was had a large current account deficit in 2006, but that, as it were, formulation, had stuck around. That formulation is that because. Asia, Japan, China, Some other parts of Southeast Asia are strong savers. That there wasn’t enough. Investment in the rest of the world. And this was why interest rates, real interest rates went to rock bottom for the last 15 years. Now, we all know that that story has changed with the inflation to the last couple of years. But it’s anybody’s guess whether it’s changed permanently or whether we’re still in a world of global excess savings. I’m going to assume that we are in a world of global excess savings. And where we are right now is a kind of transitional shock caused by, you know, the reaction to COVID and tight labor markets and what have you. So. What I understand is that because of issues like country risk, the old country governance risk exchange rate risk, the certification of green projects that the world’s pool of so-called ESG investing is largely being directed to ESG pools in the advanced countries. You’re an asset manager, and maybe you have some view on all you have in an asset manager of how asset managers think about these things. So the that set up then suggests that there are either real or overstated risks and that you need some kind of a set of either intermediaries or structures so that if these are not genuine risks but they are overstated risks, that these be mitigated by some kind of global action so that all the money that’s waiting on the sidelines can find its way to this kind of capital and. You know, in this India is going to be a fairly big enchilada. Okay. So what might be some of these measures? What might be some of the changes? Well, what’s on the table right now is to use the balance sheets of the multilateral lateral development banks to certify the quality of. Of these projects to pool them like housing loans or a pool that came to us to kid. But the concept stays the same. And I believe this happens a lot in Europe and maybe in the US as well. Financial intermediaries pool, as it were, eligible projects. The legal structure is such that the cash flows from these projects are appropriately used to service the debt or whatever that come to them. So it starts to point to a whole range of global reforms and domestic reforms to let the underlying quality of the investments shine through rather than the uncertainties and the risk. So, I mean, that’s the broad structure. But given your, you know, your asset management background, I’d be glad to have a follow-up question from you before we open.

Akshay Mathur: I don’t have a question, but maybe just a remark that I think to your point on developing intermediaries and institutions, there’s been some attempt with the National Investment Infrastructure Fund and other such instruments to be able to create that those intermediaries to plow those capital into more green projects within India, because that was clearly an issue. A separate issue is, I think, which we still have to resolve is greenwashing, but greenwashing that is also being enabled by a lack of a global taxonomy. And some effort has happened with the with the International Sustainability Standards Board coming together. That’s giving a little bit more of a clearer picture. But the process is not complete. So I think that’s also being used as an excuse. But I think you’ve, I think, laid out a framework that should be open it up because I think people can ask follow-up questions to that particular. So should we open it up? If you have I have a set of questions, but I’m happy to.

Suman Bery: If you could just give me some idea of your background.

Akshay Mathur: Please identify yourself and your program.

Attendee: Thanks a lot. I’m Rebecca. Second year MPA/ID and I’m currently on educational leave from the World Bank, so I will go back working on infrastructure finance. And you gave us one examples of what the multilaterals could do, but I wonder if you see also other alternatives of what needs to be done to get private sector investment into the green transition.

Suman Bery: Yeah, Okay. So I mean, there are four players. If you’re talking about an individual country, there are private sources of funds. They are, if you like, official sources of funds. So that’s on the sources of funds side. And then there are private investors on the recipient side, and there is the they are public investors on the recipient side. And so, you know, you you have, as it were, a an assignment issue or at least a classification issue. So what proportion of public demand should come from official sources. What proportion of public demand should come from private sources? What proportion of private demand should come from private sources? Most people tend to think that it would be official to public and private to private. And there are reforms or issues in each one of those. The focus right now is on the multilateral development banks. And this is relevant for India because India is the president of the G20 and these issues are being discussed in the G20 and I can talk about the G20 people. So the discussion in Washington last week was on reform of the multilateral development banks. On a couple of dimensions. One is to sweat their capital so they could expand, so that they could expand lending. And secondly, whether and how to shift that overall mandate from lending for country development to lending for what are called global public goods, of which claim which is is, I think, the one that’s gaining the most attention. And the expectation is that much of the enhanced lending from official sources would go to. Additional investments by the private sector, by the official sector. And let’s be clear at least where India is concerned that those investments may be in mitigation, but they may also be in adaptation. Okay. Now, you know, I’ll take an example from another country, the Netherlands, in which I lived, and they have been preparing the Port of Rotterdam for higher sea levels through the construction of high seawalls and dikes. And, you know, the Dutch are past masters of the stuff and they’ve been thinking ahead. So that’s a case where climate change creates a need for adaptation, additional public investment. And if they were to borrow from the World Bank, then the idea would be that the World Bank designates a portion of its enhanced lending for this adaptation activity. But there are also, as Ricardo was saying, immense needs in terms of upgrading transmission mechanisms in on the mitigation side as you try and revolutionize your whole policies. Still, many of those investments are going to be undertaken by the public sector. And the question is, should all of this be financed by domestic taxpayers or should it be financed with external borrowing? Because there’s a case to use borrowing for something like this because it yields a positive return over a long period of of time. So that’s the kind of set up for enhanced official financing from particularly the multilateral development banks to support climate changed climate change, associated incremental expenditure, particularly investment expenditure by the public sector. Now let’s just talk to the private to private that that’s the discussion that action I was having about bundling, because again, a practical example, our large scale enterprises for all kinds of reasons, partly because it’s economic, partly because they want to be part of global supply chains. Our steel industry has invested heavily in decarbonizing steel and is in the forefront of bringing in hydrogen into the into the steel process. Now, all of this stuff takes money. It repays itself over time. But they. Typically don’t face a capital market or borrowing constraint, but an entity like the IFC at the World Bank, or as it were, other pools of funds. Investor pools of funds could be directed at that. And indeed, India itself has issued so-called green bonds in order to to help, but not so much the private sector, but the government undertake its own green investment. I hope that gives you a sense of the framework within which people are thinking about these things right now.

Attendee: Thank you so much. Thank you. Thank you so much for a wonderful talk. That’s it’s a really fascinating topic. So I know it’s not like you, China, the U.S. So, yo, we promote these Korean files from public sector and private sector. We also implement they like that faith encourage people to heal tax credit to promote that to investment to China. So they are pleased to introduce a leg of that to fiscal policy intervention or, you know, financial policy intervention to promote a basic Korean transition. Thank you so much.

Suman Bery: Well, we’ve had a so-called renewable purchase obligation for all. Distribution companies. An important point I should make is that India, in the cold fossil fuel era generation, was entirely in the public sector, starting from about 1950. India followed the practice of Britain because Britain had been the colonial power. So you may be aware that when a Labor government came into power after the Second World War, they too were very influenced by socialist policies by the Soviet Union. And so one of the first things they did was to nationalize many of their infrastructure industries. And so from 1947 until Margaret Thatcher in 1985, 86. Many of these industries in England were nationalized. India followed suit. And so all of our generation was power generation. Largely coal-fired was done by federal-level and state-level publicly owned power plants. This started to change in the mid-nineties. I think I’m right in saying so. The regulatory system allowed the private sector to start investing in at that time, coal and gas-fired plants, but the dominant ownership remained in the public sector. I’m saying all this because for whatever reason. In the case of renewables. India. The leadership has been with the private sector, so investment in solar investment in wind has been led by private companies, private entrepreneurs, raising their own capital and dependent upon a secure regulatory framework for offtake. And as part of this change, the distribution companies were required to to include a portion of renewables in their mix, because to begin with, renewables were more expensive than than coal-fired power. So that is the equivalent in India of a feed-in tariff, if you like, a renewable purchase obligation. Now. You asked also about outright fiscal incentives. I’m more aware of that in more frontier areas such as green hydrogen and the manufacture of electrolyzers. So the cabinet has just approved a green hydrogen mission or program, which is supported by what we call a product linked incentive scheme for green hydrogen and for the production of Electrolyzers. The idea being that these are new industries for India and that while the government won’t guarantee the market that has to be earned on the basis of competitiveness, it will provide a capital subsidy once production is up and running. Individual states, which are important players, have can have their own fiscal rebate, except for the fact that they don’t tend to have unlike Chinese provinces, they don’t tend to have a lot of fiscal handles because ever, ever since we went to a goods and services tax, the number of taxes over which the state has jurisdiction, the states have jurisdiction has diminished. So the main contribution is in terms of the provision of land. So the provision of land for favored industries is one way that the states can support the green transition.

Attendee: I’m a postdoc here working on energy technology, innovation questions. I am. So you mentioned PLI and Manufacturing, and I’m curious to hear from you how India’s engagement with industrial policy should look like moving forward, given that we have been doing industrial policy for a long time now and there must be there’s been a lot of failures, there’s been some success, particularly in pharmaceuticals. So yeah, what kind of learnings are there and how should that inform future engagement with trying to bring manufacturing capability onshore?

Suman Bery: Well… Let me answer historically, then on to contemporaneously. So clearly. Under Prime Minister Nehru and for a long time after until 1990, I would say the dominant view was even though India has had a competent private sector for a long time, there was distrust of the private sector and it was believed that India could only become a significant manufacturing power through the application of industrial policy. And we had hideously complicated rules on the licensing, on the licensing of capacity, on on transfer of technology, walling out the rest of the world, throwing out IBM, Coca-Cola, etc. So that was then that started to change in the late eighties and then in the early 1990s. And from the 1990s onwards, I would say the pendulum swung to the other end where essentially the slogan, if you like, or the mindset was, you know, integrate with the world no matter what, because that’s going to make you strong. And that worked in the work for a while. We had strong growth and developed capability. Historians will judge both for the US and for India with the simultaneous rise of some of a power as substantial as China in this period upset many of those calculations. Certainly politicians have come to that conclusion. I, as an economist, see it slightly differently. I see it that China was such a big, as it were, a force in the global economy to use the economist’s terms of trade. It turned the terms of trade against itself. It generated a lot of employment, but it was really foreigners who benefited as much as the Chinese in that the world got a real income increase from a huge supply of cheap intermediate goods, cheap consumer goods and what have you. So that’s a real income game that the rest of the world gained. But politicians. Don’t necessarily only look to real income gains, even though economists feel they should. They look at employment, they look to industrial capability. And then I think COVID was a wake up moment, I think. In India itself, the so-called hollowing out of our manufacturing was a teaching, a teachable moment. I have to say that a lot of the instincts of the BJP as a government were to believe that domestic strength is measured by domestic manufacturing capability. And so all that led to the rediscovery of industrial policy, symbolized by the phrase almond butter. Articulated by Prime Minister Modi in what would have been May of 2020. No, I think the jury is out on what it takes in terms of domestic political economy to make industrial policy work for you. But let’s not throw the baby out with the bathwater, because where India is in the digital space, where it’s in the pharma space, less perhaps in terms of manufacturing, and there’s a puzzle there. This has reflected nimble policy, intelligent policy, good cooperation between the private and the public sector. I think critics of the PLI worry about two things. One is that in aggregate these are large sums which the government could use otherwise fiscally. And the government response to that is that if we can get these sources of growth going, then they will pay for themselves fiscally. And otherwise. And the second concern is whether the political economy of India will actually allow these schemes to be terminated because they are meant to be time bound or whether the pressure of lobby will be that this again becomes another elephant in the street, you know, sort of argument of forever. But I think India has much more self-confidence now. And so I think a very important part of the evaluation of the alliance, since I’m at the head of meeting, I’ll try and make sure that those that those assessments are honest assessments and then we’ll see.

Akshay Mathur: I think he was also asking about the green Industrial policy. Is that your question?

Attendee [inaudible]

Suman Bery: Yeah, well. I think there’s a balance that the I.R.A. demonstrates, which is that you’ve got a very successful low cost producer of much of the green infrastructure. But nobody wants reliance on a single source of supply. And again, you know, as an economist. You have to accept that there’s been a, well, fair game by all the learning by doing that’s taking place in China so that we get all this infrastructure going down the cost curve much faster than I think it would have otherwise. But do you want to be locked into it? That becomes the issue. And the issue then is who? How do you avoid impairing your competitiveness by going for a higher cost model? What does that then mean for your ability to compete in global markets? And does that then lead which many liberals like myself would not want, is that you end up with different market areas defined by security, you know, sort of carbon clubs and stuff like that. So I mean, there’s an innate logic to liberal economics, which is that you are most competitive if you source from the lowest cost producer. But making that a source of vulnerability is is what you have to avoid. And I think that’s a balancing act that the Europeans are trying to pull off. It’s something we have to think about, but we have much less many fewer fiscal resources. So we can’t match the I.R.A. So we have a low cost labor advantage, but we don’t have the fiscal resources.

Akshay Mathur: How much time do we have around to? We’re done. Okay. Right. We’re finished. Right. Okay. Okay. Well, all that’s left is for me to thank you on behalf of the Growth Lab at Harvard. Ricardo, who I’m impersonating and the staff here, the researchers who make the development talks tick every time. And, of course, students have come from different parts of Harvard.

Suman Bery: And I’m very grateful for all your time. You are cared for, in a sense, devoting as much time. I’m sure that your wife must think I’m a terrific distraction. But thanks for your attentiveness, and I hope I’ve added your knowledge about India, which is my purpose. Thank you very much.

DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies.

Konstantin UsovHello and welcome to Dev Talks. I’m Konstantin Usov I’m a student here at HKS doing my MC/MPA mid-career masters. Dev Talks are a series of conversations with senior policymakers and academics working on economics and international development and is organized by the Growth Lab. It is my pleasure to welcome today Vladyslav Rashkovan for the session on the political economy of the postwar reconstruction of Ukraine. Since 2017, Vladyslav is a member of the International Monetary Fund Executive Board. As an alternate executive director, Vladyslav represents Ukraine and 15 other European countries. Prior to IMF, Vladyslav had a distinguished banking career serving as a deputy governor of the Central Bank of Ukraine and being responsible for the banking sector reforms in central bank transformation. Just one more important thing that before joining the NBU in 2014, Vladyslav occupied the position of Chief Financial officer of the UniCredit Bank in Ukraine, also been engaged in the leadership of the group turnaround projects in Central and Eastern Europe. Since the Russia’s invasion of Ukraine, Vladyslav stands in the center of many international projects to provide financial support to Ukraine and plan its postwar reconstruction and modernization. Vlad also serves as a member of the International Advisory Panel for the National Recovery Council. So, Vlad, welcome to the talks and the floor is yours.

Vladyslav Rashkovan And thanks for asking me. First, thanks to Ricardo for inviting you know, we discussed this possibility in May last year and I promise to come for November. But this is only the first week with I managed to find some sort of free weekend. I am here more to represent myself rather than IMF as you understand because IMF is not a development organization but we build the framework for future reconstruction and what I do on reconstruction goes a little bit beyond the IMF, you know, the mandate landscape and small with my cooperation with the government, different think tanks, etc.. You know, for those of you who follow Ukraine deeply might be a little bit surprised of the invasion, but you might know that this is the fifties war between Russia and Ukraine and not the first invasion and not even the first invasion in the in the modern times because the current war started in 2014. There were many others. And I’ve spoken at Yale and Harvard now for different students, especially those who study history clearly, they know it better. The current stage, we are in the war now, It’s more or less already on the seventh stage. There were different moments of initiative coming both from Russia and from Ukraine. Now clearly initiative is on our side. How effective it will be, as Ukrainian, I strongly believe in that it will go as as long as possible and also reaching the, you know, the borders of 1991. But it’s very clear that there are many other potential scenarios on the table. This is what we analyzed with some students. So, you know, there could be you know, the war can end or continue soon, depending on who will have an advantage, you know, in the next in the next months. Clearly Ukrainian, I would say minimum target is to come to the to the war victory, a return to the 1991 borders. But as I said, there are many other options potentially are possible, likewise that are also some more positive, you know, maybe developments, including like a fragmentation of Russia and change of regime in Russia. But the also and the in a much worse situation than like in the First World War and even nuclear war.

I mean, Ukraine does everything possible to be on this side in order to reach this target. And thanks to the West, the Western allies who help us of that. But what is more important is the end of the war is not an obstacle to start the reconstruction because Ukraine controls the major part of its territory. Yes, its many elements are destroyed, but and moreover, the reconstruction has already started. And for that, you know, we need to understand that the reconstruction itself is a very complex project process, and it includes many different elements. You know, we say starting with maybe military, as I said, we still need. Win the war. But also we need to release our prisoners and return deportees. But one of the major elements for the military respect to consider this a potential reparations from Russia. You know, we speak about 300 plus billion dollars of Russian assets frozen in different parts of the world. And there are many groups now who are working in order to develop the solutions on Russian assets that are legal solutions, there are economic, there are financial solutions for that matter. I mean, this situation shows that maybe not so soon, you know, because the political process is complicated. Complicated in Europe, complicated to U.S. So another element is obtaining war insurances, especially for the business. So again, there will be London conference soon, which will also focus on these on this topic, how to get it. It’s very clear that the West became not prepared for the global world, came not prepared for such a big war, and therefore the need of such big insurance in the war. We also need to have some sort of insurance in insuring security guarantees for the future, one of which could be entering NATO.

Vladyslav Rashkovan But not only, you know, there is another working group led by the Rasmussen, you know, the former head of NATO on thinking what kind of security guarantees could be and how these security guarantees would not be the best memorandum for Ukraine, which will not be respected. Diplomatic side on diplomatic side that are clearly some peace building initiatives. As you know, there is a formal of silence key about the peace that is also now on the table, the sheet formula of the peace. And as I predict, there will be a contest of different peace formulas from different players. Clearly something will come from Erdogan, from Netanyahu, from Mbaise in Saudi Arabia. Maybe something will come from United Nations. Macron already President Macron already went to China. They came with some ideas. Something will come from Warsaw of underline, you know, maybe from Pope. I don’t think something will come from Modi because he is a little bit outside. But Lula said he wants to be a part of the peacekeepers from Brazil. And, you know, something will come from U.S. So I think there will be a lot of initiatives. How what could the peace look like after the war? But also another important element is a part of diplomatic efforts. And this is where I also play some role, is updating, updating international aid and coordinating donors. So in terms of the international aid. Last year, Ukraine got $52 billion of international aid that already by this February, Ukraine had 50 plus billion commitments. And as of today, after the spring meetings, the commitments for these year around $42 billion. So and the debt is created the donor coordination platform. I will say a little bit later about that, one of the clear, you know, path of clear, you know, the task for diplomatic side is a Ukrainian building path towards the European Union, which is a strong anchor for Ukraine Postwar reconstruction. Political. I mean, it’s also not easy, you know, postwar topics in terms of the reconstruction, because we speak about something which is not necessary. And I would say slightly later about that, everybody wants to come to Kiev. You know, everybody wants to make the picture. So the Ukrainian leadership in Kiev, but Ukrainians, a decentralized country, you know, and therefore we need to rebuild not only Kiev, we need to rebuild a lot of the cities outside, and we need to build the proper relations between city and center and between regions. And we need to ensure that the regions also have a proper absorption capacity. And you know, money also for the for the reconstruction. Currently, clearly, there is a big gap there.

Vladyslav Rashkovan But not only now, we need to think about the elections, you know, boundaries and martial law in Ukraine. During the martial law, there is no fundamental election. There is no president elections. According to the plan, the parliamentary elections were supposed to be this year and the present elections next year during Marshall law. They therefore they are postponed. So there will be an interesting dialog, how long they will be postponed and what, you know, different players will speak about that, including in Europe. And as we understand also, one of the parts of the war is some sort of censorship, media censorship against Russian propaganda, which I think is absolutely acceptable. We need to return back to more free media after the war. Economic parties, a lot of macro adjustments needs to be done because the economy became shrink by 50% last year. At the same time, the budgetary cost is still very high. You know, the deficit now is very high. The debt is pretty high, public debt.

Vladyslav Rashkovan But we need to come back to the issues of debt relief for the country. And this is also some part of our job, which we are doing, also is an IMF program. Now, there will be a lot done for restoration of infrastructure, postwar economic development. And again, each of these elements, which I am just saying could be a book. You know, postwar economic development. I’m sure that some professors from Harvard books about that, too. You know, likewise, also you know working on how to organize international aid, It’s another book, you know, and there are several of them, about 1990’s, about the 2000’s. And I’m sure they will be one of the case studies in the future. So if you as professors want to analyze it, please do that. Humanitarian part will be also important part, not less important than the restoration of infrastructure, because we need to understand what to do with the refugees, what to do with internally displaced people, and how to integrate them in the reconstruction, postwar reconstruction, how to help them to find the new place, but also how to provide them necessary housing, you know, the schools, medicine, something which they don’t have now because, you know, being part of Ukrainian territory is destroyed. There are more than 700,000 families which completely lost their houses, according to the World Bank. Damage needs assessment. Social. In other part, the important for Ukrainians is how to ensure justice. You know the the issues of potential new tribunal for the for the Russian crimes during the war starting from the soldiers in butcher and they’re paying to the Russian leadership. And there is another another group which is working on setting up these people now, like Nuremberg type tribunal for Russia.

Vladyslav Rashkovan In general, mediating postwar reconciliation between people, between people who were in the occupation, who left the country, between the people from territories which will which will be needed to be integrated, let’s say, in Donbas. When we regain Donbas, this will be very important topic, again, a topic for the projects which could be led by the Harvard researcher, Harvard professors, for sure. And there will be a lot of initiatives coming from, you say, from the US government, to finance, finance this institutional also institutional process. Institutional element is important is how to build this absorption capacity, how to I said yesterday during the panel that the agency, which now is created for reconstruction is in the past was managing around $5 billion per year, a little bit more than $5 billion budget and the needs are hot 400. So you can easily say about 80 years if only this agency will work. So it’s very clear that you need to enhance capacity, how to enhance capacity in private sector, in the government, in this agency, outside of this agency, how to experiment with different agencies, how to do it from outside of Ukraine, inside of Ukraine. Again, this is a topic both for research but important for implementation, technological. You know, what we discussed yesterday during the panel is you need to get lead from post-Soviet standards, acknowledges go more to European standards, which is a big and you need to do it faster if you want to enter fast in the fast track to European Union. But what is important, we need also to leapfrog. We cannot go to the same path like Poland or Hungary, Slovakia, Slovenia, when 20 years ago, if we want, we need not to look to the Poland of 20 years ago.

Vladyslav Rashkovan We need to look at the European Union 15 years from us today. So European Union in 2035, how it looks like because we need to try to get there rebuilding our institutions and that’s why we cannot do it without leapfrogging. Otherwise we will be left behind, lagging behind for so many years. In general. I mean, speaking about, yeah, what is important is that we need to work. Reconstruction means factually all this together in parallel, not consequently. You know, we really need to work on this simultaneously. In general, when we speak about definitions. We speak about the fast recovery which is going now. You know, there is the need for fast recovery this year, around $14 billion. We speak about reconstruction, which is more physical infrastructure, reconstructing physical infrastructure. We speak about modernization, which is more about institutions. But also, you know, the approach is cultural changes in the country. We speak about the structural reforms which are needed, and we speak about EU accession as anchor for us. Again, all of these together, not in parallel, not consequential. Speaking about the figures, we need to understand that our figures of damages, losses, you know, and the reconstruction needs. And what I said yesterday, and this is done now by both by Kiev School of Economics and World Bank assessment that the damages until the war and expected at least on the level of $500 billion as of today after one year of the war, we have $155 billion already recorded, which means factually documented fact of damages for Ukrainian economy. 60%, $60 billion is a loss of our GDP. You know, 290 billion is expected loss of the potential GDP because of low productivity, because of the refugees, because of the damages of infrastructure and economic capacity.

Vladyslav Rashkovan $105 billion is the immediate needs, what the World Bank estimated last time for the next 56 months. And the 14 billion I think is more capacity for this year. What they expect from the government and the and and and the private sector totally. The last assessment is 1411, $411 billion as the reconstruction needs for Ukraine. Together with Barry Eichengreen, together with Genco, we estimated that the reconstruction needs will be at least $750 billion. But if you speak about investment needs for the leapfrogging also to get more than $1 trillion, you know, and this is us yesterday was saying it’s ten plus ten, 15 years at least the job is at the best. What is important and this is another book was differentiating about that , whatever is needs, whatever Ukraine is requesting, what is pledged by the, you know, institutions and the national national countries, what is committed and what is disbursed to a completely different figures. And they are also different from absorption capacity. If you put today hundred billion dollars on the table for Ukrainian reconstruction, there is no way to to to use it for from any perspective, not institutionally operational, even banking sector will not be able to adjust these this amount. Therefore, we need this to maximize, but we also need to maximize these and to to decrease the gap between the figures.

Vladyslav Rashkovan Speaking about the main part. You know, the and this is what we discussed with Ricardo last year during the conference, which we had organized together in the School of Economics in May. There are many embedded conflicts or I would say crossroads for the Ukrainian reconstruction. And they are actually the base for the political economy debates in the country. And I’m sure we can add much, many more, but this is I see much major ones. So the first one is who is driving the reconstruction. I mean, on modernization of the country, is it Western? Was it driven by the by the Ukrainians? I mean, Ukrainians say it’s our country, we are sovereign. So, you know, we will have our future. We own our vision. We own our future. The West says, guys. but we already saw it, already saw it in other countries. How it’s going Iraq, Afghanistan, Iraq, Afghanistan, maybe not the best cases of the, say, you know, but nevertheless, there are other cases, Hurricane Katrina later, they say, about Indonesia. And in addition, in Nepal, Mozambique, Sri Lanka, you know, there are many different cases, some remember Salvador and Colombia, you know, so there are many cases where you can learn something. So it’s not a unique case of the reconstruction after the war. And I think the answer should be clearly there should be Ukrainian ownership and the vision should come from Ukraine, but there should be strong cooperation with other donors. The second is about the the conflict between short term needs and the long term vision. You can have a long term vision that you will have, as we discussed yesterday, Amsterdam instead of Kiev. But you need to fix the roof for hundreds of thousands of people who are staying as internally displaced people and actually not 100,000, but they are 8 million. And you need to find solutions for them. You need to find for them modular housing today. And this is what you and is doing. We are habitat is doing, UNHCR are doing in Ukraine today. Red Cross is doing finding the possibility for interim temporary housing.

Vladyslav Rashkovan As you understand this one, as we have temporary housing with me, let me stay forever. So you need to understand how to balance these in the short term needs with a longer term vision. Later, there is a some sort of rivalry between national players like European Union. We will run the reconstruction you exercise and we. What about us? Canada says. We also want to participate. Turkey says we also participate, you know, and the institutional support in the World Bank says or EIB European Investment Bank will be ready We will be the champions of the of Ukrainian reconstruction find none of them has a capital to do that if you are seeking for a capital. European Investment bank is seeking for capital allocation for Ukraine, World Bank has limits. So factually they also cannot cannot do it. And we need to have more coordination here. And clearly we need to strive for the modernization of the country. There are many other topics. So should we speak more of donors and therefore potentially expecting only the grandson, which is clearly more, you know, desirable for the reconstruction. But there is also a problem of Dutch disease. So if you have an only grandson, you know that you don’t need to work. You expect that others will finance you. Therefore, or you have loans which easier to give. But you need to think what to do in the future. Already. Debt to GDP. Public debt to GDP in Ukraine more than 70% because GDP went down. And last year the combination of loans and debt and brand grants was like the 65 to 55 last year out of these $52 billion. Clearly, what I strongly believe is not loans or guarantees or or grants, the Ukraine can be reconstructed only way of private capital in future, only with investments and how to bring this investment.

Vladyslav Rashkovan This would be the major task for the government. That’s why the structural reforms is so important. I already said about the centralized country versus decentralized, you know, strong capital of western regions. Ukraine is a decentralized country It should be clearly kept. So how to build the capacity in the regions is a big question. Democracy strong hand during COVID. Strong can during the war. I mean, clearly, I mean or democracy and freedom. I strongly believe in democracy and freedom. You know, therefore, it should be preserved after the war. And also what we see now, there is an increase during COVID and during the war, strong increase of the of this of the state, the state’s role in the economy. And I mean this if we if we to put it to the limit and therefore everything will be state economy will be small state economy versus big state economy on the on the nature of small stuff, the economy will always lose to the state, the state economy. So for the small, open liberal economy, supported by the, you know, economic freedoms clearly will win towards the, you know, the state economy. Last year we developed these more or less mechanism. We’ve we’ve Ricardo in London so that I’m like frame which many people found it is as relevant. There are some prerequisites which are needed for reconstruction. Everybody speaks about the principles of reconstruction is again, the EU as a as  as anchoring. There should be clearly transparency, Ukrainian ownership. If you put all people together who wrote about principles, we can have a big book already about that vision. This is what I said yesterday. So far as missing vision should come from Ukraine. But Ukraine now is more focused on the short term needs again and also on military, how to win the war, the long term vision So far as missing EU accession frame, there is a process to you reframed the junior departments or those department which is working on the neighboring countries, and they’re developing a plan together with Ukrainians recovery plan was there was some attempt to develop it last year before Lugano conference in July. Unfortunately, there was not much  traction about this plan. There is more now fast recovery topics, but other elements which are more important is how to finance, how to build the implementation capacity, how to build the, you know, the governance around the reconstruction, how to coordinate donors. You know, I will be happy to to answer, your questions. There are some slides which you probably will will use for that answer. And one of the question is, do we need to have some real champions or Mr. or Mr. Marshall, you know, in the future? This is a good question. I don’t know what it should be individual, personalized leadership. And this is about the leadership classes of people, or it should be a more institutional leadership in the current world. This is a I don’t know, but the politicians will play a big role in that because unfortunately, they will have to make so many choices and they will need to think either they will sacrifice their careers or they will make their careers. Maybe someone will make a career also doing the reconstruction well.

Konstantin Usov Thanks for this presentation, Vlad. Let’s follow it up with several questions and then open it up for the audience. You mentioned that the reconstruction in Ukraine has already started. I’m aware of this, but as this fact probably surprises many. Could you elaborate on who has begun the reconstruction? Where? Who pays for it?

Vladyslav Rashkovan Yeah. There are several levels. I’ll give you an example. You know, it was recently in Kiev and I went to two European, which is a city now by Kiev. And you might remember the the bridge which it was on there, all the pictures on the fiscal march seats where people were evacuating from Europe and they were under the bridge totally.

I think something like 90,000 people moved from European to to Kiev under this bridge in the next days. So I was staying in front of this bridge and I created such like a metaphor, which I think Ukraine looks like this bridge today. So the the main bridge is still destroyed, like Ukraine. On the right side, the Ukraine, Ukrainian authorities, Kiev authorities, European authorities, they built an interim road there on the the bottom of the of the river. It’s a very, very small, very narrow. But it’s there the cars they’re using, it is how Ukraine is tackling fast recovery today. And on the left side of this bridge, the new bridge is already under the construction. You know, and this is how Ukraine already starting is still far from palatial. But this is how Ukraine already started. There are only two questions. When this bridge was started building, was there proper tender process? I simply don’t know. And the second is, and the builder is a Turkish company, which is also interesting. You know, just in general, we appreciate all the investors. And the second part is, is this bridge built according to the 21st century standards on ecology. Will this road be prepared for self-driving cars in the future? You know how many CO2 emission was spent, you know, for the you know, for this bridge? I think nobody was asking these questions. And this is not a modernization. You know, this is going back. What we actually tried to recover the bridge, which was before. I mean, spending money, if we do that, as I said yesterday, I think it would be the the crime of the 21st century. We really need a chance to rebuild the rainy weather.

Vladyslav Rashkovan So if there will be no this faster recovery, which is starting with energy. You know, the Depression was attacking them for their missiles, were attacking the Ukrainian energy system, and only one of the November 11, there was one go out of the generation and the city was damaged was if this will not be recovered before going to Connecticut, will not be investing in the recovery. And they will, with the money of the government, with most of the money of the dollars. Yes, there will still be too many of the you know, if they will not do it, there will be very strong electricity shortages in some parts of the country. If a few days ago you started the export of which you suggest. So it is, you know, while in December we had a huge this huge you know, so we are what I mean we are recovering that you know you know, recovery is fast recovery. No single foreign leader will be able to come to give but train by the car because it was well, if there will be no recovery, it will be very into the mobile connection because the Russians were getting also the the thought was about power. So all these are being done by the private sector. There didn’t up we were in Kiev and the ceremony when you were met with visas, one person from business said I had the these two warehouses total value of 70 million. The site both ruined one. I will use money for another one for the new project. This is one of the projects of mega you know, of ensuring and you investments in one of the part of this and in I was I have one company we are ready to build office.

Vladyslav Rashkovan So these are not only the economy, but also the investments by the companies. So both businesses got a one from the budget and the financing from the economies. If this part of the economy is contributing in fostering a female cycle, you cannot rebuild the country with female cycles. We still have some longer than we want to do.

Konstantin Usov Just to clarify, are you aware of Spain from the bridge? The capital loan? Got it. My question to you, should there be capital expenditures in a quickly engineered and quickly designed capital projects in Ukraine? At this stage with my which might end up as being as outdated as something that has been destroyed before.

Vladyslav Rashkovan The answer to this question is a little could be a little bit provocative. I would say even more. Even if there is a huge risk that this may be even destroyed tomorrow. It’s still to be built. Okay, You know, because, I mean, you should do it. You cannot wait. What if there will be a missile tomorrow? You need to act. What if you win tomorrow? Not if there will be a missile tomorrow. So therefore, I mean, do you need to invest as if this is like the old technology? So, again, I told you about this conflict between the first, the first needs and the longer term vision. If we will stick to only to the first answer, you know, therefore only for the immediate danger. And we do of everything only for immediate need. So there will be a, you know, a problem for the future. We will spend a lot of money, but we will not rebuild the country for the future.

Vladyslav Rashkovan I give you again, we’re speaking about the political economy. Therefore it’s more choices of people. Give you an example. You are internally displaced person one Internally displaced. Person two Internally Displaced persons one go to temporary house, modular house. So now you build a new house. Who will you bring that house? That who doesn’t have a house or who has a modular house is a choice.

Konstantin Usov Just another piece of information. So there is there was no traditional peaceful due process to procure the construction of that bridge that you mentioned. What’s your stance on this balance of meeting the sense of urgency versus meeting the due process that would, in its turn, project our readiness to be transparent better than yesterday and reliable?

Vladyslav Rashkovan Yeah, you know, the this is a again, a very interesting question when you look at today for today today for today, you always say for sure it’s important to build today. Because you still need it. Therefore, your choice would be Let’s do without any tender procurement, any, any contracts, etc. If you find yourself with any tab mod that that moment of life for you, will all of us choose that option because we need to do it today. If you start including a little bit of, I will show you what exactly these elements are, which is my model of the Public Financial Investment Management. PMA. This is our development, see, you know, including climate. This is the model which I developed, but it is actually including several models. So we start from this assessment today. You do the strategy improvization today, for the future. You know, you do programing. So you’re saying we need to build city number X or we need to build them. You need to build the the airports.

So if you start today asking, do we need to rebuild this city or this airport? I would tell you, let’s think one second more. Let’s put people, urban planners from Harvard, let’s put the you know, the the people who do strategy from, you know, MIT Media Lab, CityLab. Let’s put someone from Amsterdam putting them together as a team to think of it. And then when you say, well, we said there is no time, I will tell you that this already 14 months of the war and 13 months ago we had already, who should have started that? Not today, but if we didn’t do it 13 months ago. We need to start it today in order to be able to to build it, because this process, because procurement only goes here. Point number nine. Before that you should have done a lot of reprocess that bridge probably for interim. You didn’t need any thinking more, but for the main bridge, probably you need.

Konstantin Usov Just to build up what you’ve mentioned. So the Harvard Growth Lab institutions like these ones, what should be their role in designing the policy, implementing the policy and supporting Ukraine’s efforts to recaim itself? And the fact the second part of it is a little bit more provocative, do you think that there is enough open mindedness in Ukrainian wartime government to build a cooperation with such organizations?

Vladyslav Rashkovan Answer to the second question for sure, yes. Because when you say government, I hope you don’t. I don’t mean only central government, because I said a few minutes ago it should go also on the regional level and therefore to the mayors, you know, and the mayors, why not? The mayor of Kharkiv would not be interested in cooperating and thinking about it, it’s future planning. You know, but speaking what can be done. And this is a more practical question, but it’s not “what if.” There are 50 plus think tanks in the world already engaged in Ukrainian reconstruction? Some would do that. We were discussing with Ricardo how that can be implemented. There were some ideas before about the the evidence based policies, about the thinking about future European Union integration and therefore, which regions of Ukraine may be more integrated to the European value chains and therefore trying to work together in a targeted way with a with the company staff.

Konstantin Usov But just for the sake of truth, the Harvard is not engaged yet.

Vladyslav Rashkovan Yeah. And this is what I’m what I was saying about the the championship, you know, So this is like a do we need a champion, you know? And the academy remember part of this slide, you know, from last year, But you see the number of faces increasing, you know, so there are different people who can who can play some sort of role. What EFA is a question I don’t know if you’re if you know that and again, taking out all the potential, you know, association which probably that time it was not super successful. But in the early nineties there was a Harvard Institute for reforms in the emerging markets and it had a pretty big budget and they were trying to convey the messages about the different economic policies which need to be done in the country. And the true saying that time I think it was a some conflict between the IMF and this institute in terms of messaging about the reforms. But for reconstruction, we don’t have such an institute, we don’t have such a champion outside of Ukraine, which would be a intellectual center for the for the reconstruction of Ukraine, for modernization of Ukraine.

Vladyslav Rashkovan Why it cannot be and I would not say Harvard. I would say Harvard is here about the science pool, you know, because it should be still, we are not in Marshall plan concept because we still have European Union in the US. Why not? And this center could be properly financed, could play a role as intellectual center for the reconstruction. And who could unite all those think tanks outside of the country of who would help, you know, other countries like European Commission and the IMF, World Bank, EIB, to build this kind of intellectual support, because intellect is here, politicians are there and intellect is here.

Konstantin Usov I was so glad to hear that mayors are ready. Is central government ready?

Vladyslav Rashkovan Yes, sir. Also, we were discussing this during the spring meetings, we had several discussions on the topic. So far, the initiative is coming more from companies like BlackRock, Jp morgan, Goldman Sachs, and other than from Harvard, Yale or M.I.T. But I do hope and I do my part of the job in order to institutions, to academia, also to come to play the role.

Konstantin Usov Thanks Vlad. So we’ll now open the floor to questions. If you have any. Just raise your hand, please, and make sure to introduce yourself.

Attendee Hello. Hi. Thank you very much for the talk. I’m from the Growth Lab. And I was wondering about the one aspect that I don’t think you’ve delved into so much, which is maybe what you would call the demographic reconstruction of the country. You know, beyond the unfortunate casualties of the war. There’s a lot of people who have left their countries, especially women and children. Now these people are building lives of their own wherever they can. I was wondering how you think about the role of this new Ukrainian diaspora in reconstruction and how you would want to engage the world So, you know, just build a case for them to participate in that reconstruction.

Vladyslav Rashkovan You’re more thinking after the war ends. Yeah, we discussed this issue slightly yesterday during the during the panel, and I was sorry for for not mentioning this. I mean, and I said yesterday that as a result of the war, clearly we will have several important new social groups. One will come from veterans. And we may speak about probably a million people including volunteers, some veterans. We will speak about the families of the fallen soldiers. We don’t know the figure today, but it would be small. We will speak about the internally displaced people, which is around 8 million people, and we will speak about refugees. These four groups, I mean, they will create another conflict between socialism and capitalism and our crossroad, because clearly there needs to be most is social. And the government and politicians will tend to address their immediate needs rather than to create out to think more about the longer term because the immediate needs of these people will prevail. And I understand politicians. For the refugees. What you could you ask specifically the I’m working with UNHCR, which is doing with help of some Ukrainian social sociologist service but permanently you know, in different countries what they are going to do. The figures are showing that more people will spell the broad spend abroad, the more they will make a choice for their kids. The. And to give and what they need back. They need security. They need housing. They need jobs. They need medicine and schools. All of these things. And again, as I said about the social things you can try to do faster, but even fast, it will not be fast. You know, unfortunately, you know, but you can do it really fast trying to do this.

Vladyslav Rashkovan Like for schools, you need to build down schools or rebuild the schools to make the bomb shelters. Because people come back, and especially those who are out of the country, they are putting those people in the schools to be open that they need to have. But at the same time, I think what is slightly missing is an essential. So, you know, you may eat the grains because in the case we are more online. Online schooling, how to do this is the question.

Attendee Do you also have proposals, you know, how to what are the lessons from other case, other conflicts or how to keep students, you know, kids integrated with Ukraine or over the country of the conflict?

Vladyslav Rashkovan Uh, in the longer term, even if they stay outside is the question is a task you know, for the, for more for academia, for research and, and the politicians to take a decision. Politicians can take emotional decisions, but hopefully they can make decisions which would be in all the evidence based and based on the some previous research. Answer to your question what to do next, though? I don’t think the answer is how to work with diaspora. So I think our factor is that anything which can bring people back. The answer for me is the opportunity. So for the for the parents, you will need to make sure that they will they will be a job for them. Plus all what I said before. And as soon as you do these things which we discuss about political economy, you you are politicians. So who will you prefer first? Those who already stayed in Ukraine or who left the Ukraine to build one house? Who you will give it to? One who was in Kiev staying during all the years, during all the year of the war or the one who left the country? It’s a question for political choice because maybe you will not have $2 to build two houses, or at least you will not have $2 in the of the moment of time you will have one after another. And it’s still a political choice. How you sell this political choice is another after how you work with your European colleagues in Poland, who is really happy to have a million of Ukrainian workers there and ready to integrate them in the all the economic policy in button in Poland, in Germany as well. Secondly, your study kids who know German or Polish. It will be more and more difficult to reintegrate them again and search for this opportunity and opportunity link for reconstruction. We discussed that, that this will be a huge challenge and for any professional, it would be a dream to participate in this such a big project, especially if you are patriotic and want to help your country and also if it’s paid for.

Konstantin Usov Real quick, since so since my family’s here and we are really considering and I’m going back for sure the summer and I’m also considering taking them home, I would say that the the the factor that I’m hugely analyzing is a factor of certainty. So I would say that I would ask you, do jobs together with housing, together with education, health care constitute the notion of certainty? Or there is something more to it?

Vladyslav Rashkovan I think we live in the world where certainty becomes this word, very rare in general. So we live more in a very vulnerable and uncertain world, longer with further to go in the future, more uncertainty. It doesn’t mean that you don’t need to plan, though. You know, as I said, that you need to strategize more. You need to have more scenario approaches to be ready for a good scenario and better to not need to have a contingency planning what you do before. But what I see is Ukraine is fighting not only for its own independence, as we know, you know, because if Ukraine loses this war and the scenarios are different, you know, we believe as Ukrainians, it will not happen. You know, but the it is very clear that the West will lose as well, you know, And therefore, we I think everybody understands in the West it’s not only our war, it’s really the war of the West and of the humanity of humanitarian values. You know, the the open liberal ideas and the democracy against of everything, which is could be antonym to that.

Vladyslav Rashkovan Therefore, I strongly believe nobody will want to live in Syria type or Aleppo type in the country in the center of Europe. And there will be a huge exercise for European Union also to contribute for its own, you know, rebuilding, because it will be, let’s be frank, it will be a big business for the European business financed by European capitals, you know, by by different types of bonds which can be issued or or other things. Again, it will be a topic for European politicians how they want to behave and participate, position themselves in the future history. You know, so far, most of them probably except the few leaders that clearly show that they want to be on the right side of the history. And I think after the after victory, they will continue to do that as well.

Konstantin Usov More questions for Vlad? Professor Hausmann.

Ricardo Hausmann So thank you. Thank you very much for a very broad and encompassing presentation of the many, many issues. We last met in person last May. Since last May it’s been, say, ten more months of war or 11 more months of war and and also of articulation of the international community. Questions. In the last, whatever, 14 months of the war, what have we learned about the willingness of the international community to support Ukraine? And what does that tell us a little bit in terms of a is how solid is this report? Before the plan just shared with us?

Vladyslav Rashkovan Because of the all the all the reasons which we discussed with you last year, all month, it was about the, you know, the rest of this. Nevertheless, Ukraine got $52 billion in support last year. Last May we were only pretending that it will be $5 billion in mothballs. And even if Ukraine did not receive any single month, $5 billion. The maximum was, I think, 4.4. Nonetheless, $52 billion was there and already for this year and last my last May, we didn’t have any perspective so far. We need only we knew only the amount. What we need now, already in February, 50 plus billion dollars was committed for this year. Now in the in we are in April 2004, 11 months later we have IMF program which last May was not possible. The fund never financed the country in the active part of the war. And you may say about the period of 2015 when the fund did finance Ukraine, but that time the concept, the Western concept, was that the war already finished and there is some conflict on the east, which is, I think, one of the misconceptions of the West. Then I was telling today that in the morning to the poor, the Ukrainian students and therefore but the $15.6 billion of Ukrainian support is almost nothing against the total package which the Western countries already committed as a anchoring government program of total $115 billion for the next four years, which already committed and embedded in IMF program. So there is a $115 billion commitment from the G7 leaders to finance Ukraine in the baseline scenario. In the downsides to that and beyond is a dream written in the IMF documents. This is one thing which is done. The second element which is done, and we were discussing last year about the need of coordination of donors. And you remember how donors were saying there is no need of coordination. We are very well coordinated. They were not. But these December G7, after our push for many months, the G7 leaders said there is a need of coordination. And in general the G7 multi-donor coordination platform has been created for Ukraine. There are already two meetings. It still to be improved, but the process is there. And without this platform to be very hard now to coordinate the the international aid for Ukraine. The European Union, Ukraine in last May didn’t have any perspective for European Union. It became, though, the candidate for European Union with some expectation of the plan, which is hopefully will come this year. And there is an intensive discussion. And there, as I said, the Junior Department of Labor and the neighboring countries in the European Union, European Commission, they recently restructuring to have really, you know, a lot of people to be focusing on the Ukrainian integration, Ukrainian accession and also on Ukrainian reconstruction. So there efforts, US..where they discussed last year grants versus loans, U.S. asked grants and they provided grants we discussed through which we’d cost will be IMF World Bank special because Ukraine does give money directly. They use the World Bank multi-donor fund of the World Bank last year it was not there and they use the instrument. Moreover, the IMF created administrative account for that and they are $5 billion for that account.

You know, a lot of money went through the World Bank account. And the more a World Bank does the certification of this money. They work well as a unit which works with the Ukrainian government in order to to cooperate, you know, to to certify the money. And they later certified this to the Congress. And only after the certification from World Bank that the money spent, according to the guidelines from the Congress, the next tranche is coming. The US created the inspector general. You know, there are four inspectors general who already came to Kiev separately. At least there is a report from January. I think they came twice to Ukraine, maybe once or twice, you know, and there is a teams which are built now for the for the inspector for analysis of the of the support function is the support of Ukraine. So there is a lot of institutional building around the construction process is ongoing. In Ukraine you have vice prime minister on reconstruction who became a direct counterparty for both for you asked for European Commission. You know, there is the agency created for reconstruction. We discussed last year how it’s better to be done. We wrote about it in the article about that, how  to build this agency. Yes. Is built not outside of Ukraine, but inside the Ukraine. But they know that article impact that creation and agency. And I worked with a directive of a head of agency in order to structure it, you know, now. So there is a lot of institutional process behind the the money came. Money will be there. Also, there is some portion of money already committed for reconstruction itself. There’s $1.5 billion from U.S. that is 1 billion from you, 400 million from Japan.

Vladyslav Rashkovan So there is a process these money are not compatible with, you know, the needs of 111 billion. But as I said, there are also the working groups on Russian assets on the on on on other elements of the reconstruction. Therefore, you know, a lot of things changed from last May. And it seems that it looks like the West is ready to support and commit to the Ukrainian reconstruction.

Ricardo Hausmann Any comment on within the West who are the outperformers in war, the disappointments?

Vladyslav Rashkovan We have thanking all international partners for support. And I would love to have a topic maybe here at Harvard, the role of Asia for Ukrainian reconstruction or the role of Middle East for Ukrainian reconstruction, because so far it’s really in the West. I mean, within the West, you go to the IMF now to the Ministry of Finance website, and you see clearly a few figures. First is the is money from U.S. and the European Union. The first investor I mean, first of all, of Ukraine, today’s IMF, Japan now committed $5.5 billion to the G7 president, which will be which will be disbursed for quarter this year, first quarter next year. U.K. did a lot and Germany provided 1 billion grant last year and other contributions for European Union World Bank money. And later, you have EBIT in AIB, but they are mostly financing the enterprises. And one of the elements which I said also today to the students, to Ukrainian students, is we need to build a proper digital system to track money because so far we can track only the central government money. But we don’t have a view on what is given like between Twin Cities in in-kind support, for example, or even like money to the state owned enterprises as loans. We don’t see the in the in the government official statistics.

Attendee Hi. Hello. My name is Felicia, also the growth research fellow originally from Moldova. So thank you for for your presentation. So my question was kind of related to to your last point that of there has been a lot of support from the West. There has also been bilateral support, institutional support. At the same time, there have been some fragmentation within even the European Union. You know, we recently saw Poland or Hungary kind of implementing those unilateral bans on grains. There was obviously also some criticism regarding allocation of aid towards Ukraine at the expense of other either countries or, you know, instances that will not be receiving about aid and that have been asking for it for quite a while. So how does this reconstruction plan kind of take into account what you’re suggesting in your opinion on how does that take into account what the losses might be, both among the West, but also on how it’s incorporating some of that criticism from outside of the West? Thank you.

Vladyslav Rashkovan Yeah, it’s a good question. Speaking about Moldova, you should know that Moldova, in all the programs now and the West goes Ukraine and Moldova. And then this again about the political economy. You know, in the different countries in Poland, you have elections this year. So you make a choice between the local domestic political battles and the some optics of Ukrainian support. Are there any countries which are benefiting from the Ukrainian war in Europe? I mean, you should simply think about two things. If tomorrow there is still ongoing war in Ukraine for a long time and there is a conflict which is ongoing, every 1% of the European GDP is $100 billion, which will be needed to invest, for example, for military.

Vladyslav Rashkovan These are money which will be not invested in the medical, in health, in education and social support of people. And all of these what politicians now saying about the grain that this will be completely wiped out, you know, all the potential short term benefits. And this again, between the short term and the longer term, longer term vision. Hungary is a little bit on different side. You know, they they they chose politically to be on another side of the history. And this could be a longer term problem for European Union because for many aspects, it looking like Europeans Ukrainians are more Europeans now than others since few others. And you know so it’s a complicated. But even with Hungary, you know if we want to be in the same house with European Union, we need to find a dialog dialog with the Hungarian minorities. I mean, if there is a dialog. So if European Union finds a way for a dialog with Hungary and giving on not giving European Union funds to Hungary. So I think we also need to find that do dialog on other issues some more because I think Bulgaria also came today with ideas about the ground and they used the case of decreasing the grain prices, which is actually Ukraine helped Europe with inflation also providing the grain. But now the local producers are not so happy, but the grain is going down in most of the markets. So is the question more about local politics, how they wanted to use the case of Ukraine? They say the politicians say that we will do only the transit means that we will work on transit. You know, there is still a live in so many countries which need the grain. In Africa, which are really seeking for rain. But we will work on that. So I think it’s more short term political, you know, battle, you know, to show more domestically, you know, rather than a longer, longer term problem. On the longer term is this issue between the peaceful plans, between, you know, Ukraine and and between difference between China, between the Zelensky plan and plan XI in plans formula of peace was announced is written that we need to have a possibility to export free and then in in XI plan in St and to facilitate the Ukrainian export especially grain facilitate means what is going on today when you need to agree with Russia you know in Turkey about the what will be done there will be inspections. This is not you know, supporting longer term because it’s limiting our export and including that our export is not only grain, we also export metallurgy and many other elements. We also import many things, you know, and it’s clear that if you import them by buy by ships, it’s easy. It is easier than to do it, to bring it by make trucks. So I think this will be a diplomatic topic is one of the diplomatic one. There is a path to recovery and we will do this, you know, numerous time.

Attendee Thank you. My name’s Bob Powell. I’m a fellow at the Harvard Advanced Leadership Institute. Urban planner by background. I’m really interested in what you were saying about decentralization and the cities and the combination of needing to create a vision ahead of all the projects. So if is all the institutions in place during the war and martial law at the city level to allow that to happen? I mean, if if funds were available to an individual city right now, could that city get all of the right stakeholders together to create that vision so that you then got the platform for all of the rest of the process?

Vladyslav Rashkovan There are few answers to this question. If you go to Kiev, absolutely, yes. Moreover, key is Kiev now worked with UK consulting company, one of the big four on designing the strategy of the of the postwar reconstruction of Kiev city. It is true that he was not so damaged, but still I think it was the right approach to do it now. I was participating, you know, from the first days on these. The result, I was not super happy with the result, but what was go to the strategy. But I think it is better to have it, not to have it. When you speak about other cities you come to, The first issue is a demand. The demand is there. The second question is absorption capacity. If you go to training, if I’m sure you will not find mostly anyone to speak with you. But yesterday, while I was on the panel here at Harvard, I missed the call, which we organized with the School of Economics in Kiev and donors to design the program, which would bring people both in Ukraine and outside of Ukraine to train, to speak on the topics which you said both city planning, strategy, project management, speaking, European Union language, what means to be build back better managers. And this is again, if Harvard wants to play a part of that role, it also would be interesting, you know, because you also need leaders for that as well, you know, but you much more will need people on the lower levels to do that. And the the process will will go. Now, I would say the cities of the second, third year, they missed that element of the absorption capacity. It should be developed for sure and will be developed. So thank you to everyone for your thoughtful questions and contribution.

Konstantin Usov Thank you, Vladyslav Rashkovan, for your for sharing your views and opinions. And I hope that we can all we will all stand for Ukraine and please, please contribute to that.

DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies.

Mamo Mihretu: What I thought I would do is maybe I’ll take 15 minutes, 20 minutes. Talk about the economic reform program that we are implementing currently in Ethiopia and the challenge that we’re facing, and what the future prospects and maybe what I thought would be useful is also talk a little bit about lessons about policymaking. I mean, the technical thing know, I’m sure the theory and everything you learn it here, but you know, in practical terms it did what you know, how the policies formulated and what are the challenges. And I want to just try to share in a few lessons on that as well. But I think a good place to start would be, as Andy mentioned, to talk a little bit about Ethiopia’s economic development gains, because here we are at the public school. You know, let’s talk about development. So I think it’s very good to start by acknowledging the gains that we’ve made over the course of the past two decades, before we talk about the challenges. In the past 25 years, Ethiopia made significant progress in terms of development. Our economy has increased significantly over the past 25 years by almost 15 fold. Now, the Egyptian economy is the third largest economy in sub-Saharan Africa. Next to, I believe, Nigeria and South Africa is the 3rd biggest economy in the African continent. And this is not just growth. This growth was translated into meaningful gains in terms of, for example, human capital, in terms of access to basic services. So it’s not just growth. There is also real impact in terms of other indicators, particularly poverty reduction. So, for example, 25 years ago, poverty rate in Ethiopia was close to 46%. Now that has declined to 20%, less than 20%. So there is meaningful progress in that regard as well. Areas of life expectancy over the course of the past 25 years. Life expectancy has we have achieved across the ten years increase in life expectancy. And again, this is not small achievements and it just grows. It is actually affecting the lives of everyone in Ethiopia. In terms of education outcome. If one looks at increasing literacy rate, there is substantial improvement as well. You know, 20 years ago it was close to t27% and now that has improved to 60%. There are also significant improvements in terms of making and access to electricity reachable to Ethiopians, and it increased from 15% now to almost 50%, five zero. And, you know, 50% of our population now have electricity. And that is because of the significant investment that went into the power sector, into the energy sector in Ethiopia. You know, Ethiopia is currently, as you know, building the largest hydroelectric dam in Africa, the Grand Renaissance Dam, which is an important project. And that would substantially increase access to electricity, electricity to not just to people in Ethiopia, but also beyond Ethiopia, to the neighboring countries. The project is more or less completed. It’s 91% complete. Now, it costs us close to, you know, 5.5 billion USD, and it will be fully completed next year. And when is completely completed, it will generate close to 5000 megawatt energy that would fundamentally transform the energy sector in Ethiopia and in the region. So a significant investment in access to electricity.

Mamo Mihretu: As with the agriculture sector, we’ve made substantial progress. Most agricultural output and productivity has increased, particularly in maize and wheat. This year, you know, more or less we’ve achieved with self-sufficiency part of it because of the crisis in Ukraine. You know, you have to look inward inside and we’ve made substantial effort in terms of mechanization and cluster farming and really inputs supply. And that led to significant improvement in with production. And we are able to travel to achieve self-sufficiency substantially in that regard. So there is substantial development gain over the course of the past ten years. Now, a key question to ask is we know what is the driver of economic growth in Ethiopia over the course of the past two decades? You know, how do we finance our development? I think that’s a very important issue. And in our analysis, for most part, the economic success was made possible through mobilization of financial resources for what you consider to be priority sector and public projects. And internally, for most of the projects that we implemented, particularly public infrastructure projects that we implemented, the source of finance was the largest state-owned bank, the commercial bank of Ethiopia, which by far is the biggest financial institution in the country. So we were able to mobilize resources, saving from the public and channel those resources into priority sector and in the public projects. Second thing is we also borrowed significantly from external sources. So there was significant external borrowing, particularly from Chinese development financial institutions. So there was significant borrowing from Chinese EXIM Bank. Some extent it’s not as big as China’s EXIM Bank, but there is some borrowing from China’s development bank as well. So financing, external financing from Chinese Development Bank. In addition to domestic finances, lead to significant increase in public infrastructure projects in Ethiopia. And that led to, as you know, significant growth. And we were able to sustain that growth for a while. But, of course, you know, this model of financing development at some point reached its limit, and that was reflected in the macro imbalances that we experienced. You know, for example, the projects that we financed through domestic finance and external borrowing largely served the domestic economy and didn’t generate sufficient foreign currency. And because of that, we had faced some difficulty, you know, some liquidity challenge in terms of servicing our external debt. That was one of the problems that we faced. Second thing is in terms of the finances of budgets, we resorted to monetary financing. So the National Bank of Japan was financing part of the budget deficit. That led to inflationary pressure as well. A third thing because much of the credit in the economy was going to priority sectors and also to the public sector. The growth and the investment for the most part was driven by capital accumulation as opposed to, you know, productivity. Particularly the role and the participation of the private sector in the economy was not significant. Which directly affects our job creation agenda. So we have this problem of access to finance, particularly to the private sector. So this was the problem that we faced, although there was a positive story of development, although there was a positive story of that growth translating into meaningful poverty reduction and a meaningful investment in human capital and public infrastructure projects. At some point it reached its limits. So at that time, you know, coincidentally in Ethiopia, there was a change in government. This is very important to note. Not everything is technical, but there was a change in government. And with the new administration, there was opening and pragmatism to look at things afresh and with new attitude of pragmatism and sort of experimental mindset. There was an opening to confront our problems, particularly the problems that I outlined. And that led to some reflection and some diagnosis to really to develop a strategy and economic reform plan that would address some of the macro imbalances that I described. So what we did at that time was that was some time In 2018, April 2018, we started thinking through, you know, what is it that we are facing and what we should be doing? And a team was formed, you know, from experts, from the Prime Minister’s office. At that time. I used to work at the office of the Prime Minister and experts from the Ministry of Finance, the National Bank, jointly. We came up with a strategy of trying to understand today a meaningful diagnosis of our problem. So that process led to the conceptualize of what you called at that time the Homegrown Economic Reform Program. So we developed an economic reform program, sort of medium economic reform program. And the objective of that program was really to address the macro imbalances, including the foreign currency imbalance, the high risk of external debt distress and also vulnerability in the financial sector. Because remember, I was saying that much of the domestic projects in Ethiopia were financed through the Commercial Bank of Ethiopia and eventually the inability of the public commercial companies to pay back their debt led to financial sector vulnerability as well. And the high inflation, and lastly, the limited access of credit to the private sector. So those were the challenge that we identified that we told at that time is that we need to find a solution for. So basically, the Homegrown Economic Reform Program that we developed at that time was aimed at addressing these imbalances and these concerns. So we developed the economic reform program, and essentially the reform program, unlike previous programs in Ethiopia, attempted to be comprehensive. We had developed different elements, different pillars to the reform program. The first element of it is to look at the macro issues, you know, what to call the macro pillar of the reform.

Mamo Mihretu: Second thing is to look at the structural issues and third we want to look at the sectoral issues because we want to really look at sectors that are growth enhancing and we want to do additional work in terms of stimulating the productivity of this sector. So as a macro element to it, you know, structural element to it and also central element to it. On the macro front, our goal was, first of all, we want to step up efforts to improve public sector finance. We also did a number of activities to correct the foreign currency imbalance. And at the National Bank, there was effort to modernize the monetary policy framework, which I would explain a little bit. And also strengthening the financial sector, particularly the biggest bank in the country, the Commercial Bank of Ethiopia. So in regulating the financial sector and effectively towards financial sector, vulnerability was an important part of the reform effort. And finally, we want to develop capital in financial markets broadly. So this where. You know, elements of the reform programs that were clearly outlined that we had a clear strategy for. On the structural reform aspect. Basically, the goal was to try to, first of all, is to let private sector participate in the economy. And we thought we would do that effectively by improving the investment climate in Ethiopia, by addressing regulatory policy, administrative barrier to much robust participation of the private sector in the economy. So there was a broader agenda of improving the investment climate, you know, things like the cutting, the cost of business registration, improving access to credit, you know, generally trying to rationalize and streamline the bureaucracy to support the private sector. Also in Ethiopia, there are two important sectors that would, you know, important play in terms of enabling the private sector. These are the energy sector and the telecom sector. So again, we did we did a lot of work in those two sectors.

Mamo Mihretu: In the telecom for a long time in Ethiopia, there was only one telecom company that was effectively a monopoly in the economy. So we followed the strategy of giving new license to global telecom operators. And also now we are in the process of partially privatizing an incumbent telecom company. The idea would be to support digitization in Ethiopia in that respect were fairly successful. Power sector is an area where there was a lot of investment in Ethiopia. Much of this aid, much of the domestic borrowing and external borrowing goes into constructing new hydro projects. But there was a deal that needed to happen in terms of tariff reform because Ethiopia electricity tariff was cheap. So we want to make the state owned public energy company competitive. So we undertake a tariff reform program which is still continuing. There are also other said sector reform program. So in short. We had a problem that we need to confront. I think we looked at it properly and in response to that, we came up with a different reform program. That was substantially different in terms of its orientation, in terms of its content and in terms of its comprehensiveness. I say that because in terms of in terms of orientation, the goal was to move to what is an economic model that has a healthy balance of private and public participation. In the past it was dominated mainly through public investment. Now we want to increase the participation of the private sector as orientation towards more productivity, towards more active participation of the private sector. By content, I mean we we didn’t really confine ourselves in terms of macro reforms to also try to look at structural and sectoral reforms. And by comprehensive and integration. What I was referring is just not to look at, for example, reform of the vehicle sector. We want to integrate the effects of reform with the fiscal reform, with the monetary policy reform, so everything has to tie together. So that kind of approach is what we followed. But of course, you know, having a great plan, perfect plan is the easiest part of, you know, the reform journey. And I’m sure when you go back, whatever you want to go back after finishing, you’re still here. You’ll immediately see this easy to develop reform program, it’s easy to identify what the concepts and the problems are. But when it comes to implementation, all sorts of things happen. I mean, nearly every time you start implementing a reform program, things go. You know differently. Nothing goes according to plan. So I mean, I remember, you know, the sentiment that it had, the images that we had and the ambition and the hope that we had when we developed and conceptualized the reform program. Once we did that. I would say six months in the implementation of the economic reform program.

Mamo Mihretu: All sorts of things happened in Ethiopia and broadly in the world. I mean, the first thing was the COVID pandemic. The COVID pandemic happened six months after the start of the implementation of the reform program. So things that we didn’t expect came up. So we have to really think of, you know, what are the risks? What are the unknowns? You know, what with would this reform program go wrong? Should be consistently embedded in your thinking. And that’s exactly what happened in our case. So in short you know, after the development of the program, we faced a cocktail of compounding challenges. Something we never expected happen. So like I said, we talked about the COVID pandemic, but some of it are external focus, some are domestic focus. Some are short term by nature. Some are structural. So I would list, for example, you know, the pandemic, the COVID pandemic, and then immediately after that, unfortunate for us in Ethiopia, a very tragic civil conflict and a protracted civil conflict that started immediately after Covid. So that also really, in some respect probably a conflict in, which of course, nobody could really anticipate. And then, of course, the disruption of the global supply chain and transport network. And after COVID globally, you know, China closing down and everything that follows had a significant impact on the Ethiopian economy. Of course, most recently the Russia-Ukraine conflict and its intended impact on the price of fertilizer, on the price of fuel had a significant impact on our economy. And, of course, you know, because we live in the part of the world that’s prone to climate shock. We have recurrent droughts. So this long term challenge of climate shock invariably affected us. So this crisis. It will never go away. So, I mean, surely there is a suspicion that we will address it. But I think now we are used to this kind of crisis. So all of this compounding challenges affected the pace of our reform program. So it has it has caused a heavy toll affecting, number one, domestic economic activity. Clearly, it affected prices, but so inflation become a structural and persistent macro challenge in Ethiopia. It affected our budgetary outlays. It affected monetary development. And finally, of course, it’s also affected balance of payment. And so there was this this this impact that we have to grapple, we have to confront to try to, you know, take the economy on the growth path. So the impact of these reforms inevitably played out, as I say, in the balance of payment, making the structural reforms and improvements of the policy framework even more urgent. But very, very difficult task. There is buzzword, resilience, you know, building the framework for long term growth. Those things are becoming really, really important because the reality is once you start a new reform program, you know how things turn would be completely different. So this crisis upon crisis had had a significant impact on our reform program despite our initial ambition, given the immense scale of the shocks that we faced. We had to adjust and we have to constantly improvise. For example. You know, once we started the reform program, there was a plan to move towards the powers of fiscal consolidation. But the degree of fiscal consolidation has been less than initially planned due to exceptional spending needs as a result of COVID. And that’s in our unique case, is a result of the conflict. So we went exactly opposite direction of what we thought we would achieve.

Mamo Mihretu: So as the reform program. In terms of planned monetary restraint. You know, the goal was to exercise restraint, to have a disciplined monetary stance because we want to address the inflationary pressure. But that was not possible in the context of COVID and because the context of high government domestic financing needs, again, there was shortcoming and the shortfall, in that regard. Of course, balance of payments development deviated sharply from our initial plan, partly because of the conflict, and the conflict lead to a significant deterioration of our external engagement and relationship with international partners. The lack of financing from our international partners, international lenders mean it will have significant impact on our balance of payment return. So I say all that, all of this to say that. This kind of unexpected focus would lead to limited fiscal space. And that inevitably will lead to difficult policy tradeoffs. So do we focus on growth or do you focus on tackling inflation? Or do you focus on achieving financial sector health and stability? I mean, these are difficult issues that have clear trade-offs. And all this happened because of, as I said, unexpected crisis upon crisis that we faced. But having said that, I mean, it’s not just a story of, you know, challenged and that we are not in implementing our reforms at all. We also tried our best, you know, to implement reforms that we initially discussed as part of our economic reform programs. I’m going to list a few of them. First thing is, we try to undertake a difficult subsidy reform. So there was wasteful subsidy in the food sector. There was a wasteful subsidy in the oil sector, wasteful subsidy in wheat sector. We more or less, you know, eliminated subsidies in the sectors. And that has a positive impact in terms of minimizing the fiscal risk. We also followed a tight management of new borrowing, and we avoided completely non-concessional debt because, you know, because we really want to address a debt risk. And after this government came into power, we haven’t borrowed even a single dollar in terms of an non-concessional loan. And as a result of that result of this, our debt-to-GDP ratio has significantly decreased. So no to commercial loan for the past four years, essentially. Also in terms of fiscal policy. We developed a Treasury bill auction market that was successfully launched and that provided for us the space to develop a market-based system of financing the market. Because in the past, whenever there’s a budget deficit, the tendency was to go to the National Bank for monetary financing. So we want to reverse that. And we’ve developed a Treasury bill market to really follow a market-based financing of the budget.

Mamo Mihretu: We also created new institutions. We developed a new Capital Markets Authority, and we are about to launch and establish a stock exchange in Ethiopia, which would we hope will provide long term finance to companies. So we are creating new institutions in that regard. There was we also created a new entity, the Ethiopian Investment Holdings, which Andy mentioned, which basically because remember, like when you are in the policy space, when you think about growth, you always are constantly thinking about how do I finance growth? You know, what is the source of finance for growth? So one thing is to go to multilateral financial institutions, but this is not really a sustainable way of financing growth. So we need to find out, find out and come up with an imaginative solution to finance growth and our solutions. That would be to establish a new entity that would take all the public commercial companies. And instill discipline, corporate discipline. So is that the value can be generated both just from new investment, but also by better managing existing assets that we have. This can completely transform the economy because so much there is so much value that can be created by changing the way we do things. So we created this entity as a sovereign wealth fund, basically taking all the public commercial companies and properly professionalizing the management of the companies so that value can be created from existing projects. Value can be created from existing operation of companies. Finally, we opened up the banking sector to voting participation, which was really a decisive reform in Ethiopian context simply because the sector was closed forever. And this, we hope, will address long-standing weakness in the scope, depth and accessibility of modern financial services. So it’s a sort of challenge, but is a story of resilience because we’ve taken a number of reforms that we hope would help assist in the growth of the economy. Just quickly, because I don’t have time so that’s where we are now. This conflict that I told you about is over. You know, we had a sort of peace agreement. Now we are at a stage where we are trying to resume the reform programs that we’ve started. We are in the phase where we’re trying to address long-term structural reform issues. On the back of a peaceful settlement of an active conflict that we had in Ethiopia. And this a good moment really, to deepen those reforms and in doing transform Ethiopian economy and unlock the potential of the economy.

Mamo Mihretu: So my last point, what are the lessons? I’m not talking about economics, but the lessons, practical lessons. Maybe I’ll try to talk about three important lessons. First thing is, in the context of developed markets. When you think of reform, it’s driving the car. Just think of car as an institution is driving a car using existing levers such as the levers of the machine to optimize across variables. But in the context of a developing country, when you think of reform, it’s not just driving a car. It’s actually like building the car, as you drive on the road, that’s not fully completed, while you are arguing with your spouse about the direction. This is a complicated thing, so it’s not like you are working on an existing system in the process. You have to actually build the institution itself and in this case, the car. And it’s not like there is a shared understanding of what the reform would be. You have to constantly discuss and engage with different parties. So it’s really important to talk about not only the technical part of the reform. I think we need to you need to think about how do you mobilize people around you, how do you engage with other people? So take courses in group dynamics, you know, take leadership that’s very important for MPA/ID students. Second thing is and is the second thing is, you know, policymakers need to know how to sit with ambiguity and uncertainty. You know, not everything will pick up and not everything becomes clear immediately. So I think it’s very we need to have the stomach to observe.

Mamo Mihretu: And just 2 minutes and I’ll finish. So to to really absorb and sit with ambiguity and conflict within the group less internally as with. So I think this is an important skill develop. Not everything becomes clear immediately. So I think living with uncertainty, living with ambiguity would be an important skill to have. Something I would say is, you know, most of the problems that we face in developing countries by nature are complex problems. So do not believe anybody who says they have an easy solution for the problems that we are facing. There is no easy solution that some to take solution calculation. And I think it’s very, very important that we learn how to work in a group and that we realize that, you know, most of these issues can be addressed through collective efforts. And you talk about, you know, before, you know, this sense of us, you know, having a sort of a shared understanding, that’s very, very critical because if people are not, we use very, very difficult to solve this problem and most of these things will not solve immediately. It will take significant amount of time. So we can only solve them through time. So in some ways, you know, in our in my experience, solving developmental challenges is a process. It’s a journey, and it’s also a process of both conservation and the process of change. So that is element of conserving what you’ve have achieved. And there’s also note of change because in our case, for example, we tried to build on the past gains. You know, we didn’t really try to sit everything out. So I mean, there was significant progress that had been in the past, but we tried to, you know, identify in areas where that needs correction and we build on it and we try to change it so that it’s keeping it and plus changing it is an important part of a reform program. And I think it’s very important to keep systems in the sense of us, particularly in the countries that is very, very critical. I mean, we try to, you know, start big massive public projects such as the Grand Renaissance Dam. We started the project like, you know, Green Legacy Project. We are planting close to 5 million trees.

Mamo Mihretu: All these projects, in addition to their economic value will be important in terms of forging that sense of us, that sense of that we are in this together and that we will do this together. So in in some ways, the development process is not just a technical process. The development process is a political process because you have to bring people together with you to be able to make progress. Finally, I think it’s very important to realize and the that crisis will never leave us. You know, we are constantly confronting one crisis after another crisis, and I think we have to be comfortable with living with the crisis. And I think the critical thing is to try to build the foundation for future resilient growth so solving crises will not be possible. And finally, as public servants, as leaders in the public space, we need to have experimental mindset because, you know, when you develop our economic reform program, we never thought that, you know, all this thing will go wrong. But the reality is everything went wrong. So in those cases, I think the most important skill to have is to try to, you know, to learn how to improvise, you know, try to learn how to adapt, to make change here and there so that, you know, your ultimate objective with escrows was poverty reduction. That is just, you know, whatever it is, you can stay on the course. I think experimental mindset you’re trying to do to make decisions, learning from them and really trying to build a resilient system would be an important part of this. And there are more lessons to leave, but I think my last thing would be I that my biggest thing would be development, you know, just not a technical process. It’s a political process. You have to learn how to work with other people. You have to learn how to work people who have differing viewpoint than you. I think that would be an important skill to have. Again, thank you so much.

DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies.

Abdurrehman Naveed: Good afternoon everyone, and welcome to the Growth Lab’s Development Talks. My name is Abdurrehman, and I’m an MPP candidate at the Harvard Kennedy School. We’re delighted to have Professor Ijlal Naqvi, from the Singapore Management University for a session that largely focused on his freshly minted book, “Access to Power.” Professor Naqvi is an associate professor of sociology and the Associate Dean for curriculum and Teaching at the School of Social Sciences of Singapore Management University. He studies governance and development in the Global South, using infrastructure as a lens on state building and the citizen’s engagement with the state on an everyday basis.

Ijlal Naqvi: Thank you so much for that generous introduction, and thanks all for turning out for this talk. I’m really pleased to be here. Abdurrehman said basically everything you need to know about me. I teach in Singapore. I’m a sociologist, and I study the electricity sector in Pakistan. but I use it in social science way [inaudible] So I look at it as a way of how states matter in the everyday lives of ordinary citizens. Right? So that for a good. Thanks to the good folks who invited me, the South Asia Caucus, the Growth Lab, for organizing the invitations. A couple of things that I’m going to talk about. First, sort of this is a sort of problem-driven sort of body of research. It came from very personal experience, to do with the electricity experience for ordinary people in Pakistan and in other parts of the global south. Right. And this question of the things that government does it the order of individual people on a regular basis and to try and address that in some way, those are kind of some of the aspects of what drove this research. I’ll tell you a little bit about what that problem looks like. I’ll give you sort of an overview of the theoretical framework that I put into place to address that, that’s what I call the infrastructural state. And then there’s the empirical work that links up as both has sort of three levels of analysis: one is at the national level and below it you find cities, and then lastly, by the individuals experience and sort of encounter between bureaucrats for service delivery. I’ll close this up with this idea of governance isn’t version compromise. Right?

Ijlal Naqvi: So what is the problem? So we have summarized that is Pakistan desperately wants to provide enough electricity, but it usually can’t. And that’s been more or less true since, frankly, the 75 years of Pakistan’s existence. But this challenge and some version of it as being top of the political agenda or close to it for at least 30 years or longer. And the idea that electricity is important it’s not new or novel to anyone in Pakistan or Pakistani policymaking. Estimated impact of the others providing electricity is about 2% of GDP growth per year, and it’s been a key focus of foreign assistance in Pakistan at least since the early 1990s and before that, as well. Alright, before I get too much further, in this room at least, do you know what load-shedding is? Right? Good number of people are raising their hands, I think. Right. So if you don’t know what load-shedding is, load-shedding is what happens when a country doesn’t have enough electricity. Right. So the way this works is that essentially it’s a rationing mechanism that one area will get electricity supply and the next one will not. So if here in Cambridge you have  electricity, then Somerville is missing out. And when the hour passes, Cambridge’s supply will be cut off and Somerville will have a turn. So this mechanism exists because there’s an inability or whether that’s a simple shortage of the amount of capacity that there is in terms of power plants or a willingness to run them for cash flow reasons. Right. So that’s basically what I’ll be getting into today. And there’s a part of this talk, which is it’s less mystery than tragedy. Pakistan is a developing nation, has no lack of ways in which service delivery is substandard or disappointing or insufficient for the well-being of its people. So we’re not terribly surprised that electricity supply falls into that category of things. So this talk starts to do to look into that in more detail. So I want to think about not just what’s wrong with electricity supply in Pakistan, but also what we can learn by studying it as it exists. So although all the empirical material we present things through with Pakistan, so this chart is meant to summarize that Pakistan line here is just below the line of best fit for GDP per capita for low and middle income countries and electricity losses is a key indicator of the quality of electricity governance stuff you’re talking about. So if you look at the other countries that I’ve called out on this chart of South Asian nations, right. So Pakistan pretty comparable to India a little bit better on this particular metric, doing much worse than Bangladesh and significantly better than all which anyone familiar with South Asia. It’s not entirely surprising. So the capacity governance functions in a very similar manner to a lot of other things that we’re interested in terms of key development indicators.

Ijlal Naqvi: Okay. So the theoretical framework that’s going to be not just like how approaching this empirical problem, but some of the claims. The first thing is to talk about what is wrong, right? So it’s a critique of the dominant paradigm approaches to the governance, and particularly in terms of how to be applied to the power sector governance reforms. Okay, so I’ll do this in three ways. First is that I like to think about the statement of the fields. Second thing is to think about material structure, material infrastructures as a point of entry for studying the statement, how it matters in ordinary people’s lives. And the third thing about how Pakistan works.

Ijlal Naqvi: So this idea of Pakistan works is to take us away from a conception of Pakistan in countries like it perpetually in terms of weakness or lack. Right. Let’s step away from that and think of what it is and to whose benefit it actually functions. So this notion that governments reforms routinely fail. The quote I put up here is from the in Sussex, it’s from 2010, But I don’t think it’s dated. I think it’s still relatively valid. And this big audience, I think it’s worth saying that me at least in how I approach critiques of development. Lant Pritchett, Michael Woolcock and Matt Andrew’s I mean, you’re saying so much and this idea of problem driven, iterative development, when I introduced this as a problem that I want to address, you can see some of the legacy of those kinds of approaches that are that are present. So it ties into why I don’t want to approach this purely in terms of of lack, because you have to deal with what is there and what is present in Pakistan. If we’re going to have an effective approach to addressing this problem, where I deviate a little bit from from that approach is in how useful I think the institutions of International Development Assistance are. That’s chapter three in the book or the article in Journal of Development Studies. If you’re interested in getting more into that right.

Ijlal Naqvi: This idea of the state as a set of nested fields. The critique that I had on the previous slide was very much about formal institutions and governance reform as an approach which focuses primarily on formal institutions, formal in terms of rules oriented. Right. And so the ineffectiveness of that, and particularly what is implemented from a top down matter, that’s what’s really been demonstrated in plenty of literature around governance reforms. So let’s step away from that and away from institutions as a form of rules. And take it towards an idea that is very common in sociological literature, that is. Fields, Right. So what our fields fields are arenas of conflict when you frame it in that manner. There’s a couple of things that get highlighted. One is that it’s about power. And the second thing is that there are other actors present in this field with who are in relationships to each other. So it’s relational and it’s about power and it’s about conflict, right? So the outcome is going to be what results from the jostling of different actors with their own strategic interests vying for advantage within this environment. And then the outcomes of interest, right? These systemic characteristics. They’re emergent, which means that they arise organically from the interaction of the different parts.

Ijlal Naqvi: And this framing, particularly for the state. So the state is a set of nested fields, hierarchically nested like Russian dolls, each within the next. And then there’s a hierarchy, which in my case I broke it down to the visual encounter at public offices, a city level where you look at neighborhoods across the city at a national level, which were really interesting as a provincial perspective, at least within Pakistan. And these levels, the dynamics at different levels are going to inform each other. They’re going to filter into each other and shaping the possibilities for the kinds of governance of thing. The second point that I want to bring up in terms of how approaching a study is to think about the use of material infrastructure. So material infrastructures, electricity is one example. Right. They embody, reinforce and enact social and political power. They’ve been built out by governments and they reflect priorities and imperatives that exist within certain policies at different points in time. And there’s another aspect to them, which is the materiality of the infrastructures in question. By that I mean electricity is different from water, is different from roads, is different from rail systems. Right.

Ijlal Naqvi: So what are some of the characteristics of electricity in particular and how they matter? One is the speed at which electricity will move across space. Literally the speed of light, which means it flashes across space. It annihilates distance. And when an electricity grid exists, all aspects of that electricity grid have to be in sync with each other. They need to operate at a particular frequency. That is the good management of that grid and variation in that frequency. It can be the beginnings of a catastrophic breakdown, which would lead to a cascading set of errors that brings down the entire grid. Right. So this is again, when we’re thinking about the entire space that’s covered and the way that the different. Uh. The different sort of sub-units exist within the whole. Right. I’m encouraging you to think of them as a whole. Right. That they may have different levels of sort of integration, but they’re all part one full. And this will be a test of electricity, in particular in a tradition of science and technology studies. It has a long tradition of being sort of key to modernity and to understanding of how modern states and systems are built out. And one example of this is the first electricity consumer, the prison system. That’s Thomas Edison operating in lower Manhattan. And so as Thomas Edison is building out the electricity grid, the first consumer who’s hooked up to that network is Drexel Morgan and Company, the Wall Street financiers. So Edison is doing two things right. One, he’s always conscious that the grid that he is instituting has to operate at a efficiency or at a cost that is more effective than the alternatives because he wants. Secondly, he needs this person to pay, to bring in the cash flow, which is going to fuel the successful operations of this group. And lastly, he’s bringing a powerful stakeholder to the system, which is established. Right. So infrastructures like electricity are both cause and effect of social change.

Ijlal Naqvi: Lastly, this idea that [inaudible] works. So, the unevenness of the state across its territory at different levels of analysis is not an absence. The state isn’t absent in these areas where you might think of it as weak. It’s very much present, but the terms of the integration of that territory are different in different areas. So I’m drawing an idea here, which is inequality by design, that the inequality which has resulted is the consequence of strategic decision making along the way. It wasn’t a masterplan or a blueprint, but the decisions that led to this kind of inequality and unevenness are conscious and deliberate. Right? So this brings you to the idea that we’re going to study the place as it is, not in contrast to some idealized other. But to look at how it works and whose benefit, ok?. And the argument that I’ll be making here is one about the reduction of relations of domination that exist within the way Pakistan works and the space is integrated into the whole.

Ijlal Naqvi: Right. How do I do this? Primarily in terms of the graphics, or is that for the four years that I lived in Islamabad between 2008 and 2011, I spent a lot of time sitting with the ordinary sort of line officers of the industry supply company. I watched them do absolutely everything that is in the normal purview of their collection. Like when a new connection that you file, you have a complaint, you haven’t paid your bill, you get to reconnect your meter, reconnected, all of that kind of thing, as well as maintenance and the reading meters, that kind of thing, and follow them around to do all that. I talked to people who worked in the electric utilities at all sorts of levels, the policy level, the very, very ordinary level of going around with these guys to read the bills as they write down meter reading, which that system.

Ijlal Naqvi: And then lastly. I worked as a power sector reform consultant on a USAID project, the Energy Policy Project, based on pure water power for a year, trying to implement some of these ideas, which I had learned through my dissertation research and then into that work, as you can probably tell, but that’s another story. Okay. So at the national level, I want to start the empirical portion of the talk where I’m looking first at national level and in the city, in the individual. So the key theoretical concept here is one of state capacity, which Michael Mann talked about in terms of infrastructural power. What this breaks down to is can they state do what it intends to do? Can it actually deliver on these core functions of statecraft? The taxation is one that’s often mentioned in this regard. Just to give you sort of a counterpoint, it’s like what else we can look at. But the indicator that I’m going to be looking at is using the electricity grid as a way to study this challenge is thiis: transmission and distribution losses. So that was the Y axis on the chart that I showed you earlier. And transmission distribution losses are the units of electricity which enter a system. They’re supplied to consumers, but they’re not built. Okay. So that means that no bill is ever provided for a certain number of units which are sent out through the system. So there’s two versions of losses. The first is technical losses or basically engineering problems, which is that you send electrons down a wire. There is resistance. And so you have a certain amount of losses from that point of view. That is 3% or less, by and large. The rest are some kind of managerial issue to do with how this electricity is not being billed. And that’s the sort of governance problem of interest which I’m focusing on. The losses of box number about 20% in 2015. That’s the average across the entire country. And it’s not much different at the moment.

Ijlal Naqvi: All right. That’s the average for the entire nation. Okay. So this chart does a lot of work for me in terms of understanding the national level analysis. So do a little bit of attention to this. And on the left you have what I was just talking about in terms of transmission, distribution losses. How much is billed. And so here you can see the contrast that exists across different regions of the country. These big lines, they represent the provincial boundaries, and the thinner lines are the geographical boundaries of the regional electrical utilities, the distribution companies or discos. So what should jump out immediately is that most of the country you’re hearing here is operating at one level of performance, which is typically well above 20% losses, 30% even in this region in green. This is the Punjab. This is operating much better. So we’re heading in the direction of the claim that I want to make about the terms of citizenship and the incorporation to state are fundamentally different. Right. So here this is the argument that’s being made here. It’s kind of strengthened by the chart of this side. And the difference is if those are units that aren’t built, this is units that are neither billed or paid for. So this is acknowledging that many bills are issued but simply never paid. And the utility will continue to operate on that basis despite those bills not being paid. And here you can see. How high a proportion that is. So this means that like 75% or just 75% of the unit supplied budget are neither billed nor paid. And in other parts, it’s 43% or 64%. These numbers vary, but in the Punjab, the numbers are still very strong that the the people are fundamentally being charged for the activity that they consume and they are paying them. And these. This distinction. Right. The regional distinction for people familiar with Pakistan, this sounds a lot like existing stories about differences across provinces. Right. That the Punjab is the dominant religion. And it is. It’s the most populous, about 50% of the country lives in the Punjab. It’s the most industrialized. It’s the wealthiest. Right. And there I’ll add a caveat that Karachi Electric, this little corner down here serving the city of Karachi is kind of an exception to both the study and the general terms of the argument that we’re making here. I can talk about Karachi separately, if you’d like, but this difference in sort of the terms of incorporation for electricity versus for the Punjab versus the rest of the country, people are well aware of it in the sense and you can see it reflected in, for example, the below two regions that I just mentioned, where the electricity infrastructure is an explicit target of the insurgents in Baluchistan, whose grievances include the specific fact that their resources are utilized for the benefit of other aspects of the country from whom they feel that they don’t sufficiently benefit. Right. They were then the targets of some of their actions have included the great infrastructure that’s based there. Right.

Ijlal Naqvi: So we could also take away this title. And if we weren’t talking about electricity. We could be talking about almost every sort of governance indicator of interest in Pakistan, Right? They have this similar pattern of distribution across the space. If it was maternal mortality, for example, or functional literacy in fifth grade, it would have a roughly similar geographic distribution across the space. Okay, So one thing to mention is that most of the resources which serve power generation, in particular, the power plants, those are located elsewhere in the natural gas and also the hydro electric power plants. Right. They’re not located in the Punjab, which is the sort of density of population and economic centers of the country. But the power generation sites are elsewhere. And so this is a picture from a flight out to a dam located in South Waziristan, and it’s called Gomo Zam. It’s a small dam, but it illustrates some of the things that I’m interested in. So you can see the landscape, which is very harsh, very arid. And this small multipurpose dam that’s built there, there’s a reservoir that’s filling up. This is water that can later be distributed for irrigation, such like the Chinese flag there for the Chinese contractor that’s working there, paid for by USAID on a Pakistani government project. And this is the other the view of the dam from the other side. It’s not fully complete at the moment. It’s not generating power, but it is working in terms of flood control, which was very relevant that year, because in 2010 there were floods for which this dam already served its purpose. And then downstream will be the areas which will benefit from the irrigation. Right. So that dam only generates 17 megawatts. It’s not a big deal in that sense. This is Sahiwal coal fired power plant. This is 1700 megawatts. This is a big deal. It exists in this town called Sahiwal, about right in the heartland of the Punjab, the agricultural sort of center of the country. And it is an absolutely massive thing that you can see this thing from at least ten kilometers away down the road as you’re driving down. It looks visibly like it’s been dropped on this pancake flat landscape from above by some alien sort of function. That red and white striped tower is over 50 stories high. Right. Which is the tallest structure of its type, tallest built structure for at least 500 miles around. And this it’s a very high tech piece of construction that uses supercritical coal technology. And it’s it’s built by a Chinese joint venture. It’s kind of a lead element of the Belt and Road infrastructure investments in Pakistan like the China-pakistan economic corridor. So it’s important for multiple reasons. In that way, getting access to the plant was very difficult from an administrative perspective, but the engineers who work there are delighted with that plant. They’re happy to talk about it. They’re very proud of their achievements and what they’ve done and what they’ve built.

Ijlal Naqvi: So this line, in that campus, there’s a billboard there which talks about what was what they’ve done, the Sahiwal spirit. So it’s easier to read on my notes. But the first line, what it says is, “The patriotic spirit of being loyal to the party and winning glory for the country.” Right. Which party? Which country? Not Pakistan. Right. Is the Chinese Communist Party and China. Right. But it’s meant in the spirit of like they are actually terribly proud of what they’ve constructed. So this is a weird power plant for multiple reasons, not least because coal is being used that is imported and it’s brought in to Karachi, which is a thousand kilometers away, and the coal is put on a freight train and sent up there to Sahiwal so that it can power local areas, which is very expensive relative to, you know, transporting electricity rather than coal. But that’s the way it’s being built. Okay. So to bring all of that together, there’s this diagram that breaks out the different aspects of the electricity system, generation transmission, distribution. So you have coal fired power plants and that sort of thing over here. Generation, for some reason, I’m happy on the side of the table. And if they’re going to run effectively, the rest of this circuit needs to function. The national grid, the electricity needs to get sent out through the transmission system to reach people. It’s going to do that through the distribution companies. Right. And this goes responsibility to make consumers pay. So they have to handle the losses. If there’s too many losses, that’s a problem that needs to be addressed. Our purchasing agreements. These address the fact that imported fuels typically cost foreign exchange to do cost foreign exchange. So you’re vulnerable to fluctuations in global energy markets, and you’re also vulnerable to the fluctuations in foreign exchange prices. All of those things within the power purchasing agreements are passed through. It’s not the Chinese company that’s running Sahiwal coal power plant, which is going to bear the cost of increased coal prices, for example. Right. That’s passed through to the Pakistani state. Who has the option of passing it through to consumers. So they can do that. But as you can imagine, the political costs of doing that are substantial. Right. So what typically happens is that accumulates in the form of debts. So when losses are too high, when entry prices fluctuate or foreign exchange prices move in ways that makes power production more costly, it’s typically the Pakistani state that’s picking up the burden. So that accumulates in something that’s called circular debt. It’s not circular. It’s just an accumulation of debts that cover arrears within the system because that money has to be supplied so that these guys can then go around and produce the next round of power. Okay. And these subsidies are absolutely massive but cumulated sort of government inputs into the power sector to cover for the shortfall of cash flows was at various points in the last ten years, close to 10% of the federal budget. Right. Absolutely enormous. All right.

Ijlal Naqvi: And behind this. Is a sense that this single grid serves a singular identity for the state, but it’s a thing that’s a Muslim nation with a very singular interpretation, a single language, and the integration into the whole right serves this one identity, ethnicity. And the particular operates in opposition to the idea that this nation has a singular identity. Right. And this is historically terribly important within Pakistan as a founding idea later in 1971 at Bangladeshi independence. Right. And it’s the primary axis of political opposition for, for example, the insurgents who I mentioned previously. Okay. So I have enough time to give you a little bit of the city and the individual level, of which my opinion, probably the more fun parts of the book, because then you get the stories about people’s real experiences. So what these pictures represent is electricity infrastructure. This is in Lahore. These wires look terrible. A lot of this jumble is actually sort of fly by night cable TV operators rather than electricity operators. But the consequences, the trouble that’s made for maintenance is, is just the same. This is in Karachi, where you have something called, is referred to as Kunda, which means hook. So this is how electricity is stolen in the classic sense. Right. You’re going to get a soda bottle, cut it in half, put a metal wire through it, a bare metal wire, look it up to your live overhead transmission line, which is exactly as dangerous as it sounds when you’re pushing it around with a broomstick or whatever is relatively easy to do. But monsoon storms, which come every year, knock these things down. People always die from electric shocks, other executions that result. Right. But this thing, I mean, it’s so visible, right? You can’t do this in a sort of secret way. You’re probably either operating in an environment where law enforcement is not going to be very functional or the people are being paid off in different manners. So where I did my fieldwork was in Islamabad. And electricity infrastructure looks like this. And yes, the sidewalk looks all kinds of messed up. But underneath that is the best electricity distribution system in Pakistan, because underground, if something’s underground, it’s actually much, much more complicated to tap into it. And the chances of unfortunate accidents are much worse. But these distribution boxes serve like, you know, this clinic, the Dunkin Donuts, that’s just down from there. Right. So this is the electricity, electricity distribution in Pakistan, sorry, Islamabad, but this is a residential neighborhood where, yes, these leaves will mess it up. But that distribution box is going to serve the houses that are around there. So the the focus of this little point is to talk about country, about these which are squatter settlements. Right. So this is sort of all the way down to the bottom of social hierarchy. These groups and it’s all about at least are primarily Christian as well, which means that they’re minorities in a in a religious sense, and they’re squatters, which means they don’t have legal land title. So you don’t have legal land title means you can’t get formal services from the state. They desperately want that. Right. They’re practically quoting Hernando de Soto here. Right. Give us formal land title so that we can improve our lives in these in these descriptive matters. But they’re prevented from doing so. So in an episode where the existing company was actually trying to crack down on them, it ends up in a negotiation with the utility because what they’re saying is like this inhumane process for you to deny us electricity. How are we supposed to live without this sort of basic service? And that moral claim is very important because it’s the basis for the negotiation which takes place subsequently. And what happens is that the company asks the community to basically form a committee of their own in which the electricity company will have like one proper connection. And then it’s like you all handle the distribution within this area on your own, including bill collection, which is completely against the license of the distribution company, whose job it is to do exactly those things, and it cannot be passed on to a paying consumer. So they manage this set of informal arrangements and they’ll do things like provide welfare to people if they think they needed some flexibility in payment and so on. Right. But at the same time, individuals are still trying to formalize their arrangement with the state and some of them succeeded. And in this instance, the family that succeeded ended up falling victim to something that’s called overbilling. So because it’s a they were basically given a bill which represented about $200 worth of consumption, which is far more than that family ever could have done with their, like one light bulb and a fridge and a fan. But it’s a way to compensate for the fact there are so many losses in the system that the bureaucrats will hide the losses effectively on a family like this. So this family ends up retreating from the formal meter that they’ve worked so hard to get and going back to the communal metering system because they feel like they’re protected, a kind of safety in numbers sort of idea. This retreat from formality is present elsewhere. In a in a displacement that happened where a country body was moved due to a government construction project. They were actually awarded plots of land in this upper middle class neighborhood. And what they did was they sold that land because the value of that land and the formal title of that land, was so out of all context with respect to their livelihoods and their well-being that they used that money for education, for health care, for everything else they needed, and they moved back to a country body. Right. So I’m pushing this idea that formal systems aren’t necessarily an improvement for the people who are working with systems.

Ijlal Naqvi: So this is at the other end of the social hierarchy. This is a steel mill owner I spoke with who has an MBA from the US. His Land Rover is parked outside. And what he’s talking about is that that in his relationships with the state, which are strictly formal, right, he has I mean, this is an entirely legal operation that to have relationship with a government officer means that he’s paying them. Right. But this is the key part, that he’s not getting them to do anything that isn’t permitted. He’s paying them to deliver on the terms of the rights that he has per the formal contract with the state. Right. That’s what he’s paying them for. So this idea of informality is wrapped into everything that these guys are doing. Okay. Running out of time. There’s only one example from the individual level. But what I have here is there is a contest that takes place around this line superintendent, who’s handling some paperwork for a question that that arises due to some of his requests for a new connection. Right. So the issue is like if you’re in you connection as far away from the existing grid work, then you have to pay extra. And he’s refusing this. So but when he’s refusing it. Right. What he says is he’s explaining that. And in the last sentence. Right. He switches to English. So what’s the significance of English here? Right. It’s a claim for a register of power. He’s invoking the fact that the rules are written in English. But all the conversation around this is happening in either vernacular or in Urdu. Right. And [inaudible], who’s the fixer in this case, he’s like a third party operating on behalf of some unknown, powerful individual, says, Don’t start your English with me. And then he swears it, right? And [inaudible] backs off. So this the street level bureaucrat is just simply not in a position to enforce legal structures in the face of powerful opposition. And one more reason why that those formal structures won’t work from the top down. Okay. So I’m going to have to wrap this up. But let me touch on this. Like, how do you get things done? The communal aspect of it, these other examples are from from military officers, from sort of the middle class housing development. And [inaudible] is where my parents live. It’s a cooperative housing society. Right. You don’t want to be stuck dealing with that one on one relationship. The group actually has a lot of benefits for you in the sense that the governance that emerges from these different types of interactions is a negotiated compromise with all these different variables within there. And that formality isn’t an unqualified improvement. I’ll skip that. That the rational legal core to the Pakistani state is is fundamentally weak and operates at best in subordination or is one of the multiple factors with the relative power of the different actors involved. This is coming back to the theory of the field that I wanted to put in there. All right. And that this emerging compromise that results is influenced by the different levels of interaction that I was talking about, the individual, the city and the nation. Right. So I’m trying to give you an infrastructural lens on on state building that through this particular aspect of infrastructure, you see state building and state capacity, that the unevenness that you see at a horizontal level is, is by design, reproducing relations of domination. And the fact that there’s a hierarchy here where the formal institutions and governance reforms are written from above. But many of these problems are actually generated and sustained from below. So very few pathways for disciplining the state from below. That’s it. That’s the cover of the book. But at least it’s in Widener, if not all good bookshops everywhere and hope you’ll get a chance to take a look. Thanks so much for listening to my talk.

Abdurrehman Naveed: Professor Naqvi to thank you so much for that fascinating presentation. There are so many questions I have, but try to limit myself and then open it up to folks. It’s seen a lot of conversation about feedback or the China-Pakistan economic corridor as being the panacea for Pakistan’s power sector. But not much has changed in terms of the in terms of the lived realities and the day to day experiences for most people on the ground. You talk about this in your book towards the end of of of what CPEC is and what it could have been. Could you speak more to the spectrum and some some of the challenges that Pakistan faces and how we need to structure future engagements with players in a more nuanced way?

Ijlal Naqvi: Sure, CPEC is vitally important and it’s, something that I struggled with, at least in part of writing this book, because I did my field work long before CPEC was even envisioned. And so as the book went into sort of the review cycle, they were like, Hey, what about CPEC? I’m like, Yeah, I’d be delighted to look into that for you. And went back to to learning more about it. But it is the example that I showed. I think I want to differentiate between infrastructure and infrastructural power. Right. So it’s a tremendously important piece of infrastructure. The 1700 megawatt power plant is the first example of that. Some of the CPEC projects in terms of the energy sector, but it doesn’t represent the Pakistani state’s capacity to do anything within its territory. Right. And I think that it still matters for a lot of our corporate governance in this issue, because the coal fired power plant has certain shortcomings. Right. Like I mentioned, that it’s imported coal and so on, which still means that you’re exposed to international energy markets. But frankly, what it displaced was even worse. What it displaced was high sulfur furnace oil power plants. And those are so filthy that it makes coal look good and they’re even more expensive to run. So the plants did what they were intended. It’s just that in that cash flow diagram that I showed, you’re only looking at one side of the equation, which is the left hand side where the generation, the power plants are. And it’s fine to improve that and to lower the cost of production, but it doesn’t attend to the fundamental shortcomings which exist on the other parts of the diagram, particularly within the distribution system. Because so long as each unit is sold as a loss, so long as you aren’t able to control the distribution system in terms of billing and collecting on those bills, you can improve certainly by reducing the cost of power production, but you won’t attend to the more fundamental challenges the debts will continue to accrue. So I have I think it’s the next slide. It’s this one, right? So this is a headline from 2021, right? Where all of a sudden. Right. The power capacity was beyond what was supposedly needed within Pakistan. So these plants had been built out, which was always the intention, but there was still load shedding at times because it was all to do with the price of electricity. It was all to do with the fluctuations in international energy markets. And despite the fact that capacity had increased so much, you could not actually supply electricity to ordinary people. So there’s much more attention that needs to be done on the the payment side of it, which is which is much harder to do. It’s nice to like invite Chinese investors in to come and make a 1700 megawatt power plant. Engineering companies are ready and happy to do it. You fence it off, put a special military unit there, and nobody’s going to bother them. They do their construction. The engineers are very proud of themselves and they did the job they were intended to do. Right. But engaging with ordinary people for service delivery, being responsive to them, showing up, making sure that the infrastructure is well maintained. These are much harder tasks and they address relationships of power which are part and parcel of Pakistani governance on a much more fundamental level. So, so long as those questions are never addressed. Right. And we build new power plants, right. The fundamental problems will still remain. So that I think, is an entirely different sort of level of challenge, which hasn’t yet been tackled in appropriate way.

Abdurrehman Naveed: And just building off of what you said, the distribution company or the discos that we call them are at the heart of Pakistan’s power sector mismanagement. And one of the repeated calls we have seen from technical experts is to privatize these discos. Now, how do you see the role of privatization based on your work? And what lessons can be learned from Pakistan’s experience with privatization, with Karachi?

Ijlal Naqvi: Yeah. So those are those are great questions. And Karachi Electric’s a fascinating example. I actually started looking more at Karachi subsequent to the fieldwork. But I think one thing that’s apparent is that when these calls for privatization exist for the distribution companies, nobody’s interested in privatizing the distribution company that serves Baluchistan or the northwest of Pakistan. Right? They’re only interested in the most industrialized, high functioning areas anyway. So it’s almost like, what is the point? Those are those aren’t the problem. That’s not where these the issues are being generated from. So in some sense, like it’s a commitment to privatization, which is almost more ideological rather than addressing the core issues at work. But that’s with respect to current calls to privatize. The history of Karachi Electric is rather fascinating because it’s privatized around 2000 or 2005 at least. It goes under private management at that point. It’s owned and then sold again in 2008 to a Dubai based private equity group. Right. And I don’t think it’s unfair to say that this company was looking to sell what they had bought on to other buyers. Those other buyers never emerged. And for many years subsequent to its sale and going on to private management, Karachi Electric was like a horror story as like a cautionary tale against privatization, because privatization didn’t accomplish anything. In fact, the vast workforce was so aggravated at the threat of sort of being made redundant, losing their jobs. They were rioting, they were violent, they destroyed equipment, they antagonized and harassed superior officers within the Karachi electric system. And then there’s a point around 2012 where something that’s entirely external to this environment changes, which is that the gang war, which was dominant within Karachi ends, right? That’s basically a paramilitary operation which comes to fruition. And there’s a particular political party which was most associated with this kind of neighborhood level protection rackets, which is more or less sidelined. Right. And with the exit of this political party and the end of that kind of gang violence, there was an opportunity for a different kind of governance into which Karachi Electric, that the company that was never sold then steps into and starts working really effectively. So they implement this thing, which was actually a collective punishment mechanism. They said that areas that don’t pay for electricity will now receive more loadshedding. They won’t get power. And the areas that do pay for electricity, which are the wealthy areas, will get more power. And so when they introduced this policy, I was actually in the Ministry of Water and Power. We thought that for sure that they were going to be essentially violence and riots and reprisal to this, but nothing of the sort happened. People were actually relatively accepting of it. It was kind of like, okay, fair enough, but we’re stealing it anyway. So off you go. And then over time, they modernize their own organization sufficiently that they’re able to operate to hold to that standard and to improve the built infrastructure within their environment and to conduct these improvements in a way which engages with community actors in a very organic, like locally sensitive manner, which is like we’re talking about a private equity company here. But they they accomplished all of this. So there’s a lot to learn from Karachi Electric, but it hasn’t been well understood and studied at this point. So at the top level, they’ve produced results which are fantastic, but they put in a lot of hard work to achieve that. And it didn’t happen in under entirely circumstances of their own control. So my own response to the idea that privatization is the only way to carry these companies forward is like, I feel like it smacks a little bit of an abandonment of the Pakistani government’s responsibility to its own citizens, right? You can’t simply step away from service delivery and claim that the private sector is the panacea that’s going to address all of your issues. So I have some strong reservations about it in terms of how it’s proposed for the other parts of the country.

Abdurrehman Naveed: Your work is fascinating because you straddle different areas. You look at these problems at the city level, you look at the inter-provincial dynamics of of of the issue at play. And then you also look at the federal and sort of where it all aggregates together and just sticking to the point of of how the federal decision making apparatus works. Some commentators, such as I think mirrored Bernstein and I’ll paraphrase what he said is that the decision making architecture is fundamentally broken. And I think the point that such commentators have made is that we have made decisions which are sticky, which are lumpy, which have 20 to 30 years of consequences such as locking the cells in with Sahiwal Coal or setting up these natural gas combined cycle plants, which at the time, given the natural gas prices, seemed like a no brainer. But seeing what we’ve seen for the past few years are now pretty much not been running more. Right. So given your experience at the federal level, how do we how do you see the decision making architecture, not just in terms of the bureaucracy, but also the political players at play?

Ijlal Naqvi: That’s a really big question. So I think, you know, what you summarized in terms of from those comments. I mean, that’s spot on. We’re living with the consequences of decisions that were made a long time ago. And if you take, say, about coal as an example, its precursor is the HUBCO project. Right. So that was a 1200 megawatt power plant set up in around 1992 with massive amounts of World Bank backing. And the thing was not run right. They chose not to run it because as soon as you made decisions based on what’s called economic dispatch, you prioritized the lowest marginal cost producers in your generation system. You wouldn’t run HUBCO. So this enormously important, politically important, like, you know, multilateral funded project was basically not running because it was an efficient and effective, so different version of that problem with. I think that’s the single biggest, like bad decision making aspect of power sector generation is not those so much as the fact that these things are not made with competitive bidding. So when power plants are built in Pakistan, they’re not done on the basis of competitive bidding. So at the same time as the 1995 mid 1990 reforms happened in Pakistan, Bangladesh was doing the same thing. These reforms were being pushed by the World Bank in multiple countries. And so Bangladesh did some very similar things, but they did competitive bidding and their costs were substantially reduced as a result of the competitive bids. And you see that much more present in India, for example, as well. So when Pakistan chose not to do that, it had long term consequences. And we’re still dealing with. Right. I’m afraid that like electricity I described as being top of the political agenda, but not these days, at least when we’re still arguing over whether or not to hold elections within 90 days as the constitution dictates. So it’s one I think it’s valid to say that this is one aspect of the larger kind of political dysfunction within Pakistan. That’s kind of my rationale for studying it. It informs our understanding of the larger state at work, and it doesn’t operate independently from it now.

Abdurrehman Naveed: Wonderful. Well, at this stage, I’ll open it up to the audience for any questions or comments.

Attendee: Can you please talk about the energy mix in Pakistan? Because there’s this huge talk about not taking advantage of hydroelectric potential and there’s like disputes among the provinces of like we aren’t able to take advantage of the hydroelectric potential we have in our countries.

Ijlal Naqvi: Yeah. You’re right. We’re not. Because the map that I showed of the provincial differences and the fact that the, you know, the primary access of sort of political grievance in Pakistan is across these provincial lines. It applies very much to the way that these big dams are constructed. So the big dam is located typically in the in the northwest, but it’s in the lower riparian whose agricultural concerns are not being met, by the way, that the water is distributed in the timing of the water distribution. So, I mean, it speaks to the inter-provincial relationships that I mean, frankly, just what you’re asking follows from the previous question about the level of political dysfunction that exists, the inability to coordinate between provinces about the relative priorities of these various things. So any multipurpose dam has to weigh out these different things, like, you know, the water release, timing, the the usage of water for power generation versus the fact that if you’re if you’re if you want flood control, then you have to keep the water at a lower level anyway. And this kind of of tension, I mean, opposition to big dams is far from it’s not just Pakistan, right? There’s many, many examples from India and elsewhere on the World Commission on Dams famously sort of argued about the way that the the claims of dams, big dams are never met. And in Pakistan specifically and like in [inaudible], for example, in in a seismically unstable region, there’s very good reasons for the opposition to that. And also now it’s so mired within the tensions of provincial politics that Kalabagh dam is the most famous example. You can even raise that name without sort of the parties rising up in opposition. And it’s to do with, I guess, this sediment, that history of political opposition to federal impositions of one perspective on like you’re going to do this development project because we see it is in our interests and who gets the benefit from that and other parties feeling essentially left out and have grievances which they can justify and have been sort of mobilizing around for a long period of time. So, you know, there’s a whole host of sort of like political infighting reasons why we can’t do that as well as like good reasons related to how I relate to the way those dams function, but separate from renewables and sort of the wind and solar and stuff like.

Ricardo Hausmann: Thank you for a great presentation. I want to look at your book. I’m sorry I arrived late and you may have covered these issues before I arrived, but my my question would be, you know, many countries mess up electricity and for example, they messed up electricity more than cell phone service. And so there must be something weird about electricity. But one of the things that people have thought about is that, and there is this timing consistent hold up problem that you want to like promise investors whatever to justify investments. But once the investment is in place, you don’t want to enforce the needed tariffs to make the investment viable. And the investor cannot cannot take the investment away because it sunk and that as a consequence, there is never enough strike political equilibrium, political will, to collect. And in the absence of political will to collect, there is no way of sustaining the investment except for massive fiscal transfers that then eat up into into everything else. So in the end, there’s no solution unless you are able to somehow force people to pay. Is there a, I mean, involving communities. I mean, I found interesting your discussion of of this private equity company that found a way to use some social network store to guarantee enforcement. But what’s in the political decision to enforce a people’s obligation to pay?

Ijlal Naqvi: Yeah. So the enforcing those decisions is very difficult, right, Because in electricity doesn’t sit apart from a nonfunctioning educational system or a non functioning health system, for example. These are the same ordinary people who are not well served with all these other sort of basic things. I guess one way…

Ricardo Hausmann: But they’re served with cell phone service.

Ijlal Naqvi: Yeah. But, you know, quite clearly, like and most of it is is prepaid, Right? You paid your hundred rupees in advance. And you know that the system functions that way. And I think we can look at both ways in which payment systems can be made more effective, because the Karachi example actually shows that that’s viable. And it’s represented like when I visited Karachi to look at the electricity distribution system there. One thing which was apparent is that you see the Karachi linemen working on a on the infrastructure. He’s got safety boots on, a safety helmet, he is in uniform. There’s like a truck with like functioning equipment. And you look and most of the rest of the country, what is it? It’s like you’ve got a guy in flip flops with, you know, not climbing a rickety bamboo ladder that’s swing. And it’s like, you know, one of the metrics that appears in the annual reports is the number of deaths from sort of linemen, deaths from working on the infrastructure. So Karachi is doing different aspects of this problem very well. There’s a lot to be learned there as we’re doing it. I think the second way that we can respond to this is like there are decentralized solutions, which I think would be quite effective in there. Yeah. Which like how does one allow, like, you know, the cutting of bodies, for example, the example that I’m giving is a little bit dated because now you’re not quite so dependent on connection to the grid for solving your low level electricity needs. Right. If I put a solar panel on my roof, I can charge a mobile phone, I can run a phone, I can have a light at night, you know, some sort of like modicum of things that I can become independent of these of these big systems. And I think that there’s a way there to at least achieve some of the welfare sort of well-being and human development aspects of the problem that’s otherwise missing. But this other thing you mentioned about fiscal transfers, that’s a that’s a crucial aspect of this problem. And while you were looking at sort of the time that the investor has to stay in place to get their returns, the other thing that happens is that when these big projects are built out. Are you really bringing hundreds of millions of dollars into a governance environment like Pakistan without some of that money going here and there to enable that transaction to take place? Those things happen at the time of construction, right? Later, when we’re talking about operations and servicing that in a fiscally responsible manner, it’s probably a different government by now. Right. So you’re handing on the problem down the line. So at each of these steps, like I mentioned, HUBCO, right. Who’s dealing with the problems? It’s the government five years later. Who’s dealing with the problems of the 1994 power policy? It’s the government, you know, three or five years later and you know who’s dealing with Sahiwal coal? Well, first it was PTI, and now it’s the PML-N again. But the the the people the idea of like being forced to take responsibility for managing that service delivery environment is missing. And what I would stress was there’s not enough accountability from below. If there was more accountability from below, I think you’d be able to see much more responsiveness and effective service delivery. Right. And so long as we have systems where that’s largely avoided, that won’t be the case in Pakistan. So I would say.

Abdurrehman Naveed: All right. Please join me in thanking Professor Naqvi. Thank you so much for joining us.

Ijlal Naqvi Thanks for coming.

DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies.

Ricardo Hausmann: Hello, everybody, and welcome. I’m Ricardo Hausmann. I am a professor here at the Kennedy School and I’m the director of the Harvard Growth Lab. And the Growth Lab organizes these Development Talks. And today we have the honor of featuring one of our counterparts in one of the projects that the Growth Lab is doing. The Growth Lab is a group of about 50 of us in here at Harvard. And we do academic research on issues of growth, but we also do applied research with governments around the world, both at the national, state and local level. And we have done work with Australian provinces and Mexican states. This is the first time we have the honor of working with U.S. State. So it’s great to be able to interact with Josh Dorrell, CEO of the Wyoming Business Council, who’s one of our counterparts in our relationship with the government of the state or the glorious state of Wyoming. And so Josh has a rich career in the private sector and has taught at the University of Wyoming College of Business. And the University of Wyoming is generally referred in Wyoming as U-Dub, which was not intuitive to me until I understood that it was U-W U-Dub. And so he took the helm of the Wyoming Business Council in February of 2020, just in time for COVID. And he’s been leading the organization ever since. The Wyoming Business Council is working to support growth and transformation of economies across the state. The state is incredibly heterogeneous in terms of its economic structure, and I had the privilege of visiting different parts of the state accompanied by the Wyoming Business Council, and I could see the operations on the ground and the impact. I was really, really impressed. I mean, and it is the case of our state organization that is very much engaged in private sector development. So it was very, very insightful. The session is going to be moderated by our own Professor Gordon Hanson. Professor Hanson has done a path-breaking work on issues of migration, trade, labor markets, China shock, but in particular, he teaches urban economic policy and has thought a lot about the regional impacts and the regional economies of the world and the U.S. in particular. He, together with Professor Rodrik, leads the project of Reimagining the Economy here at HKS. Yes. And he has some personal affection to the state of Wyoming, which is one of the reasons why we asked him to moderate the panel. So without any further ado, Josh, it’s an honor to have you.

Josh Dorrell: Thank you, Professor Hausmann, I appreciate the introduction. And as I’m as as you mentioned, I am from Wyoming and the CEO of the Wyoming Business Council, which is essentially the state’s economic development agency. And but before that, I’m really a lifelong Wyoming guy. I’m someone who my family moved to Wyoming in 1975, which is a long, long time ago. And it was when I was about eight months old. So I’m neither a native of Wyoming nor someone from the other state, and I won’t mention it that I come from. But I spent my childhood in Wyoming, and I was fortunate enough to also spend my career and my adulthood in Wyoming as well. I’m the son of a coal miner from a county called Carbon. And the funny thing is, is that there is no more carbon being taken out of Carbon County, at least in the form of coal. All those coal mines have been shut down and have been reclaimed. And now the mining industry is predominantly in other areas of the state and where I grew up. And so I got to see firsthand those booms and busts that you’ll see some data about as well. But I got to see those firsthand. I was fortunate enough to live in a state that has a very well-funded education system and all the way up through college. And but unlike many of my college classmates, I did get to stay in Wyoming. I found a career in Wyoming. I got to work in the private sector a long, long time and travel all over the world, but always come home to Wyoming. A great place to spend with my family and raise my children and really enjoy the benefits of Wyoming while at the same time seeing other parts of the world.

And then in February of 2020, I was able to work with this team at the Wyoming Business Council, a team of 40 people to really reshape the economy of Wyoming and ly take what we call the you know, the economic development strategy in Wyoming and take it from a piece of paper and make it reality. And in a nutshell, that strategy is really, really simple. And it’s probably not that different than most companies, most states. But the key. It’s really tough to actually enact. And so that strategy is to take our core industries that we do really, really well and leverage them to activate new sectors. Again, it’s not really that groundbreaking. In fact, that’s a pretty darn good strategy for almost anything except that it’s really hard to do on the ground. And so I’m going to walk you through a few of those things. But as I do that, I want to introduce you to a few of our core industries. And so as you can see here, you’re probably used to this scene. Many of you have seen this scene. It’s the Tetons. It’s a pretty famous cabin. And thousands and thousands of people travel from all over the world to visit Wyoming every year. In fact, our tourist economy is our second largest industry. It’s a really impressive thing if you haven’t been to Wyoming. We have the first national park in Yellowstone. We have the first National Monument and Devils Tower, and we have a whole lot of beautiful scenery and wide open spaces. Now, if you’re used to Boston, you’re not sure what those are. But what I can say, what I can tell you is the roads go pretty straight in Wyoming and you can see a long, long way. Our third largest industry is agriculture. And this happens to be a picture taken at our agribusiness manager who happens to be in the room at her ranch in southeast Wyoming. And and agriculture, not just food production in terms of meat, but also in terms of hay production and sugar beets and other crops are a big piece of our not just our economy, but also our sense of being and who we are as a state. And so, again, it’s our third largest industry, and it’s really important to us because of those wide open spaces.

The next is our extraction industry and energy production. And Wyoming is, quite frankly, world renowned for all of those things. And if you take a look on the left hand side, you’ll notice a dragline and a shovel loading coal into a into a giant bucket truck. And we produce 40% of the United States coal out of Wyoming. So that’s a really, really large amount. We have enormous coal deposits and they will likely a lot of them will likely stay in place based on outside market forces and things like that. If you look down into the bottom left hand corner, you’ll see of an underground mining operation for Trona, which is then processed into baking soda and it’s utilized for glass production. If you’ve ever eaten a chocolate chip cookie, you’ll likely have had a little taste of Wyoming. And if you’ve ever used glass, which again most of us have, that likely comes from Wyoming, because 90% of the soda ash in the United States comes from Wyoming. We have the world’s largest deposit of natural soda ash, which is really important because it’s very green, because you can create soda ash synthetically, but it takes an awful lot of energy. And a lot of the places where it is created today don’t utilize green technologies to make their energy. And so that synthetic soda ash is not as green as that natural ash. And so these are our three big industries. And and there are a couple of things to note about these industries that I think are really important. First is that they were gifted to us the land that we have, the beauty above land, the natural resources below land were gifted to us and we have done a lot to extract as much value as we can out of them, and we’ll continue to do so. The other thing is, is that these are all what I would call scarcity driven resources. They’re not making into more land. You can only have so many hotel rooms to see all of the beautiful, beautiful places. And once you take a ton of coal or a ton of Trona out of the ground, you don’t get it again. It’s gone. And so that scarcity mindset is something that has developed a system in Wyoming that we’re all used to. People who have lived in Wyoming a long, long time like me. We’re used to that boom bust. We’re used to scarcity being the thing. And if we take from this, it’s gone forever. And so that’s an important component because as we look to activate new sectors, that scarcity mindset can be a challenge. And so I’m going to walk through a few of those, those things.

But we always like to start with this whole idea as we’re looking at the economy and our and our economic policy. We like to look at this as our starting point. Because for a long, long time, Wyoming really hasn’t grown. We’ve kind of gone up and down, but we haven’t really grown. And so is it even possible? And if it is possible, is it something that we can sustain? And so this is the way I might say it to this group here. But if I were talking to members of people in Wyoming who happen to have a family, they would see it differently. They would say it like this. They would say, will my children have opportunities in Wyoming? And that’s something that far and wide people worry about and they have a right to worry about it because the data backs it up. Because if you look at the folks who are born in Wyoming and then move somewhere else compared to our neighbors. Well, I guess we’re better at that is one way to look at this. But really, it’s a challenge for us. We represent that top line where over half of the people that are born in Wyoming State are in leave Wyoming. So less than half stay. And that’s a challenge for us. It’s a big time challenge for us. And you might say to yourself, Well, that’s not always bad, but it is. And it can be a big challenge for us, especially when the population growth has been occurring. But in the state, if you look at the bands on the excuse me, if you look at the columns on the right hand side of the graph, the last three columns represent population data from 2010, 2020 and 2030. Now, if you look at that, if you look at those bottom three sections of that, those are typically speaking. The generations or the ages that create change in a society. Those are not growing at all. In fact, they’re staying the same or maybe even going down a little bit. But if you look at the other bands, the top two bands, those are bands where people tend to get a little bit more conservative. Maybe they’re a little bit they’re less averse to or they’re more averse to change because they want things to stay the way they are. And unfortunately, those are the areas that are growing in Wyoming. And those are the groups that are growing. And if you want to know why, it’s actually quite simple why the younger generations aren’t growing. And the the older generations are in Wyoming. And I’ll show you this first graph. Wyoming is represented by the black solid line. And this is the relative growth of jobs compared to our neighboring states. Well, you can see that our curve doesn’t look like their curves. And it’s also lower and has a downward trend from about 2008 on. Well, that explains some things. Right. That’s pretty obvious, really. Here’s the other thing. And I don’t know if you can see it or not, but this is why or likely something that is related to why are the older bands in our demographics growing at a faster rate than our younger ones? Well, this graph demonstrates something that we tout at Wyoming as a great thing, which is our taxes are really, really low. In fact, we have one of the most tax friendly states in the nation, and we also have one of the most business friendly states in the nation, which is great for us at the Wyoming Business Council. We’re trying to attract and recruit and grow businesses. However, it’s also something where there is so little personal income tax or any tax burden on the individuals that it makes a lot of sense that those folks that might be retiring. I want to stick around Wyoming. Right. So those groups are growing and that does present an opportunity, but it also represents a challenge for us. And you’ll see why here in a bit.

Just to give you an idea of the difference between these two. An average family of three of a moderate middle income type of family pays about $4,000 in taxes per year. The services that they get from their city or the state is $27,000. So you start to do the math on that. The mineral economy is a pretty big deal in Wyoming. This is also one of the reasons that I believe that some of the younger generations are not in Wyoming, or at least they’re finding other places to work. And it’s the whole idea of instability on their employment. Now, I don’t know how many of you are looking at employment in the future or looking at your employment today. And you’re saying one of the things that’s important to me is do I have a job somewhere else if the one I have goes away? Do I have a job in the same town? Can I support my family? Can I do that in a way that is sustainable and really with some security? And if you look at the blue curve, the blue curve is Wyoming’s employment and the red shaded red area is the United States. And of course, they’re not at the same scale. But if you look at those two curves, they don’t look alike. Fact, you can see that ours are boom and bust. It’s up and down. And that instability causes some challenges for us. Now I’m going to take the same exact graph and I’m going to compare it to some of our neighbors, because maybe you’re thinking to yourself, yeah, but gosh, maybe the coasts just bump up the United States’s numbers and make it look really good. And I won’t say it’s the West Coast because, you know. That’s not factual. I have no idea. So I should check the. I changed that part of the speech from when I go to the other coast as well. But I think if you look at our neighbors and us, you can see the exact same thing play out. Wyoming has an instability that our neighbors do not. And so if you look at Wyoming, we have that up and down. You look at Montana. Montana is actually looks very, very similar to the United States. They had a very dramatic event in 2020, just as all of us did, dropped way down to the bottom there. And they’re there. They’re climbing back up. But if you look at Idaho’s, Idaho’s is actually quite a bit different. Idaho’s climbs much like Montana’s. But the drop off that they saw in 2020 was not as deep. And if you look closely at the end of that curve, you’ll notice that they’re actually at a level above where they were entering in to the pandemic. So that is something that we look at and go, Oh, wait a second. How come Idaho can do it? What can we do? And of course, we do know that Idaho’s make up of their economy is based more on knowledge sector jobs. It’s based more on those things that are not as as damaged. Maybe by one industries. UPS and downs. And so, again, you take a look at all of this data and you ask the big question, does Wyoming have a growth problem?

One more thing. This is the industrial diversity index of Wyoming. And so if you look at the red curve here, you’ll notice that our in our diversity in our industries has gone up and down as well. And generally speaking, that has to do with the energy markets of the nation. And as you look at that, you think to yourself, and this is what I get really excited about. Where we are today is higher than we’ve ever been. As long as we’ve been recording this since 1970. That’s pretty good, right? That’s a really big deal for Wyoming, and we’re excited about that. It’s something that we’re proud of. It’s something that we work hard on every day. But if you look closely. We’re still last, so we’re doing better than we were before. But in the United States, our diversity index is the lowest. So that tells me we’ve got some room for improvement, which is a really exciting thing. It’s an opportunity for change. But it’s also, again, a contributing factor to the challenges that we face. And so do we have a growth problem? I think it’s pretty clear that we do. In fact, it’s so clear. That the work that we’re doing with Ricardo’s group and in the Growth Lab in their growth assessment of Wyoming states just that, that we do have a growth problem. And if you look at the middle section of this, this is the area that we that I really want to focus on today. And if the area that we’ve been focusing on for a number of years, how do we look at local capabilities and capacity and build that up so that we can deal with this growth problem, not just from high level policy and high level funding mechanisms, but also from the ground up? How do we really build the local capacity so that as new companies come in or companies come in and they want to grow, that they can sustain that growth for a long, long time, and so that our local communities can really define the way they want to see the world and define their approach to a market. And so that’s something that’s really exciting for us. And it’s an but it’s also a big challenge. In fact, the funny thing is this was done in November of 2022.

In the summer of 2019, we laid out our economic development strategy, and these are our purpose and vision. You’ll see that these are a direct response. So it’s almost like we could see the future, but these are a direct response to that growth problem that we all see. And this is what we’ve been working on for the last few years especially, but also over the course of our 25 years in existence in the state. And so you can see that we wanted to really understand and realize that diverse, broad and more than anything, lasting growth so that we can prosper no matter what. Now, one or two industries do and have that resilience that we need. And so to do that, we have we have devised a number of ways to to do that. And I’ll talk about a few of them specifically today. But before we do that, I want to introduce you to what we call the triangle, which is a way to look at the framework for state level economic development and local level economic development. So the Wyoming Business Council was created in a way to develop the policies, funding mechanisms and really develop the programs that would help our local economies grow on their own. We sort of want to work ourselves out of a job is essentially what we want to do. We want to make it so that our communities are so strong that we don’t have to exist now at the local level. We want those unique economies. We want them to fund their own economic development operations. And we really want them to do and take the lead on recruiting and business retention. So those are things that we feel really strongly about. And if you ask people in Wyoming, we love local control. We want the top of that triangle to be as small as possible to any state control. We want that to go away. But in reality, it’s not really like that. In fact, if you look at the 99 communities in Wyoming and the 23 counties, the amount of capacity or capabilities that they have at each of those in each of those areas, it varies wildly. And what I mean is, is that there are some places that have a very mature and astute and professional economic development organization that their community can thrive on its own and then in other places, and not through lack of effort, but mostly lack of resources. There are other places where the same person who’s doing economic development is wearing like three or four different hats. They’re the town clerk. They happen to be on the county commissioners. They happen to do a whole lot of things. Well, that’s pretty challenging. It’s pretty challenging to do with that kind of scale. And at the state, it’s hard for us to say, here are the policies and the funding mechanisms, but if you don’t have the capabilities to take advantage of them, it’s almost like they don’t exist. And so our real challenge is how do we close the gap? So while we could come up with or we could we can make our policies better, we could get more funding from the legislature to do more programs. What I really feel like is we’ve got to do both of those things. We’ve got to look at the policies. We’ve got to get the funding. But we also have to close the gap in capabilities at the local level. And so here are a number of things that we’ve been doing to do just that. The first thing that we’ve been doing is resetting some of the expectations.

There was a period of time in the state’s history where the Business Council would fund almost any project that came before it, if it fit the rules. We would fund it. Now, that’s kind of a nice thing to have. It means you probably have a decent amount of money in your budget. But over time that money has been eroded, likely by funding everything that we could. And also, it’s not really created the economic development that we want. It’s created some really good projects. It’s created some really good facilities in our communities, but they haven’t really spurred on that economic development growth that we wanted. And so over time, we’ve heard you need to create great jobs. You need to make it so that people can fund their own economic development activities. And you need to get rid of any kind of barriers to growth. Yes, we do. The tough part of that is actually saying no to projects. It’s easy to say that on paper. It’s really hard to look at the mayor of a community and say, we don’t want to fund your community center because it doesn’t spur on economic development. It’s really, really hard to say, but it’s something that we take seriously. And over the last three years, we’ve said no to about $25 million worth of projects. That’s probably about half of the projects that we see we’ve said no to. And it’s important. It’s not made us very popular, but we weren’t there for popularity. We’re there to actually make the economy work. The other thing that people love to say, and it’s really easy to say, is you should fund clusters. Clusters are great, in fact, in economic development. If you can start an ecosystem or a cluster or whatever word you want to use for that, you have won. That’s fantastic. That’s a really big deal. Here’s a graph of a couple of the different clusters in Wyoming that we have helped fund or we’ve created policy to support and the difference that it makes. You can see that in both of those cases, there’s almost like hockey stick growth in in the employment there. That’s great. We want that. However, there’s a tough part about that, which is that that means you have to disproportionately invest in communities, specific communities. And one thing about Wyoming is that I don’t know if many of you have heard of the game “Six degrees of Kevin Bacon.” The idea of that is it’s more like three degrees of Wyoming. Trust me, we were just talking earlier and and Ricardo was mentioning the places he’d been in Wyoming and the people that he talked to. I said, Oh, I went to school with that person. I know that person through this person. Everybody knows everybody. And so when you’re investing heavily in one community, you’re leaving out 90, 98 other communities. And they all know somebody, probably the governor. So that makes it really tough to do. But it’s our job to shield to really basically be able to do that and to have the broad enough shoulders to say we are going to invest in clusters. This idea of increasing know how. It seems like it’s really easy, right? Our local economic development boards and the community leaders. They should know more about economic development. They should understand that it’s a long game. They should understand that sometimes you have to take a step in this direction to make it in this direction. Well, that’s tougher to do because it turns out that a lot of those folks don’t have the leadership training in economic development to really make those decisions. Yet they’re the ones making those decisions. There are some communities who are defunding their economic development boards. And we’re not exactly sure why. And so what we decide is, like, we’ve got to be we’ve got to make it so that they understand that they see the long game.

The communities that win in Wyoming are the ones with leadership that see the long game, that invest in things that make those unpopular moves, that risk reelection so that they can do the right thing. And so we’ve developed what’s called the Wyoming Academy, which is a 30 person cohort of leaders from all over the state. And we’re going to teach them economic development principles. We’re going to teach them about how hard it is to lead and how sometimes that means being unpopular so that you can do the right thing in the long run. Net first class launches in January of 2023. It’s pretty exciting. Excuse me, June 2023. The other thing, and this is something that when you’re developing policy or when you become part of the state government, you hear a lot. You hear you hear a lot of excuses. You hear a lot of silver bullets. If we only would do this one thing, everything would change. Like, wow, I don’t know if that’s true. Simplicity is probably for the past because things are a little more complex now. But you hear a lot of these things or somebody will say, You know what, We can’t do that. Because if we bring in a new company into our town, what are we going to do about all these new people? Our classrooms are going to be full. Our streets are going to be busy. All those things, we’re like, yes, that’s actually true. That’s not necessarily a bad thing. But we face those questions when we do these. And so one of the challenges that we have really taken on head on is this whole idea of how do we give people the right framework for solving those problems rather than just having that surface level excuse. And by the way, you’re just here’s where you say, why can’t you grow? Oh, we don’t have the workforce, we don’t have the housing. Well, that’s and then that’s as far as it goes. And we don’t want that. We want to give people a framework to dig a little deeper. Just by the way, here’s a quick, ironic thing. We lose more than half of the people who are born in Wyoming. That’s workforce leaving. So if somebody says to me, we don’t have the workforce, I’m like, Well, they’re leaving. Could just maybe retain a few of them, and maybe we wouldn’t have that excuse. But digging down is what we’re doing with the Growth Lab and what we call Pathways to Prosperity is a big reason for the work there, is to really kind of help people understand that there are ways to prosper and that there is a framework from getting from those surface level excuses and digging down into the true problems, because as I’m sure the team would tell you at the Growth Lab, No. Two Wyoming communities are the same and heterogeneous is the way to say it. But that’s that is true. It’s really, really challenging. So we might say workforce in one area that means something different in two different places in the state. And so we’ve worked we’ve been working with the growth Lab to develop that methodology. And then through the academy, we’ll continue to teach that methodology. So we’ve painted a pretty bleak picture for many of you, like, wow, this is or if you’re one of those people who just sees opportunities and everything, you’re like, this is the greatest place on earth because there are a lot of opportunities.

But we do have some really big advantages in Wyoming, and I think that there are real advantages and they’re things that we’re going to continue to leverage as we face these challenges head on. The first winner or maybe the zeroth thing that we have is that we’re not afraid to say what’s wrong. We’re not afraid to gloss it over. We’re not afraid. Excuse me. We don’t want to gloss over. We’re not afraid to say. These are the challenges that we face and we’re going to take them head on. Couple of other things. We have an understanding of natural resources and energy that much of the United States actually doesn’t have. So we’ve done studies to understand how do people respond to things like small modular reactors and how do people respond to the various types of energy that are being able to be utilized? Carbon capture, utilization and storage, hydrogen production. How does the Wyoming’s populace respond? We respond favorably to those things. In fact, this happens to be a picture from a town hall meeting in Kemmerer, Wyoming, where the demonstration of the first the United States first small modular reactor is occurring. So a nuclear reactor is going into Kemmerer. Our population understands that and is not necessarily afraid of that. And so we’re really we think that that’s a that’s a big advantage for us. Plus, we have enormous uranium reserves and we also have enormous rare earth element reserves in our state. So things that are moving into the future. The other thing is that everyone will tell you that they collaborate in any state. All of the agencies will say, Yes, we do collaborate. Of course we collaborate, you know, but we actually collaborate. And and what I can tell you is that that three degrees of of of the governor will say in Wyoming it’s real and it’s important and we utilize that network dramatically. So when, for example, the three entities that you see here have all been part of the Growth Lab in some way, they’ve recently worked on a definitely a project that would be in one of their camps, but it was led by another camp. And we didn’t care. We didn’t care who got the credit. We don’t care who is is to blame. We all shoulder it together. And in Wyoming, the speed at which we can do that with our agencies is impressive. When we recruit new businesses, they always come to us and say, you know, everybody tells us that it’s really easy to do business in places with the government. But in Wyoming, it’s actually true. We can actually get you to the right people and we should use that small size to our advantage.

The other thing, and I mentioned this before, was the three degrees joke is that you really do have access to leadership in Wyoming. So our legislators as well as our agencies and of course, the governor, very accessible, very accessible. And the fact is we can turn legislation around really, really quickly and that we have things like the L.L.C. legislation way back in the seventies. We created that a lot of the cryptocurrency or excuse me, the digital assets legislation that is very, very hot in the world right now. We created that. We were the first to do that. The challenge that we have is that we didn’t always have the things to back it up and in the system to utilize it. And so that’s what we’re really trying to build. But when you when you need access to leadership, Wyoming has it. In fact, a one of my friends in the governor’s office was giving a speech at an industry event. They said, if you don’t know the governor of Wyoming or you haven’t met the governor of Wyoming, that’s on you. Because we are extremely accessible and our legislature turns things around really, really quickly. The key is to do the right things, which again, is all about building that local capacity and making sure that we take our knowledge and utilize it in the best framework we can. And with that, I’ll open the floor to Gordon and then answer any questions we have. So thank you very much.

Gordon Hanson: So thanks very much, Josh. It’s really interesting to see what you guys are up to. And, you know, a very clear and honest assessment of the challenges that you face, but also a promising assessment of the of the capabilities of Wyoming. Wyoming is near and dear to my heart because it’s where my father in law was born and raised. And so my wife’s family hails from from that part of the world. I think part of our first house was financed by mineral rights from somewhere in the south eastern part of the state. So since we’re, you know, Wyoming has the reputation as a place that believes strongly in limited government. And so before we get into some of the details, how do you justify what you do to the rest of Wyoming? What you know, it’s Wyoming, after all. Why don’t we just let the market do what it does? What are the market failures or government failures from the federal government, wherever that that you all are trying to address?

Josh Dorrell: Yeah, we get that question a lot, which is we’ll just let the market decide. And and I think I think what we usually do is say the market is deciding and that may not be a great thing sometimes. And so I look at it as how do we introduce imperfections into the market to help Wyoming win. I think sometimes that people utilize that, especially in Wyoming, that’s said a lot and they don’t necessarily take a look at what’s going on outside of Wyoming because other states and other entities are introducing those imperfections and we need to be able to deal with that. And so we look at it as this is us helping spur on the economy. This is us competing with other states and and perhaps even at different levels of government, but making sure that we we really utilize that as an even playing field because and you nailed it Wyoming sometimes sees itself and only look at looks at itself because we have this whole self reliance culture. But we need to realize that we’re competing across our borders, so we utilize that.

Gordon Hanson: So I want to push you a little bit more on that and think about the specific ways in which markets might get things wrong from your perspective. So one way markets might get things wrong has to do with the whole cluster idea. Wyoming is small and the logic of economic development globally is that resources are drawn to our resources already obsessed. And so pushing back against that is something that we teach our students in our classes can work, can also not work. You can also design things that may not make sense, but then there’s there’s a different motivation, which isn’t that’s kind of an economic efficiency rationale. Another rationale is, look, we have people who are here and we want to take care of them, and it’s more of an equity rationale. This might not go far in the Wyoming context, but as you think about what you’re trying to accomplish, this balance of trying to address ways in which the market might engineer the distribution of resources out of the state, and we think there’s a reason why we want to counter that versus taking care of the people who are in our backyard, because that’s what we’re supposed to do.

Josh Dorrell: Yeah, that’s well, that yeah, you nailed another one. That’s a that is a big challenge for us. And, and that whole idea that what you did five years ago or ten years ago, you may not get to do again and it may not be the same person doing it. And that is a challenge for us. One of the things that you mentioned it with clusters that we’re really trying to develop is what are some areas where there isn’t a single competitive advantage anywhere in the world? What are some new areas that we could develop a cluster around? Some of what are the new industries? And obviously energy and natural resources is something that we are looking really hard at because it’s something we’ve done for a long time. So you take a take a look at the whole idea of small modular reactors and how do we take the capabilities that we have in energy production today and oil and gas and coal and change some of that into utilizing that for developing what are modular reactors and redoing those parts over and over again with the same workforce. The other part is looking at things that are completely new. For example, we’ve got a lot of controlled environment, precision agriculture, and we have a lot of that research that resides in Wyoming at the University of Wyoming and in companies that are nearby. And that is an area where we think that there’s no one with an advantage. And even the folks in the Netherlands who are have a greenhouse advantage. They don’t have the advantage in the in that controlled environment precision and in vertical farming that Wyoming is developing right now in the cluster. And so that’s an area where we think what are some of the things that are not even being addressed? Can we go up and compete against huge industries that are already there? Probably not. We’re going to have to be pretty, pretty choosy on that.

Gordon Hanson: So, you know, that raises this really interesting challenge that Wyoming faces, along with a lot of other places that have discovered that they have reserves of minerals that all of a sudden are vitally important for what economic developments going to look like globally over the next couple of decades. Congo has cobalt. Indonesia has nickel. Argentina has tons of lithium. So does Bolivia. The Bolivian lithium doesn’t seem to make it out of Bolivia very often. All of those countries are talking about how do we develop manufacturing capacity That puts us on not just on that mineral extraction part of the new green economy, but on the manufacturing, but on the production side. An alternative approach is what you might think of the Norwegian approach. We’ve got oil. Let’s extract all of that oil and let’s invest it very, very wisely. And we’re going to ride the ups and downs by making use of our rainy day fund. That comes from knowing that we’re good at this one thing. We’re a small country and we’re going to just do that. So you all are kind of in on the first strategy. But talk to us about how you think about talking yourselves down from the second strategy.

Josh Dorrell: You mean the Norwegian strategy?

Gordon Hanson: The Norwegian strategy.

Josh Dorrell: Well, in a lot of ways that is something that we already do. So we have had, you know, tremendous mineral wealth. And we I think we have the largest rainy day fund in the United States. We have a very large rainy day fund. But at the same time, I think my agency is is less is a little less concerned with those things. And my agency is more concerned with how do we make sure that we don’t pick one or two of those strategies, but we actually enable economic growth at that local level. And so how do we start with the capability? I think the whole idea of adding value to your first strategy that you mentioned, that one’s pretty challenging because the market decides a lot more on that one. And we’ve been I think we’ve been riding the Norwegian we’ve actually been utilizing that strategy, maybe not on purpose, but we’ve been utilizing that strategy for a number of years. And I think what we’re saying is you don’t want to continue to we want to utilize that game, but we want to have an end strategy as well. So and these other things that can help maybe make it a little less bumpy, I guess.

Gordon Hanson: So you’re your leadership training program for economic developers is a really intriguing thing. And, you know, one of the things got a lot of folks that in a part of the Growth Lab, part of the Center for International Development that studied economic development in other contexts. Many other countries development strategy gets articulated at a central government level and gets articulated down. Subnational governments are following orders. There are exceptions to that. U.S. is not like that. The U.S. is chaos. You even in a small state like Wyoming, the number of district boundaries and jurisdictional fragmentation and it’s just is is kind of mind blowing. And in that world, we have developed this kind of special layer of economic development organizations that play this role somewhere between the private sector and the public sector and civil society. And if I am hearing you right, you understand that those capabilities, leadership capabilities at the local level in that domain are really important. And we’ve got to play a role in imparting those skills. So I’d like to hear more about that in terms of is this about just leadership per se, that we have a sector of the economy that needs people who have basic management leadership skills to run an organization? Or is this more about training folks and specific strategies for economic development, better about the sectors, about credit markets, about workforce development? Or is it some combination of the two?

Josh Dorrell: I would say it’s actually more the first where we’re trying to generally do general leadership capabilities, because one of the things that and this is a it’s a pretty interesting thing that I realized I utilized a triangle or a pyramid in that. But you have the constellation idea where you have a lot of these distributed groups doing their own thing, but utilizing the resources of others and the methodologies of others where you have that top down approach. And, and the challenge, I think, is that the top down approach doesn’t work. And it is it’s more like a constellation or chaos in the United States and in Wyoming as well. But for us, it’s more about the general basic level of leadership and how to take a community from one place to another, rather than saying here are the specific things that you should do and now execute. Because quite frankly, as you look at the differences amongst Wyoming communities, I don’t think we can do that very well. I think we could we could help a couple communities win with that first approach of saying here’s top down to do these specific objects. But what we’re trying to do with the with the Growth Lab and work there is build a methodology and help people solve problems with the right methodology, no matter what the problem is. And so it’s it’s a little bit more philosophical and it’s less directed.

Gordon Hanson: So one more question before we open it up to the to the audience. As you were talking about learning how to say no and this kind of strategy change that you undertook a couple of years ago, just saying no to at least kind of half the dollar value of projects that are coming your way. This is a challenge that lots of economic development organizations face with when you’re have more of the Regional Industrial Development Corporation model, you have a portfolio of real estate, you have metrics of return on investment, and it’s a lot easier to say, okay, you need to show us ROI above this or you’re not in the game. You now have such a wide range of activities that measuring ROI is complicated. It’s a mix of private return on investment, but also this more nebulous concept of the social return on investment. And one, how do you think through that prioritization as the projects come to you? And then if you could say a bit more about how you communicate that idea without telling people flatly, sorry, your ROI is just too low for us to count.

Josh Dorrell: Yeah. And that’s that’s a it can be a bit of a trap. You’re right. For a for a particular company or a particular regional industrial Development Board that that can be a little more simple for them. But where we have a very broad range of communities and needs and, and places that are in a different stage of their development where sometimes the ROI doesn’t really pencil out on that project, but it might on the future things. We go through a pretty rigorous scoring method and it’s and it’s not all just numbers. We work with the board of our board of directors is 13 people from around the state and they have regional as well as industry representation and they all look at those two. So we kind of go through as our team. We look at it and say, okay, does this create great jobs and does it are those jobs going to be around long term? Does this help the community actually do the next in economic development project or two or three? Does that get rid of a barrier to growth that we see? Maybe it’s a water line for the infrastructure or maybe it’s no, it’s getting a project over the hump in terms of its own project or why does it get rid of that barrier for growth. So we look really, really closely at those things. Then our board as an investment committee looks at them and then our board of directors looks at them and then we make a decision and communicate it back out. Is it hard? It is. I don’t know if it’s ever going to be easy and we’ll never have a number, will never have this number that says, Oh, you’re above a 2.4. Funded. You know, we’ll never have that because we have such a disparate amount of folks along the spectrum. And so what we’re working to do is get in to the project before the project happens and after the project happens so that we kind of take a more holistic approach. I think for a long time we funded the project and expected that it wouldn’t happen, that things would just happen on its own. So we’re asking people to really look ahead of time and paint us the picture of the future. And in some cases, we’re going to get it wrong. Like, we will get wrong. I mean, the investments that I think the state makes in those has to be an economic development, has to be more risky than a private investor. And so we’re never going to have that ROI cut off. But we’re always going to be let’s just say we’re always going to be in the spotlight answering tough questions. And I think that’s just part of the game in Wyoming.

Gordon Hanson: Well, thanks for just sharing a couple of minutes to chat. I am super interested in what you guys are doing and it connects with some of the things that we’re trying to work on in Kennedy School right now. Let’s open it up to the floor. I think what we’re going to do is to take two or three questions at a time and then give you a chance to answer. Attendee Hi. Thank you. I was wondering if you could tell us the story of two types of businesses, the big multinational or big American company that comes and tries to do business in Wyoming. And then the story of innovation, entrepreneurship, new things.

Attendee: (Inaudible)

Josh Dorrell: I only pick winners and losers is the so. So I’ll cover. Maybe I can cover both in one particular answer. So the story of the large organizations that come to our state, typically speaking, has been a story of energy. So if you look at the large multinational organizations that are in Wyoming, those tend to be the large that Peabody calls the ExxonMobil of the world, the Chevron, those big companies. And and they utilize and and look at our kind of our natural gifts that are under the ground. And they create great jobs for folks. Wyoming has one of the things that they have in that that they brought to us is they’ve brought a really high standard of living in Wyoming. And so they find it fairly easy to do business in Wyoming. They find a workforce that is willing to work in those industries, and they do a good job of paying people really well to do that. And so I think by and large, it’s been a very successful example of how those large companies can utilize a great workforce and utilize the resources that we have on the innovation side. And maybe this touches on a little bit about your question about some of the projects that we have that are really exciting. On the innovation side, I think we have a lot of room for improvement. One of the things that we haven’t done very well over the course of our history is commercialize research out of our university system. We just haven’t done a great job of that. We have some of the resources in place. I think it’s getting better, but that’s an area where I really want us to grow more. In fact, we just recently are now utilizing our state small business credit initiative, which is the CPI. We’re utilizing it all for venture. So all forward, we’re able to use that for funding those high growth companies and that’s super exciting for us. But it also is going to I think it’s going to highlight how challenging it is to get deal flow in a small state because we are going to have that. We have one university. I know that that’s going to sound a little bit odd to to a place where I guess you could throw a couple rocks and hit other ones, right? You shouldn’t. But we have one university and a number of community colleges around the state. So the scale that we have to innovate is tough. And that leads me to one of the projects, and I won’t say it’s my favorite project, but it’s a very recent project that has a lot of promise in and demonstrates the fact that one researcher from the University of Wyoming had an idea, started working on that research, commercialize that research, pivoted a bunch of times like startups do, and then developed a type of farming that is breaking yield records for things like tomatoes and strawberries and lettuce, and is now doing that on a global scale and has been, you know, as has attracted $1,000,000,000 in investment from around the nation. So I think it’s really exciting and we need to take that model and do it over and over and over again. And that’s something that we’ve been a part of because we’re developing the first big research and development facility for that company in Wyoming right next to the university. So it’s a it’s a very exciting time for us in that particular agriculture space. And that’s a that’s a project that I think has a lot of promise, but it’s not perfect. Great questions. Thank.

Attendee: I was curious how you guys feel about remote work. Like, obviously Wyoming’s a beautiful state. Do you have low tax incidence and you have a lot of people who are now finding out that they can work from anywhere in the world. So it seems like a great opportunity to attract those kind of people to Wyoming at the same time. Locals hate those kind of people. They push up property prices and, you know, they just they have different ways. So I’m curious how you sort of navigate that.

Attendee: So the youth aspect that there were demand for so that ash coming from lithium carbonate could be something that would move their the industry. They they they so that industry or that it might not be enough to change the picture. Thanks.

Attendee: I’m interested in the sort of good jobs commitment and that sort of long term relationship that you have with the fundies, kind of once the money’s gone out the door. Have you got any sort of examples of experiences of where money’s out the door? Funding’s gone and then the jobs that you’d predicted to come haven’t materialized and sort of what you’ve done with those sort of funds and that relationship after that point?

Josh Dorrell: Excellent questions. All of those are excellent questions. I’ll go and handle an order. So. So in terms of remote work, you know, it’s not the I’ll say it like this. There is no perfect answer. I think what I like about remote work is that we’re able to offer all of the amenities that Wyoming has, like open spaces, low tax burden and things like that. And we’re able to hopefully from the remote workers, get that capabilities boosted up. I look at it as a positive because if we can bring people in that have more capabilities or that want to get involved in their communities and continue to help their communities grow, that’s a great thing. And we do hear from locals a lot like, well, their kids are going to go to school, too. And I turn to them and I say, like yours do. I mean, we kind of sometimes you just have to reframe that. And I do think that you you know, you have to as a remote worker, you have to consider all of the factors when you’re when you’re moving into a into a place. The one thing that I don’t have a I have a bit of a hypothesis about remote work and I want to I don’t I probably won’t discuss it out. But I wonder, too, if without the corporate headquarters and the management structure and the varying types of people that you have in an actual business being in a location, do you get the engagement with the community? Do you get all of the kind of those capabilities really leveraged or not? And I just don’t know the answer to that yet. And so that’s something that I think remote work has some promise it’s going to have some challenges. To your next question, I think it was about was it about sodium by carbonate or lithium carbonate? Right. Yep. Yeah. So I admire my mechanical engineering background and chemical engineering background is not super solid right now. But but what I can tell you is that we do have, you know, a lot of resources in terms of the rare earth elements as well as as our target of mines. We have a system in place to mine. So we understand that. I think it’ll be pretty interesting to see whether that can be done economically and what that’s going to do. Just in terms of soda ash, I think we have like a 5000 year supply at the world’s current demand. Of course, that’s going to change. But also 5000 years is a long time. It might be 2500, but bottom lines, thousands of years of of of natural Trona. That’s amazing. So thank you. Yeah. And then thank you for asking that question. That’s, you know, it’s unpopular when you tell people no, it’s also unpopular when you tell them, hey, you said you were going to do all these great things and you didn’t. Right. And I would say up until this point, we we report on projects for a five year period of time after the project occurs. And that’s something that we have to provide to the legislature who helps us establish our budget. And it’s something that we have to do to own up to when people say, well, this project didn’t pan out, but you spent millions of dollars on over time, we have been less about holding people to those numbers and more about hoping that they hit those numbers. But over the last year, we’ve really looked at how do we tie the to things like payback or things like, you know, what they’re responsible for to the actual project so that we have that, you know, sort of I’m not super happy with these terms, but carrot and the stick, right? We’ve given you this, but you haven’t haven’t performed. What we have, what we will do into the future is continue to tighten that up so that when a project doesn’t perform, they may have some standards that they have to meet more than anything. What we’ve done to this point is we want to we want to talk to them early and often so that if they see themselves dropping in what they said they would do, we can help build that gap back up. Because ultimately when you’re building capacity, you want them to hit those metrics, right? We don’t want to punish them when they don’t. We want to help them hit them. So that begins that cycle of learning. So great question. Thank you.

Gordon Hanson: So lots of interest and and what you’re doing, I think for a lot of folks here, you know, Wyoming doesn’t come up every day. And what we and what we do in the Kennedy School, it should because you guys are at the center of a bunch of really important challenges. How do we bring these new material reserves into production in a way that’s good for the global economy, good for the economies that are producing these, are producing these materials for us? And how do we think about developing the capabilities of the organizations that ensure development works kind of all the way along the production chain? And you guys are at the forefront of that. Thank you for sharing with us. Great to meet you. And just best of luck on the project you guys are undertaking.

Josh Dorrell: Thank you. Thank you very much. Thank you all. Thank you.

DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies. 

Soraya: So Ann, to dive right in, can we start with understanding the core question, Why does South Africa a country with so much potential still flounder? 

Ann: Let me say how delighted I am to be here and thank you for the invitation and lots of friends in the audience. That’s great to be interviewed by a South African. So South Africa is one of the few mineral rich countries that is middle income, and we are a society with enormous potential.  We were a democracy with a constitution that works pretty well. There are few countries in the world developed or developing, whose President is called up on National Tv at the Zondo Commission and asked to account for his actions as President of the Anc. As Deputy president of the Anc. And as leader of the country.  We have an independent judiciary. We have an enormous country, really a very big country, with very beautiful, enormous potential for tourism. And of course we have lots and lots of minerals, what you might call some of the old stuff, or what Ricardo would tell us some of the new stuff for growth. We have one of the developing world’s.  Most effect of financial sectors, and We have a system of cities that is unusual in the developing world. Most developing countries have one big city that’s kind of overwhelmed, as the country urbanizes. South Africa, has eight metropolitan areas, of which at least five or six or reasonable places which absorbing people in different ways. So we have a lot of advantages, and of course we have great people, i’m not so sure about the politicians. 

Soraya: South Africa is mineral rich. We’ve come through a peaceful democratic transition. We have a few strong institutions like our financial systems and private sector companies. However, on many global indices like inequality, one hundred and fifty education, unemployment, health and housing. South Africa is falling wealthly short. Why are we in this position? 

Ann: So this is an important question, and they are probably different answers. Let me start by saying South Africa was always going to be a hard place to govern after apartheid in centuries of discrimination, a very powerful and terrible system of apartheid that affected millions of people’s lives.  This was always going to be difficult. On the other hand, I think there are three reasons why we are in the terrible situation we are in now.  He first is what our President likes to call the nine wasted years which are the nine years under his predecessor, President Zuma, who,  Protestations of black economic empowerment, notwithstanding, enabled a family from India to come and, together with South Africans, black and white, essentially looted the State on an industrial scale, and in so doing their undermined institutions. That’s his explanation. But I don’t buy that. I think he neglects to remind everyone that he was deputy president of the Anc. At this time he was chairman of the Deployment committee for the five years at the height of State capture, when people were put into think it’s in an inadequate explanation. Nine wasted years as the that was somebody else, and I i’m the new guy, and I think in some respects you have to say we’ve had for the last five years a flailing reformer. He raised hopes he seemed to want to do the right things. He has done some things. We are now starting to see a range of people who participated in destroying institutions being charged with fraud and other crimes. Nobody yet in orange overall overalls, but i’m hopeful. But the process is starting, and I hope a lot of people are getting very worried.  So he has done that, and he has what’s been people who are not correct to do that. He has also made one or two policy decisions that potentially really important in the energy area, for example, with South Africa is in deep trouble. Um. We are now allowing beginning to allow a market to for energy to appear, but we’re very, very. We’re at the very early stages of that, and no guarantees. We’ll get there erez agmoni. I think so. We’ve had a flailing reformer who has failed to do a a range of things from improving education to having people in his Cabinet who are both corrupt, and some are completely incompetent. One who knows the marriage of the two, or what that means. But at the top levels of government. Increasingly.  There are people who it’s hard to ask a South African audience name me a minister you respect who can actually do their job outside of some pockets of excellence which are the South African Reserve Bank and the National Treasury, and perhaps parts of the Presidency. But The third reason we are in deep trouble is, whatever the Harvard technical term is bad policy decisions. They are bad policies that have come out of the Anc. And have been implemented, of which the most important cadre deployment, where they’ve appointed people to key positions to this day because of loyalty to the party rather than competence to do the job, and then the other. 

The thing, I think, has been absolutely critical is they fail to appreciate. Never mind, understand the power of markets and firms to help transform South Africa. And so, even when famously, Nelson Mandela came back from Davos in the Ninety S. And said, I’ve been persuaded  We have to understand markets, global markets and deal with global markets and essentially move towards a social Democratic rather than a Communist position. At no time did he or his successor and Becky two Persuade anyone else of why they had changed their minds. So there wasn’t a big campaign to explain to members of their party or their government why they had moved to a very different approach to how to govern South Africa’s economy. So to this day. We have Marxist language, and we have far too much faith in a developmental state whatever you might think of this ideologically, is just a joke. When we have a weak and corrupt state. So the Anc. To this day and the President want the the State to lead the State to direct the economy. And this is just ridiculous. The current level of capacity, competence, and integrity of the State from top to bottom.

Soraya: Those outcome sound bleak, and I think, despite those big outcomes, perhaps you and I share some optimism about our country. You recently shared in a talk that South Africa is one of the top three countries after the US. And Canada in its Coquit citizenship. And I’m curious, what then is the role of South African business to maximize the corporate citizenship for the development of South Africa?

Ann: You posing to three very important questions. Let me take the easier one, which is, I have very strong views on the role of business in society, in any society. I think the most important place to start that conversation is not where most people start it. Most people want to start with, what more are you going to do for our society? And they take for granted the running of a profitable, legally compliant institution? I want to start the conversation with any successful modern business, and most of them do comply with the law. Any company or firm like that is providing a service to society already, otherwise no one would buy their products.  But they do much more than that. So, being a profitable company, means you’re providing careers for the people who work for you. Probably health care, unemployment, insurance pensions for them and their family. You pay taxes. These are the most legally compliant institutions in the history of humankind. That’s where the conversation should start. That is their most important contribution to society, whether it’s through innovation or the corner store that I could go to, or the pharmacy in the middle of the night. So that’s I think, really important. Before we start the conversation about, what more can you do for society? And a lot of the time, like companies all over the world, this involves ad hoc projects. It’s kind of nice picture opportunities for the Ceo to open a new school or do something like that. It has started to change in the biggest companies who are trying to collectively have a bigger impact systemically on, say, education, one hundred and fifty. But it’s not nearly advanced enough, and my guess is that’s the case in many other countries. So I think corporate’s investments. Social investment is a really important. It’s free money. It’s money that doesn’t have to be spent on teachers, salaries, or all the things that public money has to be spent on, and that’s then one hundred and fifty implies much greater thought about how to use that money strategically and to have a real impact and the best advice I ever heard on this, which it’s easy to say, but harder to do. Is there is an American who said to me,  You know, if you think of education, however generous the American private sector, Canadian or South African, which at the time were the top three in the world terms a proportion of money donated to social investment one hundred and fifty.  It’s less than one percent of the National Education budget. So, according to this person which I agree with private dollars, should be used to influence how public dollars are spent. That’s how you have 
impact in society, and that’s easy to say as I said, it’s harder to do, but it is possible, and it requires a different kind of approach to how most people think about this, and i’m not talking about. Let me be polite. Um. The current debate on Wall Street and elsewhere about Esg funds. A lot of this is marketing. A lot of it is hype coming out of companies and the industry around social investment Shouldn’t believe anyone don’t believe all their reports destroying many trees on inputs. They tell you all, we spend this one on entrepreneurship, and that on something else.  And then, in case I want to know about output, and most of them never tell you about output. So this is a much more complex area than I think is often allowed. Lots of let’s just call it marketing that goes into this rather than reality, and we should be pushing much harder for serious engagement on serious issues, and to pretend that E. And S. And G. Can all be being together in one little happy phrase, ridiculous. And so i’m opposed to this glib sort of staff. But it’s very important kind of precious money. In a society it should be used much better.

Soraya: In addition to the the dollar contribution, one of the ways that business can make a meaningful social impact is on job creation. And so this is an area that is a lot of sleep, particularly in South Africa, one hundred and fifty. And if we were to matter in on that topic specifically. How can businesses make more meaningful contribution to job creation and gift people onto that first run in employment?

Ann: Sure with respect to the where you phrasing the question. South Africa has one of the highest unemployment rates in the world, So there’s a lot of chatter about job creation as though business people get up in the morning and say, how many jobs can I create today? Most business people, ninety nine percent of them don’t get up and think that they get up And think, How am I going to make sure my company survives and we can make a profit? That’s what they’re thinking about. Jobs are a consequence of growth and firm development. So it’s important to think about this properly, and I wish South African business would push back more with the Government for this loose talk about this. So one the real issue in South Africa, I think, is it’s twofold. You have to create an economy, but And you facilitate economic development that deals with the the workforce we actually have and not the skilled workforce. We we think we have, or we wish we had. So you need jobs for the kind of workers that we have. How do you do that? Well, Firstly, you have to one hundred and fifty facilitate it. You have to make it easier to create firms. And now i’m going to reference Ricardo in some ways. On the one hand, you have to think about South Africa’s spatial legacy, and how expensive it is for poor people to get close to economic opportunity. Apartheid was all about keeping people away from the centers of economic growth, and inadvertently, not deliberately. The democratic government has Erez Agmoni had a housing policy that has pushed the poor further away and not brought them closer to economic opportunities. So that’s so. Transport is clearly one big issue. The labour market is a second issue, where one the government, when the ends he came to power. They wanted a high-wage, high-skill sort of economy, which is fine, but they didn’t bother to train the workforce. They have not improved basic education in any significant way, and our skill system, vocational skills is expensive and and doesn’t produce the numbers. 
People trained to do what our economy needs. So we haven’t done that. But we also have encouraged, 
if you like, the top end of the economy, to do deals in a factory or an earth, a workplace where the urban elite in the workforce make a deal with the employers, and then the Minister of labor extends the wages and conditions and hours, and so on to everybody across the country. 
And that’s very harmful. So we don’t create nearly enough low-skilled jobs for the population that we have one hundred and fifty, and we keep talking about as to people in America and elsewhere, and the Eu they want decent jobs. I just want jobs for people to get a first foothold in the modern economy, and I think the more adjectives you put in front of the word jobs, the less jobs you’ll get.

Soraya: If we then abstract the questions a little bit. I’m wondering about what preconditions are required for business to co-author, a prosperous future for South Africa, or our preconditions of policy?

Ann: So co-author is an interesting way of putting it South Africa needs a very different approach to how we run our economy. That requires a very different understanding of the role of the State. The so current South African State is struggling to do the basics that any State should do protect people’s, lives, protect property, small businesses are destroyed when crime happens and they’re broken into and so on. So I think the South African State should concentrate on rebuilding professionalized, and focus on the basics, fix the roads, or or get someone else to fix the roads but the basics, and they should free up as much of the country as possible, and as much of the economy as possible for private sector actors to operate in competitive rules. 
The enormous opportunities to do that. The the rest of Africa is Some parts of it are really growing fast, and South Africa can play a really important role there in some ways, like Hong Kong did for China. That should be how we should be thinking about South Africa for the rest of Africa. 

But we have to stop monopoly provision of very basic services for the economy. It’s one thing to be a monopoly, to be a useless monopoly to not allow competition to not provide services, and the few services you provide you provide very at a very expensive rate. That’s electricity. Our ports are some of the worst in the world, and they should be some of the best. And our railway system, which was a real asset, is, is not working very well, so there are a whole lot of things that need to be fixed, and, in my view, so one of the South African dilemmas, and then our stop is a lot of people know we have to reform. The conversation goes like this. We have to do the following kinds of reforms: You’ve got to reform monopoly, provision of railway power ports, etc. We need to fix the roads. We need to do change the education system. We need to the telecommunications needs to be completely modernized and much more competitive, and so on. 

But they said, the State is very weak, but we all not our heads, and then five seconds later, they tell us the State must do the following things to reform, and i’m the voice in the room that says, Hang on this State is going to really struggle to manage the reforms we need. The only capacity in the country of real significance lies outside the State, mainly in the private sector, which is an impressive private sector for a developing country, and they could do a lot more if the Government would open up the seriously open up space for South Africa’s, some of our world-class companies and our financial institutions to play a much bigger role in. Yes, to make profits, but to help rebuild the country, and that’s I think, the key variable.

Soraya: Thank you.  I think, before we turn to questions from our audience. I’d like to end with a broader question. We’ve got many students in attendance who will work at the intersection of the public and private sectors after leaving HKS. What should these future policymakers do to unlock the potential of private sector in driving national growth?

Ann: Well, let me restrict this to I don’t know the way. It’s a big question, so think the history of the last period globally has shown the enormous power of markets operating in competitive circumstances in imperfect countries. You, don’t need perfection. I think that people who go into the State Should understand the power of markets, and how to use that to help develop countries. On the other hand, you know, after all, if a clever state can get the markets to do all sorts of things, or enable them to do all sorts of things, and then claim this as their victories. It’s not as though you have to you. Then say, look what we’ve done. It’s not that you’re giving credits all the time. So there clever ways to do that. On the other hand. I think that people who go into the private sector dealing with the dreaded e is. G. I think you need to be strategic. You need to think about the real role of companies and the enormous power of markets, core companies not. And then what else you can do as corporate citizens in a particular country, and I don’t know, Don’t believe anyone sort of do your own work and be skeptical about. Hi, but think hard about the role of the market and the state, and how you can use that to change, to improve things for the better. But don’t be fooled by a lot of the I don’t know the chatter about all of this. I’m not sure if that’s what you were looking for. But thank you, Anne, thanks so much. We’d like to welcome questions from our audience. Thank you. I believe we have a mind. 

Attendee: Thank you, Ann, for a very informative discussion. Um, i’m also South African. So probably a little bit biased in terms of my questions. But I hope to. The first is um related to States and the private sector. I think I feel like there’s an inherent distrust between the two, probably along political and racial lines in terms of the private sector being inherently white because of history in the country and government being historically black because of new emerging transition. That’s happening. And how do we break down that barrier and create more trust between the two, so that we can actually overcome some of these blockers. And then the second question is related to the State itself in terms of government. I think we seeing such an amazing emerging class of well-educated South Africans across all spheres and how long the anc continued to have a hold In terms of old ways of governing with such young vibrant energy coming through. And what does that look like? 

Ann: I think there are two things about business and government. I’m very hesitant about using the word we need. Three years ago people would say, Oh, we need greater trust between business and government, and I was on a platform the other day, and I heard someone say that. And I thought, Yeah, a lot of crooks in government. I don’t want business to have greater trust between with them. We know what happens then. I think there is an ideological issue. The ruling Anc. believes in a developmental state, a sort of fantasize about an East Asian State, but they aren’t one until you break that fantasy. In my view, it’s going to be very hard to make real progress. That’s the one issue. The second issue is the business sector is obviously not perfect, and there were leading companies involved in State capture leading international companies from Bain to Mckinsey. 
Don’t go and work there, everybody. If you behaved appallingly Um and other companies S. And P. And others, they should be charged, and people should go to jail if they broke the law. And I support the South African Government, saying they are not going to work with being in future. And the yeah Uk Government. Perhaps you could talk to this government. So there’s an ideological issue, and it’s our history, and it’s almost like you want to say things are so bad. Can we talk about the future? 
We’re lucky as a country to have the private sector that we do with all its imperfections when covert hit. The South African business community responded so quickly, and I have yet to find another country where the business community responded in the way that they did. They put up enormous sons of money for the public good. They organized themselves to help deal with, remember the days of PPE, and so on, and then the vaccine. Without them we would not have been able to vaccinate the percentage of the population that we have. Not that it’s fantastic. So I think they did an incredible amount. They also pulled together a whole lot of people to write the world’s longer strategy document for the economy of one thousand pages. But you know the enormous detail and commitment and seriousness.  This needs to be recognized when there needs to be a whole different attitude. Our business also needs a different attitude to government. They think what’s wrong with these people. Governing is easy, and it’s not so. There is some fault on either side. Um, which I think needs to be dealt with, and how you cut through that. Well, of course it’s always the option of a new government. You can throw the rascals out and put a new bench in. 

Sorry. What is your second question about? Oh, right? What about young people? Well, you have to stop cadre deployment first and foremost. So cadre deployment is the term in South Africa for the Anc. Government and C Political movement. Having a committee chair by the deputy president of the Anc. Who’s normally the deputy president of the country, who sits and they discuss. Who are we putting up for the judiciary? We have an independent process to choose judges, but this committee decides who they are going to put up who they’re going to put up for top positions. Head of Escam, head of the ports of everything you can imagine. Now they say, this is just like any other country, the ruling party We’re making suggestions. And then in the government there is an independent process of recruitment. But this is doesn’t hold water. Why would you have such very senior Cabinet ministers, deputy ministers generally of the country chairing this political parties Committee on who should get which jobs it’s just, you know, doesn’t matter. I don’t believe it. Nobody believes it. And, in fact, the deputy, that Deputy Chief Justice of the country, now the Chief Justice of the country, in his report on State capture, said that he thought Cadre deployment was both illegal and unconstitutional. 
There’s no doubt in my mind that it’s been a key factor in undermining state capacity, because it would be. Are you loyal to us? Will you give us a cut by making it up of the loot you get? Will you make sure the procurement goes in a certain way you can imagine the conversation that takes place and not. Are you a competent engineer? And how many years of experience do you have? And why should we put you forward for a very important position? 

So you have to cut this, and the answer is divided on this. See some leaders saying we should cut it now. But the key for South Africa is to hold the educated people that it is training, and we now have many more black South Africans coming through our universities. More black engineers, more black teachers we’re doing, not fit. Consider our past. We’re not doing badly. It’s improving. So there are lots and lots of people coming through the system, but they need to. Then, like all of us work well-run institutions where you can learn on the job. This is the home of know. How do you get know how you watch? And the people running the engineering firm or the legal firm actually do their job, and you put in your years learning and then improving as a professional. And that’s not happening well, partly because of carto deployment, and partly because one, I think, a very badly implemented approach to black economic empowerment. 

Attendee: I’m originally a Brazilian, But in the summer working and I also a venture capital fund in the city, and one of the notice. It was very hard for the fund to make investments that want right men to be Africans, and it also used to be on their second or third entrepreneurship endeavor. And I think that there is a lot of conversation in the country at least, that I participated this summer. That spoke a lot about how entrepreneurship can move the country forward. I’m curious on your thoughts about how you can be able to leverage entrepreneurship that goes beyond The Africans white Western Cape kind of uh environments. And if you have any thoughts about how the private sector can do more things to do that beyond. Like Allen Gray founders and that kind of stuff.

Ann: Lots of layers here. Great question. I would stop the way it’s currently legalized and implemented. I would fix education, you can start making a difference in six years. But it really makes a difference. Some seventy percent of South African learners in our schools can’t read right? Add up in any serious way at all, so we can’t discuss entrepreneurship within. We should stop talking in my view. Nonsense! Which is, we look at a whole lot of unemployed young people, and we say you should all become entrepreneurs, and they are people who generally come from homes where nobody works, or a community where nobody works. You just set them up for failure very bad strategy. So we should stop wasting time there. One hundred and fifty, I think we have a reasonable, but i’m not an expert sort of venture capital sector, and it’s growing, and there’s lots of money in the banks and financial institutions to invest. So we need to allow the real entrepreneurs to emerge without preconditions with the bee kind of preconditions, and then we have to fix the environments in which they would operate. Okay, maybe sort of people don’t know enough about this. These are an ever-expanding set of regulations which to new investors, for example, you’re about. You’ve discovered you want to explore for minerals in South Africa, and you’d like to set up a mine. You have to give away half your profits before you have any by finding a black partner. It doesn’t have to contribute anything. They just have to be black before you can get funding before you can conform with the government’s laws. So that’s just one of the issues um, and they they’re a range of other. Be constraints that hold back new investment and new invest tools. There are other issues. So, leaving aside that take minerals. Okay, South Africa has not invested in new exploration for the last. I think it’s twenty years. It could be at least fifteen. Why, there’s real possibility for all sorts of minerals, but there is dispute about the property rights system, and what rights the mining companies will have their disputes about who owns which piece of property And because we don’t have an effect of cadestral system. The mining sector has said, We’ll pay for another one. No, it says the department will do it. But there, one hundred and fifty incompetent. They have vested interests. They all sorts of swirling accusations are not competent to assess. Why does this all take so long? So there are there are a range of issues. They’re told back entrepreneurs, I think, in some respects at a big level. There is a lack of confidence in how the country has been governed a lack of confidence in where it’s going. We don’t have a vision for the future that’s plausible, and the politics is unstable. So they are big factors. The economy is generally stagnant, and that’s partly because big investors are not seeing.  The environment is one in which they can risk their money. So that’s a part Answer to your question.

Attendee: Hello! My name is Douglas Barrios. I’m the Director of Policy Research at the Growth Lab so many here, or several here are in their training students, and one element that, at least in the MPA/ID  program they share about thinking about policy design is that good policy. It needs to consider what is technically correct, what is administerably feasible and what is politically supportable. And I think we’ve heard a a lot of the direction in which how policy making could improve in technical terms, and where a state capacity could grow. But I was wondering if you have some inklings inside thoughts about what are elements of a political equilibrium, or in a political narrative, or a political coalition that would support these types of reforms, eh? As Lant Pritchett would say, the current equilibrium is an equilibrium for a reason, because there is political support to what has happened. So what what could be some ah ideas about an alternative political equilibrium that would favor it.?

Ann: It’s a vital question. Let me start by saying I run a non-party political organization. So bear that in mind, and one of the hopeful things about South Africa is that until about two thousand and sixteen our elections were racial referendum because of our apartheid past you could predict how people were going to vote. And it was race. It was the past, and it was race two thousand and sixteen, a whole lot of mainly Anc voters stayed home. They didn’t vote about three million, which is significant in the country of ours. The number of people who vote in our country. And this phenomenon has increased to last year’s two thousand and twenty-one municipal elections with they will run. It’s really a referendum on the president his face was all over the country. It wasn’t like the local candidate. It was the President. They got less than fifty percent of the vote. They’ve lost the big cities, the current government, the electorate. 
So we are entering an era of much more competitive party politics, which is healthy after all. We Haven’t had a change of government which some of the theorists would say is the key marker of a really democratic society. We have had a change of government in. We have provinces or states. We have nine of them, and in one the Anc. Has lost power, and what happened there is, they lost power initially by a very small margin, and it just gets, It’s big now, but in no other part of the country, except in the Metro governments and some smaller towns as well so much more competitive politics. We are heading towards a general election. One scenario is that the current ruling alliance really, which is the Anc. The Communist party and the one of the the biggest trade Union movement, although that’s now split in two directions that they retain a very small majority. But they will lose seats which won’t make people in their party happy. So that’s one scenario, probably the most likely. As we sit here today, there is another scenario which is that the Anc. Goes below fifty percent. Now, if they go below forty, five percent, they’re going to struggle to form a government unless they go in with the the third party in South Africa’s system, which is the economic freedom fighters which sits at about ten, eleven percent of the electorate and are a very bad party make me just say they have a style of politics. That’s fascist. They are racist. They’re violent, often, not all the time. But these are not a model Westminster-style party. Um, Now there are many people in the Anc. Who fear getting into bed with the ef is young and quite. They’re smart, as many Populists are. They’re smart, energetic, and I think it would lead to a breakup in the Anc. That’s one possibility, and I think it’s it’s a possible alliance, but it would. It’s unlikely, in my view, one that it’s possible. So if the Anc. Doesn’t get into bed with them, what about the opposition. Now, if they around forty, five percent or less, if they’re above forty five percent, they can do a deal with. They’re lots of little small parties, and we have a Pr. system for a whole lot of reasons, which unfortunately, is not a great system for South Africa, but it encourages smaller parties, so above forty, five you can find smaller parties to align with below forty, five, and you don’t go in with them then what happens? That’s the big question, so could there be an overture to the official opposition at twenty five percent as we sit here today, Will the official opposition get into bed with them a dying party correct? What are the pros? What are the cons? What’s the deal? Or can the official opposition be the anchor for an opposition alliance that can take over government, perhaps as a minority, And that is not laughable. A few years ago you would have told me to get out of here. It’s a really ridiculous idea, but it’s not laughable. So South Africa does have more competitive politics, which is good. Our good constitution has some imperfections. There’s a big debate at the moment about whether or not independence should be allowed to stand for election, and how you do that in a Pr. System too complicated to explain. I think the Government has backed this issue. Unfortunately, because there is a solution. There is a was a committee appointed a few years ago, which many and then another committee recently that supported a mixed-German type system which more or less, would in most People’s view, be a much better alternative, but we don’t have that for two thousand and twenty. Four. Constitutional reform is on the table now. So there isn’t a simple answer to your question. But I think this: the situation in eighteen months time is going to be worse than it is today. The politics of that start looking interest the politics not living there, but the politics start looking much more interesting. I think there are going to be at least one new political party early next year of reasonable. Social Democrats, let’s call them, which will be a break with the Anc. And it will be black. So this is the space to watch. It’s very hard to predict as we sit here now, all right quickly. Thank you. Sorry for the moderation.

Attendee: Thank you. Ann. I’m Mark from Haiti. I’m a mid career here. I’m more curious about the role South Africa can play in the region you mentioned a little bit Asia Um. So today we’re looking at Nigeria, Egypt. We’re actually ahead. Now. What rule And how do you think South Africa could actually help shape the continent?

Ann: Second, look at how they calculate that they’re ahead of us. But leave that aside. Um! I learned really Key, i’m not an Africa specialist, but I think there are enormous opportunities. 
One of the issues about South Africa. The region is migration, which I think is a really important issue. The country needs South Africa needs skilled migrants, we have an ambiguous policy on that. But it’s ironic. We have so much unemployment, and we desperately short of skills, even when we’re growing at one percent. If you give to three, then we really need many more skills. So I think South Africa should be much more open to skilled people. We can discuss where you draw that line and where we make it as hard as possible at the moment. On the other hand, our borders are porous, more porous than they need to be in a policy area that’s hard to have perfection. We make it pretty hard for unskilled people to come in legally. 

Of course, these corruption, so you can buy your papers. Who knows how many? It’s very murky area? We also don’t know how many people they are in South Africa. So we’re talking. I don’t know who to believe. If you believe anyone in the state they’re generally angling for more, a bigger budget for the police or the Border Patrol, or the this, or the that, or home affairs. And whenever you talk to the Academics the number is dramatically lower. So I think we don’t really know if we’re honest. We did a lot of work on this about ten years ago, and was quite clear that the numbers were vastly exaggerated in the media one hundred and fifty by interests, who want more money from the budget. 

But I don’t know how much things have changed. Really, it’s bigger. I don’t know about how much the migration is clearly a critical issue in terms of the region. That’s the one thing i’d say. The other thing i’d say is that the future of Satsar and Africa will be drastically affected if South Africa goes bad and that should be prevented at all costs. So that’s you know. I think we’ve not been very effective on trade, and so on. But i’m really not an expert. I’m afraid in that area I can’t help much collective business initiatives to address systemic challenges, and it’d be interesting. You mentioned that sort of Covid response in business for South Africa. What other examples are you seeing of sort of large-scale collective and industry, efforts and education, or the national business initiative are These are These affect a farther as a model that could be relevant elsewhere. South Africa’s business sectors got become more organized. As the situation has got worse, they’ve got more organized. They also speaking out more than they used to. They tend to do a lot behind the scenes, trying to influence the Government policy I personally have advocated. They should do a lot more in public, and ensure that they are their voice and their vision; for South Africa is communicated much more effectively to the society as a whole rather than behind closed doors. They are collective efforts of different kinds, the covert one, notwithstanding. We put a lot of energy into trying to get South African business to spend the vast majority of their social investment on education, to move away from Ed Hope projects about ten years ago, and we’ve They have been movements and significant initiatives set up to do that They’re different ones. His debate about effectiveness, this debate about have you made the State more dependent on the outside players rather than a stronger state, which we know is a danger, and we would argue that too few of the business initiatives are independently evaluated. So there’s lots of hi, but very few independent evaluations. So it’s hard to actually comment with with famous lots of energy, lots of marketing, I think, in in education where we have done a lot of work they has. They are really significant initiatives. There are also a lot of questions about them, and this. It’s really hard for me to take it further than that in public. Ah, because I don’t know enough Now the other people who would come here and say to you, the national business initiative is doing a great deal of work on climate change. It’s not my area. Don’t know anything about it. They people who would say that individual companies, big South African companies, are doing an enormous amount, and one of the points I wanted to make about a comment earlier is oh, very simplistically. talk about white capital, And you know the black government. I think the government is predominantly African now, and the Anc. Is ninety nine percent An African party now, which most people don’t talk about. It is increasingly, racially exclusive. But you know, I go to talk to a lot of boards in corporate South Africa, and a few years ago I was caught short because I just assumed I would be talking to a lot of white men, and I walked in. It was very clear. I’ve made a mistake, and I was changing my talk midway because I hadn’t appreciated how much corporate South Africa has integrated. 
So there are big companies now where the mid-level of the company is ninety percent black not through affirmative action, but through internal training or just pressure of numbers, and people are starting to come through the ranks in a normal way which is fantastic. They are useless at communicating this to the rest of society. So I think there’s lots happening, training and all sorts of things, but it’s hard to be authoritative on a lot of it, because distinguishing he from reality, is very difficult.

Soraya: Thank you, Everyone on that note more close of the talk. Thank you so much, Anne. It’s been a delight to speak with you and to your insights. Thanks very much.