Ideas Untrapped

I had a very interesting conversation Shelby Grossman - political scientist at Stanford University. We talked about her research on informal trade in Lagos, and what we can learn generally about how institutions form from her findings. You can read this essay for a general background and explanation on what Shelby and I discussed on this episode.

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Transcript

TL: Today, I am on with Shelby Grossman. Shelby is a research scholar at Stanford Internet Observatory and she is a political scientist. Welcome, Shelby. SG: Thanks so much, Tobi, for having me. TL: One question I would like to start with is that institutions that promote prosperity and positive economic activities like trade, like property rights, how do they develop in countries that do not yet have them? SG: Yeah, that's a great question and a lot of political scientists try to figure this out and you know, no one knows for sure. So there are many political scientists who think that there is a correlation between democracy and rule of law and contract enforcement. But I think what is interesting to me is how even within the same country, in different places, you can have different levels of rule of law and different types of property, of contract enforcement. TL: What are the patterns and the correlations that you noticed that really stand out from your research over the years? SG: In terms of property rights protection?TL: Yes.

And so what I've observed, I think the main pattern is that good private governance, good private contract enforcement, is more likely when the state is actually threatening the group - SG

SG: I think the thing that I have observed is, you know, a lot of people tend to think that when the state does not provide property rights protection, that private groups will emerge to provide this service. So private groups will emerge to provide impartial contract enforcements and those types of services. And the pattern that I've observed is that that doesn't always happen. So sometimes you have private groups that emerge that actually extort from their own group members. And so what I've observed, I think the main pattern is that good private governance, good private contract enforcement, is more likely when the state is actually threatening the group. So when the state threatens to intervene in a private group, that's when the group organises to provide these services. And in the absence of threats from the government, private group leaders actually extort from their own members. TL: I think that's one bit I found most fascinating from your field study in Lagos. I mean, usually, the intuition is that without government intervention, people would handle their business, enforce property rights within their groups. But, which I found counter-intuitive in a way, you're saying that the threat of government intervention actually promotes institutions that protect the interest of group members. What are the channels for such emergence?SG: So there are a couple of channels. To make it more concrete, my research focuses on markets associations in Lagos, so these are like when traders organise themselves or when traders are all in like a certain area and then they elect one of their own traders to be the head of the Market Association. And so to make this really concrete, there is one Market Association that I find super fascinating. It's called Oke-Arin in Lagos Island, it's predominantly a wine market. And this is a Market Association that, at least, at the time that I was studying them, they were kind of a paragon of good governance. So the market leader did all sorts of things to promote trade in the market. If a supplier sold one of his traders bad wine, like substandard wine or falsely labelled wine, he would organise a market-wide boycott of the supplier. And by doing things like that you just make it less likely that suppliers are going to cheat anyone in the market because they're afraid that they too will be boycotted. So what explains this? What is the reason for why this market is so well-governed and what I found from talking to the market leader and lots of traders is that this market is really threatened by NAFDAC, the National Food and Drug Administration, is that right? TL: Yes. SG: So NAFDAC has lots of authority to intervene in Oke-Arin and if they catch a trader selling falsely branded wine or substandard wine, they can arrest the trader. And so it's in the face of that state threat that the market leader does super aggressive policing of his own traders. So if he catches a trader selling falsely branded wine, he will lock up the shop, he will confiscate the goods. And he told me, literally...he said that 'the reason I do this is because I want to keep NAFDAC out of my market.' And you know when NAFDAC comes, it's not just NAFDAC. They come with the mobile police who are, kind of, a frightening sight sometimes, I'm sure you've seen them, they have those like big guns and the trucks and they scare away customers and so the market leader thinks it's in the best interest of the market to try to keep these people out of his market. And he does this by really regulating the quality of the goods that the traders are selling. So to step back and abstract from that, I think one channel is that when you face threats from the state, you want to keep them out of your business and so the way to do that is to not give them any excuse to intervene. And to not give them an excuse to intervene, you need to be kind of keeping your house in order, essentially.TL: Yeah. And maybe I'm trying to project too much into this one study. I'm just wondering, the findings...does it scale into other areas of the society? Like the relationship between citizens and police?SG: Interesting, tell me more about what you're thinking there? TL: Oh yeah, so what I'm thinking is, for example, there's been a movement, largely on Twitter, about the anti-robbery squad in the police called SARS. They're abusive, Amnesty just did a report recently about police brutality, which is pretty damning. They're abusive. There is no rule of law. Citizens basically have no rights when it comes to their relationship with the police. So I'm looking at this study as... if you have citizens' groups like the market associations, can they extract compromises that further entrenches the rule of law and the value for obeying the law and respecting rights in that arrangement the way we do with market associations?SG: Yeah, that's really fascinating. I think you definitely do see market associations negotiating with [the] police, negotiating with government officials. So the main way you see this...and let me know if this is not answering your question... the main way you see this is with the local government. So local government fees are set at the market level. So you can have two trade us in the same local government, but they will pay different fees depending on what market they’re at. And typically what happens is the market association negotiates with the local governments over fee collection and you can argue that this is kind of a way of encouraging rule of law, at least for, like, the well run market associations. Because sometimes market associations negotiate with the local government in a way that only benefits the market leader; essentially, the market leader and the local government are like colluding against the traders. But when it works well, what's happening is the market association is making local government taxation more predictable for the traders, more fair and I think that in itself is a form of strengthening the rule of law, because traders don't want to have unpredictable visits from my the local government where each time they come, a new fee is charged because that really makes it hard for traders to make plans for their business when they don't know what their level of taxation will be. So I think in that way - and many other scholars of argued this as well, I'm not the first person to say this - by having organised societal groups negotiate with different government entities, it can be a way of creating rule of law. The downside is that they're only creating these agreements for themselves, so it's not clear it's going to affect anyone other than the market association that's doing the negotiation. But I would argue that that's better than nothing and that is maybe the first step to a more like generalised rule of law. TL: I think you just went where I was going with that question that how does what is generally viewed as the ideal institutional form, how does it emerge from such group arrangements? And what I mean is constitutional individualism. That is, you, as a citizen, have a rights and your rights are protected and secured under the law?SG: Yeah, so there are different theories, one big theory is that war can actually make this more likely. For example, in Europe when, you know, various territories were about to be invaded, the way that they were able to defend themselves was by taxing people. Because taxes would help them pay for people who could fight off these attackers. But people aren't just going to agree to be taxed just, like, easily. They're going to want to hold onto their own money, and so the way that leaders were able to get people to pay taxes was by offering them various rights. And this is, you know, one theory for the emergence of democratic forms of government and rule of law. So it's kind of counter-intuitive that interstate war can actually make the emergence of democracy more likely. And so one of the things that's really interesting about Africa is since independence, there isn't really that much interstate conflict in Africa. Of course, there's a fair amount of intrastate, like civil war, but there isn't really that much interstate conflict. And some people argue that this has actually kind of stymied the emergence of [the] rule of law in some sense. Certainly, no one is advocating that there should be interstate war, but it's kind of a counter-intuitive silver lining of that kind of conflict. TL: What role does government capability play in this? So thinking about NAFDAC from the example you talked about, NAFDAC had this era where they took the job of regulating and policing fake and substandard products seriously. So now, the leadership changes and so is zeal or the mission for that regulatory drive. So, if the incentive or the ability or the capability weakens for government or any particular institution, does it change the incentive for the market association? SG: Yeah. Absolutely. I think, for example, I definitely don't want to say things are perfect in the US, things are not perfect in the US. We have many issues related to the rule of law, but in general in the US, you don't see like business associations operating at the same level as you do in Nigeria. And I think that's in part because rule of law is stronger in the US. And So what I mean by that is like when you can feel pretty comfortable relying on [the] courts to enforce contracts, you don't actually need these private associations to do that for you. And so what's interesting about dive of the Lagos markets is that many of the traders are themselves informal, by which I mean either that they are not registered with the Corporate Affairs Commission or some of their transactions are Informal. So some of their transactions are undocumented, and when that's the case you obviously can't rely on the courts for contract enforcement because nothing about the transaction was formal, and so that causes you to need these private associations. I think in general, as the rule of law increases, the role of the private associations decreases. That being said, that's not always the case, so there are many types of products that are sold in the US for which people cannot rely on the courts for contract enforcement. So a famous example of this that Barak Richman has done a lot of really fascinating work on is the diamond trade. It's actually really hard for courts to enforce diamond contracts for many reasons, it's also just really easy to steal diamonds and get away with it because they're so tiny. And so as a result of this, there's actually a really big role for private associations in the diamond industry in the US. In the US it's predominantly Orthodox Jews who trade diamonds and have all this really fascinating associations that Richmond has written about. But to answer your question, I think, yes, in general as a rule of law increases, the role of these associations is less critical.TL: I'm also wondering about the role of the civil society in all this. We can also view them as some form of association or groups who are trying to organize citizens like themselves and advocate for various rights or stop various form of abuses. Do they have the same incentive as traders who basically have a lot of skin in the game? They have a lot to lose if those institutions are actually predatory. Or are the incentives different?SG: Yeah, so actually one of my colleagues Hakeem Bishi is starting to work on this by looking at residents associations like neighbourhood associations in Lagos and I'll be interested to see what he finds. But my hunch is that these traders actually aren't that unique, that I think this would apply to other types of civil society groups. So you can easily imagine a head of a residents' association being predatory and collecting funds that they say will be used for private security, but maybe underpaying the security guards or saying that they'll hire ten security guards when in fact they only hire five. So I think it's simple to imagine that there will be similar incentives for other types of associations, but of course, also, it could be different, so I'm excited to see what my colleague Hakeem figures out.TL: Again, I see your study...and I'm sorry if I'm projecting too much onto this. Please stop me if you think I'm overreaching. So again, I'm just curious that in Africa we're not in the original state anymore, so, we just have intermediate states. We can't have wars anymore. A lot of the channels by which these institutions emerge are way, way into the past. And of course, globalization has allowed for all kinds of interventions. So how do you approach things like political reforms? Like you want to reform the judiciary, you want to reform the police, is it more effective with an approach like this bottom-up market association types or top-down? Which offers a country the most feasible path to credible political evolution?SG: Yeah, I mean, this is a really tough question. Like, if people knew the answer to this, then it would be pretty easy to just, you know, have judicial reform everywhere in the world. And so I think no one really knows the answer to this question. I think there are some theories that elite competition can lead to some of these reforms. There are other theories that, as you mentioned, like grassroots movements are more effective? I definitely don't know the answer to this. I think my one opinion is that I don't think international aid is really the way to go. You know, I've just seen too many examples of international organizations coming in and, like, thinking that it's just an education problem that if only people knew that this policy is better for rule of law, then they would implement it. And thinking that if you just tell people to do that, it will happen. And of course, that's not the issue. There are so many reasons that things are the way they are. Various people benefit from [the] current structures of power. So yeah, I don't really know the answer.So one other thing I would say is, I think there's really space for looking at subnational variation and I have a colleague Jonathan [...] who does this. Like Nigeria is such a cool country because it's a federal system and there's huge variation in rule of law at a state level. Jigawa, Kaduna, Lagos, of course, they have their problems but I think in general people think they're relatively well government compared to some of the other states when it comes to rule of law. And so trying to figure out what's going on there, what explains that variation and some people have theories and say, 'oh, it's just because Tinubu exists.' A very like individualist account, like Tinubu has a long time horizon and for various reasons, maybe like earlier...this is an argument made by D.N. Degremont, that... when the APC did not control the Federal Government, Tinubu aspired to control the Federal Government and thought that by improving some of these things in South-Western Nigeria, that that could increase the strength of the APC vis a vis the Federal Government. So there are those types of theories as well, but I think there is a lot more room for people to do more research on this kind of subnational variation. But I'd be curious to know what your thoughts are on this question. TL: Yeah, I think there is some... in my opinion, again, I should state that I don't have any clear evidence, but I think there's some credibility to that explanation. I mean, one area where Tinubu really did punch above his weight, so to speak, was in the area of revenue. When there was a power struggle between Lagos and the Federal Government over local government creation, and Obasanjo did not release federal allocation to Lagos, Tinubu did a lot of things and increased Lagos' revenue and the state was able to punch above its weight in public infrastructure projects and some of that legacy still abounds. Again, there are political benefits because he was also able to finance electoral competition for the party in federal controlled states, so I think that explanation has some merits, in my opinion. SG: Yeah, and it'd be interesting to see if the explanation holds outside of Nigeria. So like if in other federal countries where you have a similar political dynamic where there is a politician who is not currently in the ruling party but aspires to be in as a long time horizon... I don't know maybe these conditions are pretty narrow, but it'll just be interesting to see if you'll see similar dynamics playing out when those conditions hold in other federal countries. TL: What explanatory power would you grant to the so-called resource curse in all of this? SG: Yeah, I mean, I think the resource curse is really compelling. But as you just noted, I think it holds a lot of explanatory power for why the Federal Government of Nigeria is the way it is, but at the same time, it's so fascinating that Lagos was getting these oil checks as well and still felt the need to increase its own tax base for some of the reasons you were just saying, like, Obasanjo not recognizing all the local governments and withholding funds for that reason. So, I think the oil curse is not deterministic, that even in a country that has a lot of oil revenue as a percent of total national revenue, there are still ways to overcome that which we see in Kaduna, in Lagos, in Jigawa.

TL: And I want to go back to elite competition, something you mentioned earlier. It's a bit of a chicken and egg problem, as some of my colleagues have put it. Some have argued that before we can have some of these reforms take hold in Nigeria, there has to be a new middle class that would emerge, with [a] new ethos that can drive the discourse and push back and ask pertinent questions of the government and maybe even run for office and change the system from [the] inside. But, the flip side is that without policies that promote growth, you cannot have the enrichment that allows for the emergence of a middle class. So how do I, for example, resolve that dilemma? You're the expert. SG: Well, I don't know if I'm the expert on that question, but yeah, I think the thing that's really fascinating about West Africa, but this is probably true more generally, is how expensive it is to run for office. So one of my friends, Amanda Pingston, has done research on this in Benin Republic, and she shows that it's so expensive to run for local office, to be an MP in Benin. That basically because... you know, Benin is very different from Nigeria in that it doesn't have this big of a private sector economy, and so as a result, really the only people who can afford to mount this campaigns are people who already had positions in government because that's the way that you can make money in Benin.And so as a result, the people who are running to be MPs are people who have already had positions in government, and it really prevents the emergence of a new ruling class of people who were shopkeepers and built up a little business. In Benin, the public sector employment is just such a high share of employment that that can't happen. So obviously, to some extent, that's different in Nigeria, but to some extent, it's not. So you can imagine that there are many states in Nigeria, maybe in the northwest, the northeast, where, really, the only people who could afford to run for office are people already connected to the government in one way or another. I think Lagos is a little different because there are so many other ways to make money beyond being connected to the government. So I think that's part of the problem, but it's all chicken or the egg, what has to happen first for the nature of the ruling class to change? But I definitely think money is a big part of it.TL: One other thing I want to get your reaction to is corruption. We can agree that corruption is bad, especially in relation to [the] public treasury and its influence in robbing people of the provision of public goods, which is [the] government's job. But one thing I've encountered recently from political scientists, Ang Yuen Yuen (I hope I'm getting her name correctly), using China as an example, is that low corruption, especially at the local level, can actually be harnessed for positive institutional building and building the state. She gave examples of how Chinese officials will leverage personal relationships that we would standardly label as corrupt constitutionally to provide roads, build schools, build bridges, allocate land. What's your reaction to that view? Is there a positive niche for corruption? SG: Yeah, so I have kind of complicated views about corruption and in general, I don't really use the word in my research just because I feel like people define corruption differently. So one of the things that I found so fascinating in talking to traders in Lagos is they don't mean the same thing I mean by corruption. So, for example, it is very common in Lagos for local government officials, when they collect fees from traders, to pocket some portion of them and then the other portion goes into the official local government bank account. So I would consider that corruption - that's the use of public funds for private gain. Traders, on the other hand, do not consider that corruption. What traders consider corruption is if all of the sudden the local government raises fees exorbitantly, or if the local government has been collecting 500, 500, 500 and then one time they say, ah, today, we are collecting 1500, that's what traders consider corruption. And traders don't necessarily care about what proportion of their fees are just going straight to the chairman versus into the official bank account.So, most people would say 'oh, that's bad,' that these local government chairmen and the lower level bureaucrats are pocketing these funds. On the other hand, they're probably on underpaid. So maybe this is a way of topping up their salary, not in a way that's going to let them buy a Mercedes, but just in a way that's going to give them a decent salary. So I don't really feel like it's my place to say this is bad corruption versus this is good corruption. But I think there are a lot of political scientists who actually think that focusing on corruption as a way to get to better rule of law is kind of misguided, and that actually you want to align incentive between politicians and advocates for the rule of law and maybe by getting angry about the 20 percent of the contracts they took as kickbacks is not really the most productive way to go. TL: The control of violence, how important is it in the emergence of institutions? I know Douglas North, Patrick Wallace and co. have done some work in this area but what are your views?SG: Yeah, so I don't have any great thoughts on this because I've never really studied violent areas. I guess Lagos used to be more violent than it is today, but, yeah, I think it's complicated. I'm really only familiar with these big picture arguments about the history of Europe and wars and state-making. But I think in general, violence is certainly bad for trade, in the short term at least, it just makes the lives of traders unpredictable and you really want predictability when you're a trader because it allows you to plan and make long term decisions. TL: So I have a bit of pet theory and I want you to tell me where I'm wrong. Now, the way I think about this... it's not mutually exclusive, but I see some form of tension, especially in a country like Nigeria, between rights and social order. And I think that sometimes our push for rights, especially with institutions that do not have the capacity to establish or govern that order may be a bit asking too much. So in a way, I think that for institutions to emerge and develop and mature, the state has to establish its monopoly of violence, so to speak. And in that process, citizens may have to tolerate, of course, not to a great extent, but the question is where do you draw the line? So citizens may have to tolerate some form of abuse of their rights. What do you think of that? SG: Can you tell me more specifically, like, what rights you're thinking of? TL: Okay, let me give you an example. There's a common practice here which, again, some aid agencies and nongovernmental organizations have documented quite a lot, which is arrests and imprisonment of innocent people. There's this policing form where, to establish order in a particular neighbourhood, the police just go and do these raids. You know, there are no investigations, they just pack a lot of all these young men and lock them up. And in some cases, again, I should specify...in some cases, some of them are truly guilty, but in other cases, they pack a lot of innocent people and then lock them up. Sadly, some, for years. But I've also kind of noticed that the problem with policing in relation to that problem is that the police, as an institution itself, does not have any capacity to actually investigate crime, so they just have this one-cap fits all approach. But as citizens, the way we demand for our rights to be respected is that, 'uh, well, no. There is no excuse for arresting the innocent, the police should be able to investigate the details and know who is guilty and who is not and what happened behind the scenes,' and...you know, we have this list of demands. And sometimes I feel we are demanding something that our institutions cannot deliver at the moment. SG: Yeah, that's really fascinating. I don't know. There might be something to that. At the same time, I would be a little afraid that when you arrest an innocent person and keep them in prison for several years you're going to be creating someone who when they're released is not going to be promoting societal order and is probably going to be really angry at the government and probably isn't going to be the most productive member of society after that. And also probably, you know, his entire extended family is just going to be really angry at the state as well. So I don't think that is super productive but at the same time, I hear what you're saying. Should we arrest no one because the police don't have the capacity to do true investigations? That doesn't seem like the right answer either.So, yeah, I don't really know what's best with that. And probably there is some middle ground where, I don't know, maybe you could have like community groups that partner with the police? Obviously, this could be problematic in various ways but I think there are some models of community policing where the community maybe has better information on what actually went down than the police do. But I totally hear what you're describing and I think people will comment and are like (citizens who are like), 'you shouldn't arrest anyone if you don't have a capacity to perfectly investigate the case,' I think that seems misguided as well.TL: Yeah. I agree with you. Tell us about what you're working on currently. I know you're working on disinformation, what threats does misinformation pose to developing countries like Nigeria?SG: Yeah, so, I've recently shifted a bit to focus on disinformation campaigns and in particular foreign, online, disinformation campaigns. You know, for example, I helped to uncover at the end of last year a Russian disinformation campaign that was targeting a bunch of African countries, not Nigeria, but Libya, Madagascar, Mozambique, DRC. And what was really interesting about the campaign was this was a campaign that was linked to a Russian oligarch named Yevgeny Prigozhin, so this is the same guy who coordinated the social media information campaigns that targeted the US in 2016. And what's really interesting about these campaigns was that he'd created all these Facebook pages that were working to bolster the ruling party in these countries or other political actors that he supported. But he actually wasn't pushing fake news or misinformation, he was just posting like hyper-partisan contents. Contents that said things like: 'wouldn't this guy make a great president again? You should vote for him.' So that's not necessarily untrue. It's not even falsifiable, it's just like a sentiment. But this operation was trying to create the impression that there was a whole lot of grassroots support for these very individuals, and I think that's really dangerous especially given that so many people get their news and information from social media these days. If you think that there is so much grassroots support for someone, that can possibly change the way that you think about things.So that's like some of what I'm doing, and then more recently I've started investigating belief in misinformation in Nigeria. So there have been a lot, a lot, a lot of untrue things about the coronavirus that has spread around the world. For example, there are conspiracy theories about the role of 5G, about Bill Gates trying to kill people, and so I've been looking into belief in those types of misinformation, which also can be dangerous. Because if you believe 5G causes coronavirus, then maybe you're not going to wash your hands because you don't believe that that's the way in which the disease spreads. TL: And what responsibility do you think that the big Tech companies who owned some of the platforms where a lot of this disinformation campaigns happen, what responsibility do you think they should have in relation to this problem? I know there's a lot of accountability in the developed countries, but it's almost absent in public discuss over here. SG: Yeah, I think the platforms should have primary responsibility in dealing with this stuff, in part because they have more information than you or I do. They have information like IP addresses, and so they are better placed to figure out that certain posts are not coming from within Nigeria, even though they are pretending to be coming from within Nigeria, and, you know, just give it their automated methods. I think they are in a better place to put warning labels on 5G misinformation, that type of thing. And I think to some extent they're actually doing a ton. I think they're increasingly taking content moderation seriously. They found much of the Russian network targeting Africa, so to some extent, they are actually doing quite a bit of investigation into disinformation campaigns targeting countries outside the US.But at the same time, for sure, their work is US-centric and the policies that they have in place are not implemented equally across countries. I think that is problematic. And I think there should be pressure placed on the platforms to hire more people who can help them implement content moderation policies carefully across countries because it's really hard for an American to know what hate speech in Myanmar looks like. You really need someone who is from Myanmar to do that. I mean, the challenge then is that it's actually really hard to hire the right people to do this kind of content moderation work. This is a point that my boss has made a few times. If you want someone to do content moderation in Myanmar, first of all, Facebook often doesn't want to hire people who are in Myanmar. For safety reasons, they want the content moderators to be outside of the country. But then you have to find someone who's not based in Myanmar and who is kind of impartial. So not connected to the ruling party or anything like that, and that can be really tricky. I think they can be doing better but there also are real hurdles to defining the scope of some of these policies across different cultures. TL: Tell me how does a country like the US find itself in, if we were to believe the media... in a place where there's been some form of institutional decline? There are different investigations about presidential abuse of power or corruption, and even the government's response to the coronavirus. You're a political scientist, so tell me, how does a hyper-developed country like the US find itself in such a position? SG: Yeah, so it's a tough question. I think you know the big picture of what happened is we elected a populist president and populist presidents globally are generally not good for democracy. So Trump is in my mind not that exceptional. He, in many ways, acts similarly to people like Chavez and populists elsewhere. And I think there are a number of ways in which populists can lead to democratic decline. Trump is always bashing the mainstream media and that's a common, common, common strategy of populists. And when you reduce trust in mainstream media, then the only person you trust is the president and so Trump can say anything he wants and people will believe him because there're not going to believe what the New York Times or the Washington Post or the Wall Street Journal says. So I think that's part of what explains the situation that we're in right now is that a huge portion of society just doesn't believe mainstream media anymore, and so they're willing to go along with or not try to counter various actions that Trump takes. I do think a lot of people who voted for Trump, they're not dumb. I think they do often see what he's doing and they're angry about it. But I think in general like that's what's going on. We elected a populist and he is acting in the same way that populists always do and more times than not, having a populist leads to democratic erosion. My hope is that America is strong enough to surmount this. Many other countries that have had populist presidents have been a kind of weaker democracies, like they haven't been democracies for that long and I think the fact that America has been a democracy for so long means that maybe trump won't do a ton of permanent damage, but I think it's hard to say. TL: I hope it gets sorted out as well. SG: Thanks. TL: I'm going to ask you one last question which is a bit of a tradition for the show and our listeners. What's the one big idea you're most excited about right now and that you would like to see spread everywhere?SG: I think I'm going to do two big ideas. TL: SureSG: Related to my two, kind of, fields of research. So I think in terms of the disinformation stuff, the big idea is that most disinformation is no longer untrue. So most disinformation is people spreading hyper-partisan content, but trying to deceive people about their identity. So I think so often when people think about disinformation they think about fake news, but increasingly the sophisticated actors are not pushing fake news, they're pushing unfalsifiable hyper-partisan content, and I think people need to be more aware of that. I think the second big idea that I want people to think about more is that, as I mentioned before, not all private governance is good. That often times when the rule of law is weak and private groups emerge, the leaders of those groups are predatory and extort from their own group members. And I think a lot of times when people think about private associations and civil society, they're just thinking about the upside but oftentimes civil society groups can be predatory. So I think that will be the second big idea. TL: Thank you very much, Shelby. Shelby Grossman it's been wonderful talking to you. SG: This is fantastic, so fascinating. Thanks so much, Tobi.

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The central bank’s management of the FX market and trade is back in the news again - so here is my conversation with economist Walle Smith on some of the issues. We recorded this two months ago, but some of the fundamentals have a foregoing relevance especially in the current policy climate. I started by asking Walle whether conventional monetary policy has failed in Nigeria.

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This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com

I had a chat with Mark Lutter, founder and executive director of Charter Cities Institutes about the potential of charter cities to boost a nation’s prosperity and development. Our conversation touched on state capacity, why American institutions appear to be failing, and why Silicon Valley elites have no political influence.

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Transcript

TL: Welcome to Ideas Untrapped. Joining me is Mark Lutter. Mark Lutter is an economist and he is the founder and executive director of [the] Charter Cities Institute. You're welcome, Mark. ML: Thanks for having me on. TL: Yeah briefly, please. What are Charter Cities and what do they bring to economic development? ML: Sure, so Charter Cities are new cities with a special jurisdiction that allows them to have a more competitive business environment. And we believe they are important because, over the long run, they're a key determinant of economic performance, economic outcomes and […] governance. If you have good governance, a country will do relatively well and if you have poor governance, a country will do relatively poorly. The challenge can be that it's difficult to reform governance on a national level. There's a lot of special interests groups. There's a lot of politics that goes on that sometimes make the reforms quite difficult to implement. And, Charter Cities, because they're new cities, they can be built on Greenfield sites where there are fewer special interests and because they have a special jurisdiction, it can be politically feasible to implement deeper reforms than might be possible at the national level.So these deeper reforms are to improve the business environment combined with a new city allow for more economic development to occur than otherwise might take place. So if we look at the last 40, fifty, 60 years, we've seen cities like Shenzhen, Singapore, Hong Kong and Dubai emerge from practically nothing to become global metropolises. And we believe that success is replicable. Particularly because there are a little under 80 million new urban residents annually, so urbanization is growing extremely rapidly across Africa and across Asia, and we believe it's quite important to make sure that we get things right now because it's much harder to change governance, It's much harder to change infrastructure once a city is already built. And so we believe that if we can help set up this sort of right institutions now, the right set up now, the right layout of new cities now, it can basically save a lot of headaches over the next fifty [to] hundred years, and help lift tens of millions of people out of poverty and make things better for economic development. TL: Yeah, so, obviously, I'm not new to this idea and we've talked a couple of times about it. Thinking about Charter Cities, it's a big project. So what do you think are the effective financing structures that make them feasible knowing the fiscal challenges that some poor countries face?ML: Sure, so the way we think about Charter Cities is as Public-Private Partnerships with the host country. So we're not asking the host country to build the city, we're asking the host country to help create a governance framework that can make the Charter City more competitive. And we think that this is especially important now in the post-COVID world where a lot of countries, particularly in emerging markets might be resource dependent on oil and like Nigeria. Or copper, like Zambia. And prices have rebounded somewhat over the last few months, but given that they're much lower than they were a year ago, I think there is a reasonable expectation that demand will continue to be relatively low, at least, until a vaccine is discovered. And so that means these countries have big holes in their budget and will need new financing mechanisms and we view Charter Cities as potentially one of those financing mechanisms. 

Charter Cities, because they're new cities, they can be built on Greenfield sites where there are fewer special interests and because they have a special jurisdiction, it can be politically feasible to implement deeper reforms than might be possible at the national level - ML

The Charter City would have a revenue-sharing agreement with the central government. It will be able to attract a lot of foreign investment, create a lot of economic activities, create a lot of jobs and then some of that wealth that is being created would be transferred to the central government that might be able to help plug the hole that is currently being left by low commodity prices. Additionally, we just think if you build a successful city, it will generate a tremendous amount of wealth. We're still in the early Charter Cities phases and the specifics for financing Charter Cities haven't all been sort of worked out, but the general hypothesis is 'look, if you create a successful, functioning city, then there will be a lot of wealth that is created and you just need to capture some of that wealth that can pay for the initial infrastructure investment that can pay for the costs associated with setting up and building a city. So, that's at least the eye level overview of how we think about financing Charter Cities.TL: The question of financing is important here because some would argue, and I think, Chris Blattman has actually made this argument that given the risks involved that these investments may not pay off, it's actually an objection to not doing it. How do you react to that? What are the big payoffs for charter cities as opposed to other development interventions like cash transfers and other forms of aid?ML: Sure, so, it's definitely possible that for one or more charter cities the investments will not pay off. That's the nature of an investment, they're not necessarily secure and so there is always risks associated with investments. The risks associated with charter cities might be higher depending on where the charter city is being built, depending on what the local politics are, depending on the sort of skill of the developer. But I think, I would, I guess, sort of, differentiate as to what we're talking about in terms of investment. So if we're talking about cash transfers. Cash transfers are not an investment per se. Cash transfers are a transfer of wealth. They are basically a donation. It is comparable to charity. And most of the evidence on cash transfers is relatively good. You give people more money, they're able to spend the money to get better things. Recent studies have suggested that this does have relatively long-lasting impact on improving people's lives, so I support cash transfers. Charter Cities, at least, the way we at the Charter Cities Institute conceive of them are led by private developers who are building the physical infrastructure themselves. So this is an investment, not a donation. The expectation is if you raise 700 million dollars to build a power plant, to build roads, to build water, electricity, etc, then you expect a return on that capital investment that can justify the risks associated with that particular project. So this is a commercial venture, not a development venture per se. And we believe that Charter Cities can pass this sort of commercial venture test where, okay, if people who are humanitarians want to get involved, that is great, but as a mechanism for social change, I think the profit motive tends to be important and can allow for more social change in a shorter period of time than asking everybody to change their behaviour out of the goodness of their heart. That being said, there is space for, I think, donations in the Charter Cities space. The Charter Cities Institute, for example, is a 501C3. We rely on donations. We are trying to kind of incubate this Charter Cities space, trying to bootstrap it, creating a network of different city developers, developing a set of best practices, things like that. But we have done at least internal calculations that we have published on the research portion of our website, where we look at GiveWell which is a well-known charity evaluator. And we look at GiveWell and the cost-effectiveness of various charities that they evaluate and based on some assumptions that we make about our own effectiveness and these assumptions, I believe, are quite conservative. We are comparable to the most cost-effective charities in the world; if not more effective than them. TL: Charter Cities, at least, as an idea, in its current framing, is not new. Paul Romer kind of reintroduced the idea a while back. And with implementation - Honduras, Madagascar - they've run into some problems. What are you doing differently at CCI, and how does your model differ from that proposition? 

ML: Sure, and that's a good question. So Paul Romer obviously pioneered this space but didn't have as much success as I think he would have liked. And what we've tried to do is learn from his impact and see how we could try to have a bit more success this time around. So first let me talk about differences with Paul Romer's model and our model for charter cities. The similarities are: both of the models involve cities with a special jurisdiction that allow them to have a different institutional framework than the rest of the country, an institutional framework that is more conducive to economic development, and to growth. Those are the similarities. I think the differences are that Paul Romer advocated a high-income country, for example, Canada administers a Charter City in a low-income country for example, Honduras. So Canada would help create the administrative structure, they would be responsible for it, and that is the mechanism by which part of Honduras could have good governance. We have not pursued that model for, I think, two reasons. One, we're not sure it's feasible. There is a lot of blowbacks associated with charter cities, we're sometimes accused of being neocolonialists, and I think having a high-income country act as a guarantor in a low-income country brings up some of those unpleasant historical memories that might make getting political buy-in a little bit more difficult. The second reason we're not pursuing that model is we're not sure it's the best model, even if you, sort of, assume away the political challenges of it. So looking at, for example, the response of many countries in the West to COVID, the US has had a relatively poor response to COVID. Our institutional capacity as somewhat decayed, we aren't as vibrant, as effective as we were 50, 60 years ago, there's a general lethargy in our own institutions, and I think that that lethargy would likely translate to helping to build new institutions in emerging markets. And so there is a question of 'is the high-income country the best institutional entity to help administer a charter city?' And we believe it is not. So what we do is we partner with new city developers. There are by Journalist Wade Shepherd...he estimates there are over 200 mass or fenced cities being built around the world right now. So we try to partner with these new city developers, typically private entities, sometimes they're public but we prefer our partner with the private ones because they tend to be a little bit more effective to figure out okay, they're building a new city which might have a hundred thousand residents, which might have a million residents, so we partner with them to try to improve their governance system. And this might mean working with the government to improve the special economic zone framework. If there is a relatively advanced special economic zone framework in place, we might work with the city developer to figure out okay, what does it actually mean to create this new administrative structure from scratch. So that's the difference in approach.I guess before I go into why I think we'll be effective, I think, a few other points. One, Paul Romer was quite effective at generating attention and, sort of, starting the conversation and working with governments, at least, up to a point. We're taking a bit more of what might be described as, sort of, a systematic approach. We're somewhat worried about the ecosystem of charter cities being too dependent on a single person or on a single country. So we try to diversify risk by partnering with a lot of different organizations, by working in a lot of different countries, by really helping to spread the idea of charter cities as far as possible such that if one project goes under a hard time or fails, there are other projects that we can shift our attention to make sure the momentum for charter cities is not lost. As to, I think why we think that we will be successful where he was unsuccessful, I think we've learned a lot from him; and in addition, I think the last 10 years, there's been a bit of an increased interest in charter cities. And then second, we're just seeing it on the ground. We have engaged two projects where we are helping them create these legal structures, these administrative entities from scratch to governing these cities. The projects have a degree of political buy-in. We are regularly reached out to by new city developers who are interested in improving governance in those cities. We're basically at the beginning of a charter city's moment, and I think over the next year, the next two years, it will become clear to everybody who isn't paying attention now that the charter city's moment is here, that these projects are real, people are building them, people are moving dirt, people are moving in, money is being raised, etc. that it is no longer just [an] academic discussion, but it is a matter of sort of on the ground, things happening and executing.TL: I mean, hearing you speak, I thought of a question, which is - to a layperson, like, what exactly are the channels of improvement to income and livelihoods in building a new city, for example?ML: Sure, so, If we look at a city like Shenzhen, 40 years ago in 1980, Shenzhen was a number of small fishing villages, the total population in the area was about a 100,000 residents. The average income was about $500 a year. It was a very impoverished area and currently, Shenzhen is the manufacturing capital of the world. It has a total population of around 20 million people, they have a subway system that rivals New York. It is a sort of, shiny, gleaming metropolis that really transformed in just 40 years. So while China had several sort of specific conditions that mean that the success of Shenzhen is unlikely to replicate at that magnitude. For example, China had first basically prevented urbanisation from occurring, so there was a pent up demand for urbanisation. As well as China had very stringent regulations and laws which had precluded a lot of economic development. And while Africa, for example, many countries have bad regulations, I'm not sure they were as bad as China in the 1980s. But that being said, we believe that a degree of that success is still possible even if you get half of Shenzhen, that's a city of ten million people, that sees your income rise by like 10, 20X over a 40 year period. That is a huge change. If you look in a lot of sub-Saharan Africa, for example, what's occurring now is called urbanization without industrialization. And this means that people are moving to cities. And typically when people move to cities, they become more productive, they are able to make more money, they live better lives, they leave their kids better off, and it's this virtual circle. And now, unfortunately, in some parts of sub-Saharan Africa this is not occurring. People are moving into cities but their productivity is not increasing, they're not making more money, and their kids are going to stuck at the same sort of level in income and quality of life that they are today. And what we believe charter cities can help do is to, I guess, help change that to help create these opportunities for these people that are currently being left behind by the global economy and to create this positive dynamic, this positive feedback cycle that leads to people's incomes being increased by 5 percent per year, 10 percent per year. Which because of the power of compounding interest, if your income is increasing at 5 percent per year, that means, every 14 years, your income doubles. So 28 years later, your income will be four times what it was originally. Forty-two years later, which is about the total working life of an adult (about 42 years), your income will be 8 times what it was when you started. You've seen an 8 fold increase in income, [which] is just tremendous. So if we can help create that dynamic, if we can help generate this type of growth, I think that will lead toad to a big improvement in a lot of people's lives.TL: It's interesting you talked about Shenzhen before we move into the specifics of that. Shenzhen is usually described as a special economic zone. Is that different from Charter Cities, or is essentially the same thing? ML: Sure. So, Special Economic Zones. We consider Charter Cities to be a subset of Special Economic Zones. The special economic zone is just an area that says that the laws of the host country don't apply to this area, or like some subset of the laws. But typically, special economic zones tend to be relatively narrow in their focus. They might only encompass an industrial park, they might only be a few dozen or a few hundred acres. They have a relatively set degree of difference from the host country in terms of laws, so it might have lower taxes or it might have a one-stop-shop but they don't really have this deep regulatory reforms. They tend to focus on a single industry, so maybe textile, manufacturing or maybe electronics, they aren't broad-based. Very rarely do special economic zones have residential. And lastly, they tend to be too small to generate sustained economic growth. If you have an industrial park that might be successful, that might create a lot of jobs but that's not really going to create this dynamic positive feedback cycle like a city can. 

Shenzhen whilst frequently described as a special economic zone, at least, according to our definition, it is more like a charter city. The jurisdiction is 320 square kilometres, so that's the size of a city. It is multi-use. They have residential, they have commercial, they have industrial. They have the sort of full dynamics that you expect to see in a city with a lot of different economic parts moving. There was a lot of authority devolved from the central government to the city government. So while many special economic zones might only have like a tax incentive, basically in Shenzhen, with the exception of military and like Mail distribution, you can almost experiment with whatever you want you on the Shenzhen city level. And that allowed for a lot more autonomy than most special economic zones allow. So while Shenzhen is sort of colloquially referred to as a special economic zone, it fits our definition and our understanding of what a charter city is a little bit more closely than most special economic zones around the world which are quite different from Shenzhen and as such haven't had the same impact that Shenzhen has had.

TL: Two-part Shenzhen question here. I agree with you, Shenzhen fits better with what you are describing. I mean, there was an industrial zone in Shekou, and of course, there was the whole area that was developed for all kinds of things, tourism and the rest. Now, the first question is that there was a lot of planning and execution in making Shenzhen work. How does the administrative capacity of the host country, how does it affect the execution of a Charter City?ML: Sure, and I think this is an important point. One of the increasing discussions in economics and international development has been focusing on state capacity in which the administrative capacity of a country or a government can be thought of as - are they able to execute on tasks in a timely and effective manner? So a country with this higher state capacity would be able to build a road cheaper and more quickly than a country with a lower state capacity. And in Shenzhen it was the local government that administered the city. China has had 3000 years [of] history of statehood. So they have a lot of experience in capacity with administrating cities and they just had to adapt it the circumstances at hand. And I think one of the challenges in some emerging markets is that there isn't that long history of statehood. There isn't that long history of administrative capacity, and so the current governments are not being very effective in administering the entire country. So if they start to administer a charter city, you would see a similar type of dysfunction. To solve this problem, we are advocating a special jurisdiction with a separate administration from the host country. And so the city would remain part of the host country, it would be governed by a separate bureaucratic apparatus, it would have different standards for hiring, different standards for firing, different standards for promotion, etc, which would allow it to develop a more effective administration than the host country. And so, to this end, we're engaged in [a] sort of early-stage discussion about helping to establish this administrative apparatuses and we're beginning to think about what it means to develop a pipeline of administrators for a Charter City that would help [to] work with educational establishment to create certificates, to create courses that might help teach you how to administer a charter city. 'Cause this is sort of a monumental challenge, there are so many moving parts and you don't really want to hire people from the host country because then they bring the bad culture of the host country government, they bring the sort of, I don't know… the sclerosis that often exists in host countries' bureaucracies that leads to the need for charter cities. But you don't want to transplant that bureaucratic dysfunction to the charter city, so you would have to basically create a new administrative system and a new education system to train those administrators. TL: Yeah, so with the special jurisdiction, what guarantees continuity? I'm imagining that the government of the host country would still have some form of authority over that jurisdiction however limited. And what guarantees that another administration does not come in and say, 'Oh, yeah, well, for political reasons or whatever, we're going to withdraw our support for this.' Or is there a specific framework that you've outlined which guarantees long-term autonomy?ML: Sure. I'm glad you asked that question, that is one of the challenges for charter cities. How do you ensure that there is administrative continuity in the charter city and the host country hasn't changed their mind and limit some of the authority that they had previously granted to the charter city? We are seeing that, for example, right now in Hong Kong, where the Chinese government is passing a national security law that many on Hong Kongers believe changed the sort of terms of the agreement in 1997 when Hong Kong was transferred from the British to the Beijing government. There is no silver bullet for preventing, right? You can't do a magic trick and say 'alright, there is no risk of expropriation of the charter city' but there are a number of strategies that can be developed to mitigate that risk, and in fact, we published an outline of these strategies on our website called the Risk Mitigation Guide. It is in the reference guides. And it should give an understanding of strategies that can be taken to mitigate that risk. So basically, they're business project, they need to be profitable while obviously they're political projects as well. They need to get buy-in from the host country and so there are several ways to do that. First, you need to make sure that the development of the charter city itself has an extensive stakeholder management engagement in the planning processes. So you need to work closely with the host country at the central government, you probably want to work closely with the local government, whether it's state or provincial to make sure that you acquire the land justly, to make sure there is buy-in. You could, for example, offer the state or the national government an equity stake in the charter city to align interests of the government with the charter city itself. Second, you probably want to involve business and community leaders in the charter city. Successful institutional change requires the allegiance of the ruling elite, so making sure that there is an incentive for those people who are particularly influential in the country to align with the success of the charter city is important. Third, you probably want to attract industries that create a lot of jobs. It is politically difficult to change something if a lot of jobs are being created, if a lot of investment is being had, things like this. So, make it more difficult for the politicians to take action against the charter city by creating a lot of jobs, by making it successful, etc. 

Third, most countries in the world are signatories to a variety of international treaties. So if you sign a contract with the host country and they expropriate you, depending on how you draft that language, you might be able to go and sue them in the international court, and if you win to confiscate their overseas assets. This is basically a last-ditch solution. If you get to this stage you've already lost. But it might help sort of as a bit of a deterrent against host country trying to confiscate your assets by demonstrating that there is some recourse to that action of expropriation. Another strategy is to list the city on the Stock Exchange. So after 10 or 15 years after the city is successful, maybe you put a listing on the local Stock Exchange for a certain percentage of the value of the developer who has built out the city. What does this mean? Well, this oftentimes, the pension funds and other sorts of financial managers will buy that stock and so pension funds and these financial managers tend to be relatively politically powerful and therefore if their future income streams are depending on the success of the charter city, then the host country might be less likely to take actions against the charter city. And Lastly, I think just to really emphasize the first point - it's very important to make sure charter cities are integrated with the local government, with the community - that the benefits of charter cities are being widespread. The best way, I think, to ensure that there's a minimum of risk of expropriation is just to make sure that it becomes very apparent that the charter city is being successful, it's creating jobs, that everybody is being engaged and participating in the upside of a charter city. TL: The second part question is that… I mean, I'm glad you talked about local governance. In building a charter city, I imagine there are allocative decisions that the government would have to make. I compare Shenzhen to maybe some other initiative like Gurgaon in India and one thing the Chinese government had with Shenzhen is that it still maintained control over the allocation of land. And, at least in my opinion, that allowed some kind of diverse development in terms of the industrial and residential developments that took place, and also in the building of public goods, in the provision of public goods generally. But what you see, at least, I wouldn't call them charter cities, with projects like Eko Atlantic City and others of such is that, yes, they are planned but, maybe for financial reasons, the allocative decisions are made solely for real estate developments. Maybe that helps in recouping some of the investment. So, I guess what I'm asking is, where should the allocative decisions lie to create the proper incentive for a truly income enhancing city to develop?ML: Sure, yeah, and I think that is an important question and looking at Shenzhen versus Gurgaon in India. Gurgaon is quite interesting, for the listeners who don't know, basically because of this sort of historical quirk, there was no government which allowed for no zoning and land use regulations and so a lot of tech companies and sort of large companies went and built offices there, advanced infrastructure there, so it has a lot of office buildings, things like that but because there is no governing structure, the public infrastructure tends to be quite poor. So if I remember correctly, there are basically no sewers, most of the buildings have to run on generators. It allows this freedom to build but it combines that with this lack of government. While Shenzhen, the government has been relatively effective in providing public goods, at creating an open space that allows for its success. And I think if we look at all the planned cities around the world being built today, Eko Atlantic being one example, I think you capture it well in saying that they are real estate, they're not really cities. So, real estate you tend to define everything very carefully, it's 'we build a thousand houses and we sell them each for this much money and this is what the margins are' etc, while a city is evolutionary, it's dynamic. The sort of level of planning of the city government tends to be much smaller. It's not saying we're going to build an apartment building here and we're going to build a commercial district here. It's trying to create the enabling conditions for growth and for success. And what we're trying to do is trying to kind of change the conversation with some of these new city developers to focus on more of an inclusive model where it's aimed at a broader set of residents. Where right now a lot of the new cities are aimed at sort of upper middle income or above, but how can you push the price point down? So one of the projects that we're working on is a document that is tentatively called a draft master plan. What this will do is it will be a master plan for a charter city. We're thinking about having it on 30,000 acres with 1 million residents, but we're explicitly targeting an income level of $1500 annually, which is a little under, I think, the per capita income of Nigeria. It's comparable to the per capita income of Zambia, of Kenya. We're explicitly trying to develop a model where it's accessible to this broad income segment, but we're not saying these are the types of houses that people would already build, we're just kind of thinking about okay, where is the infrastructure going to be? How do we attract an anchor tenant? How do we attract residents? How do we make it dynamic such that people's incomes increase over time? It's possible to build a sort of exclusive gated community where high-income people go and live and work and they end up being quite comfortable there, and I encourage people to do that. That's just not the model that we are particularly interested in. And I think it might be a good business venture but it has limited implications for [the] broader society and what we're interested in is how we can help effect social change to generate economic development and to lift people out of poverty, and I think to do that, it's important to help make sure charter cities are inclusive, allow for all segments of society experience the benefits of living in a fast-growing and dynamic city. TL: A bit of a curveball, so to speak, here. There's a lot of planning involved in charter cities. Do you think that that's a challenge to a free-market model of development?

If you look in a lot of sub-Saharan Africa, for example, what's occurring now is called urbanization without industrialization. - ML

ML: In a way, I mean, I'm sure some market-oriented economist might not like what we are doing. I remember when I was doing my PhD at George Mason I was chatting about this with some people, they were like: well, how do you plan? But if we remember the Keynes versus Hayek rap video, the question is 'who plans for who?' So there always need to be some level of planning, right? We do it on an individual level. We do it on a corporate level, even government does it on some level. If you're just planning for, how many police, how many courts? What should the military do? Things like that. And so we might be taking a slightly more active role in planning than some free markets economists might advocate for in terms of thinking about what the anchor tenant should be, how to attract them, how to create these sort of supply linkages. In the draft master plan that we're developing, we are thinking about basically how to create a type of industrial policy because what we want is, okay, when it starts, maybe you focus on textile manufacturing or some relatively low skilled type of employment, but how do we make sure there is skill transfer over time such that the city can move its way up the value chain, can create more jobs and can have this positive dynamic to help lift people out of poverty rather than just being stuck at textile manufacturing now and then 30 years from now? TL: That's interesting. I spoke with Garett Jones, and one of the things he proposed that developing countries [should] try to do is to become an attractive destination for high skilled labour, you know, a labour quality argument of sorts. Do you think charter cities can be a channel for such attraction of high quality, high skilled labour to developing countries which obviously has benefits?ML: Yeah, I think it can. A charter city if developed correctly will probably be more safe than the host country because the place will be more effective. The charter city will be more dynamic. There will be more opportunities and so if there is a high skilled worker who are in their early career and want to do it abroad. Or maybe their ancestors are from a country and want to sort of return and kind of give back or maybe they are first-generation immigrant and want to give back, then I think a charter city would be a probably more attractive place to live than the rest of the host country because it would be more dynamic. There will be more opportunities. It would be a more exciting place to live. That being said, I think I disagree slightly with Garett Jones on the premise...you definitely want the higher-skilled workers for the knowledge transfer. It depends on exactly what he means by this, but Dubai, for example, was able to attract a lot of high skilled workers primarily from Europe, while Shenzhen developed without that many highly skilled workers. They had a lot of investment from Hong Kong. And they had a lot of managerial talent that could come from Hong Kong. So I think it's quite important to, I guess, create these linkages with different areas, different cities that can help the skills transfer process, and then you probably also want to help high skilled workers come in to fill senior administrative positions. But I think to make sure charter cities are scalable, the vast majority of the new urban residents over the next 30 years are not going to be highly skilled. They're going to be relatively impoverished coming from rural areas. We're not going to have sort of the skills that we typically associate with the modern economy, and I think what is important is to realize that and to create systems and processes to allow them to improve their skills, to allow them to get better, to allow them to, sort of, transform the city into somewhere that they would be proud to call home. TL: I'm curious. What exactly made you, Mark Lutter, interested in this problem? Why did you choose to work on this other than teaching at GMU or writing papers and other things you could have done as an academic?ML: Sure. Well, I'm not sure I could have done that much as an academic. I'm a pretty mediocre academic, I like getting my hands dirty a little bit more. LaughsWhat initially got me interested? I heard a talk where the speaker mentioned Michael [indistinct] and who tried to start a Freeport in Somaliland. And in fact, there is now a Freeport being built in Somaliland by Dubai Ports World in Berbera. And basically, what got me interested was I saw it as an Idea that has massive potential that not that many people were paying attention to and talking about and it got me really excited and so I stayed interested in it and sort of realized that I could have a meaningful contribution to making this, I think, really exciting idea take place. And that's why I've stayed interested in it. I like things that can have a big impact and to me, charter cities are one of the things that might be able to have the biggest impact in the 21st century and so it's quite exciting to be involved. TL: So how important is geography in the development of charter cities? I know proximity to ports is very important to facilitate trade. So, but how does it really feature in your own model?ML: Sure, so geography is obviously quite important because - are you on a trading route? Is there an urbanising population that you can draw from? What are the industries that in the area that you can sort of help supplement? We typically think about locating a charter city has being independent on several factors. You probably want to be within about 2 hours of an urban centre so you can piggyback back off their infrastructure because building an airport or a port is very expensive, but if you are within two hours of them you can acquire a large enough chunk of land to build the city because one of the challenges of building a charter city is actually getting enough land to build the city itself. But if you're 2 hours away, you might be able to acquire enough land but you're still close enough that you can access their airport, that you can kind of access their labour market, that you'll allow for a bit more trade than would take place if you were in the middle of nowhere.Like, you want to be on emerging trade routes. So for example, there's a lot of activities going on in East Africa right now. A lot of people are building ports there. That might be an opportunity for a charter city there. Thinking about how new technology might change sort of migration patterns. Maybe the Hyperloop comes, or maybe supersonic jets come, how does that change human sort of spatial organization? And then can you identify opportunities to locate cities because of that? There might be [an] opportunity for a charter city, for example, in Canada or maybe in Central Asia because Siberia and Northern Canada, with global warming, are going to open up and allow for more agriculture, for more natural resource extraction, things like that. So there will be a demand for people to live there and a new city might allow for it to become sort of a gateway to those respective regions. So basically looking at how human sort of trade and human migration patterns are occurring and then trying to identify those long-term trends and then build in a place that can take advantage of those trends to become a regional hub and provide services to the broader area.

TL: The reason I asked that question is this. Someone like Paul Romer I think in his paper with Brandon Fuller would say - you need to build X amount of cities to take the addition we're going to see to the number urban dwellers by the middle of the century. I think their own calculation added about 3 billion additional people living in cities. But someone like Alain Bertaud will say you may not really have that much quality location to do what you want to do, at least, to have the kind of effect that you have in mind. So does geography, giving that land is fixed...does geography limit the potential of [a] charter city in a way? ML: Yeah it could, but this is a question that I think is dependent on data. Alain says that most of the good ports have already been taken. He's probably true (right) about that too a certain extent, because humans being, sort of, social, commerce-oriented mammals will tend to live in areas that are advantageous for that. So a lot of the natural ports already, probably have some degree of human settlement there. And so many of the good locations for cities have probably or even taken, have all of them been taken? Probably not. History is weird and people make decisions based on, sort of, contextual circumstances that might have left some potential city locations just untouched because of this weird set of historical events. So this is something that I'm certainly interested in exploring more. It's a project that I would like to undertake. It's basically hire some people, and identify 50 potential locations for charter cities. Just like lookout where trade is happening, where urbanization is happening, where it is possible to acquire large chunks of land and identify basically 50 of these potential charter city locations to see, okay is the land available? Is it good? How easy is it to acquire? To answer questions like that, if any of your listeners are interested in helping out, with some donations, we can actually start getting this sort of concrete answer to that question.TL: For the audience, I’m going to put up links to the reference guides from the Charter Cities Institute on the website and every other available resource. You wrote an article recently about America's foreign policy and how charter city can play a role in its geopolitical competition with China, specifically the belt and road initiative. Do you care to expatiate on that point?ML: Sure, so I think if we look at, um... the US in some way still has a positive image even with the recent sort of killing/murder of George Floyd. We saw a global outcry of that because I think people rightly hold America to a higher standard versus the outcry that we saw of the sort of Uighur, basically, a genocide in China where people have kind of ignored that because I guess they expected [the] Chinese to do it to a certain extent. But American engagement with the rest of the world has, I think, left a little something to be desired over the last 40 years. Iraq was a disaster, Afghanistan is a disaster, Libya is a disaster, so I think there's a need for rethinking American engagement. Combined with the fact that China is pretty aggressively now pursuing their image on the global stage in terms of building infrastructure with belt and road, in terms of wooing foreign politicians, foreign leaders, to get them to be China's friend. So my article was aimed at… particularly people in the, for example, the Development Finance Corporation in The United States to hopefully get them to see charter cities as a potential way to offer a positive influence on the world. And while specifically, I think what American engagement could look like is having Americans who can help with governance, having Americans who can provide financing options if you use American contractors to help build the city, to help develop governance norms, to basically provide the supporting infrastructure for charter cities which I think are important because right now when developing countries are looking around the world, they think 'okay, what policies do we adopt? Who do we want to be like?' All of them are thinking like let's be like China. China has had tremendous economic growth over the last 40 years. They've lifted tens of millions of people out of poverty which is a great thing. Unfortunately, at the same time that's been coupled with a sort of lack of respect of human rights, with no democracy, with no freedom of speech, these things that are inimical to human flourishing, and they think because America has developed so long ago, the possibility of following a similar pattern to America's development is just outside of people's minds. And so I think what charter cities can hopefully help demonstrate is this sort of we call them American values, but I think they are universal values of things like freedom of toleration of markets really can work for everybody and can provide an alternative development model to the one that China is currently claiming. TL: Sticking with the US, I know you write about it, others write about it, are the institutional (I want to say rot. I don't know maybe that's the right word), you know, are they as bad as some analysts say it is, especially in the light of COVID-19?ML: Yeah, I think it rot is probably an appropriate word. We basically have coasted the last kind of 40 years off of existing institutions. We haven't really been challenged. We haven't updated any of our systems. Everybody is complacent. If you think about it, part of the reason is that nobody has actually helped build an institution in the US. Rather, the most dynamic part of the economy is Silicon Valley because there are people there who are building new things. So people are required, to a certain extent, to have this like very broad set of managerial competencies that you don't need to have if you grow up... and I'm not just saying in government, in government you just develop these very specific set of skills, but also in a lot of large private corporations. How many new national banks have been invested in the last 30, 40 years? And so because of that, you grow up learning a very specific set of competencies which is OK in terms of like keeping the system going, but it means that anytime you're presented with an external shock, you just don't know how to react. And COVID was that shock, which I think exposed a lot of the existing inadequacies in the American system that people were unsure of, like unable to think outside the box. Our bureaucrats were quite skilled at figuring out how to pass the buck, how to not take responsibility for things. But they had no idea how to actually take responsibility and then how to actually enact change that will be beneficial. And we're seeing that continue today, you still can't buy N95 masks on Amazon, it's 3 months after the fact. This is a very solvable problem but our institutions are fundamentally broken and I think you can add that to the growing culture war where you have red states where a lot of people are refusing to wear masks because it's not a pandemic, it's a dempanic, this is a fake disease, really idiotic stuff like that. And then in blue states, you're seeing some of the elite institutions basically begin to eat themselves. The New York Times has basically been taken over by Social Justice Warriors staffers who sort of opposed an op-ed by Tom Cotton, the senator from, I think, Arkansas. And I didn't like that op-ed, it was a bad op-ed but he's a senator for goodness sakes. I mean, if you are the paper of record you should allow senators to publish sometimes even if you don't like their arguments. And so we're seeing this, sort of, I think deeply dysfunctional institutions combined with this deeply dysfunctional culture that will probably take decades or generation to really sort themselves out. There isn't a lot of sort of, I don't know, capacity left at the seams. Even the late 60s, '68 when we saw a similar social unrest, there was something solid. There was a core underneath and I think that core it's quite atrophied. I'm a little bit nervous about the future of the US. TL: And I mean it's interesting to me that you talked about Silicon Valley because, at least, from an outsider's perspective here, it amazes me how little political influence Silicon Valley has. LaughsAnd I have one analogy and I think I tweeted this though I got a lot of pushback here and there that I don't think, and I may be wrong about this... I don't think that the Koch Brothers, for example, would have struggled to build more housing in Silicon Valley. And we have people that are vastly richer than the Koch brothers in the Valley. I mean, what is going on? Why do they have so little political influence? They get railroaded even by the local government. 

ML: Yeah, I mean, I think that's a good question. One of my friends likes to joke that Silicon Valley thinks they're above politics, but in fact, they are below it. You've seen, I think, Apple pledged 2.5 billion dollars to affordable housing in the Bay Area. Microsoft, I think a billion to affordable housing in San Francisco, Mark Zuckerberg, I think, 500 million to affordable housing in the Bay Area. And like the problem is just that, okay, if you're spending half a billion dollars to put it crassly. Like just buy off the entire City Council and just tell them to legalise housing. And I think it's a sort of combination of historical circumstances. One is that because most of Silicon Valley is in the world of bits and not in atoms, they just haven't interacted with the government that much. So because of that, there was no need to really figure out how to work with government, it was like you ignore us, we ignore you. To use this sort of Chinese proverb - the emperor is far away, I'm on the other side of the country, and so they didn't really interact with the government that much, and because of that just saw it as kind of part of the ecosystem, not something that to pay attention to. I believe that is changing now.I think Mark Zuckerberg's congressional hearing like a year ago was a wake-up call where the congressmen were asking Mark Zuckerberg, how do you turn on the iPhone? And it's like, OK, well, when you have the political leaders who are that disconnected with what is actually going on, there is a serious challenge. That being said, it will take a number of years for Silicon Valley to actually figure or politics out. There is, I think, several challenges involved in that. One, I think Silicon Valley has a bias towards nonprofits, they figure if something is a good idea, you should be able to make money off it. But nonprofits are a kind of integral parts of influencing government. Second is Silicon Valley likes things that scale. Government necessarily doesn't really scale. At least it doesn't scale in the same manner that a technology startup does and so because of that you have to put all of these resources in, to help mobilize people, to help create a network, to help influence things and you're unable to tell whether it's actually working for a long period of time. So the technology startup, right, okay, you work for a year, you get product-market fit. After product-market fit, you grow at 10 per cent month over month for a period of like three years or something. So if you're growing 10 per cent month over month, you can see it's working, you can see something is happening. While with politics, you might pay activists on the ground, you might pay lobbyists, but it might take years before you actually see legislation that's even proposed, much less implemented. And most of Silicon Valley just doesn't really operate on those...they're not used to those time horizons and so they're unwilling to sort of put the resources necessary to actually engage them. Now I think a third reason is that Silicon Valley is very, I don't know...it has a very universal mindset. So New York, if you look at New York, all the high net worth people in New York, When they donate to charity, they typically donate to New York charities. So they donate to the Met, they donate to Central Park. They get status by paying for things in New York City, so you have all of these goods supported by basically the billionaire class in New York. In San Francisco, people get status by doing universal things. So the effect of altruist movement, for example, is quite popular in San Francisco. But these universal things, while I think they have a great impact on humanity because you don't get status by helping to improve housing in the city, there just isn't as much focus on the city itself, it's a little bit neglected and so there hasn't been this (the) same mobilization of Silicon Valley elite to coordinate to help fix the city as with New York where the elite do spend a lot more money on improving the city's quality of life. TL: That's interesting. I hope they wake up and they get it right.ML: Me too.TL: Final question, Mark. Ten years from now, if you're looking back at all these things you're working on, particularly charter cities, what do you hope to have achieved? ML: Yeah, in ten years I figure we probably [indistinct words] three dozens or so charter cities that are either up and running or are like in advanced planning stages. In ten years, probably a few million people living in charter cities and with the potential population to reach 10s of millions. I want charter cities to be sort of understood and discussed at every world forum, like the World Economic Forum. All these, like, sort of highfalutin events. I want them to be part of the language, like right now, for example, if we think about International Development there are some themes that come up all the time. I think gender equality and global warming kind of pervade every discussion, as well as randomized control trials, they all pervade every discussion about development, I want to charter cities to help pervade those discussions and not just pervade those discussions but actually be improving people's lives on the ground. TL. Yeah. That's a goal I can get behind. Thank you very much, Mark, and I wish you all the best. ML: Thank you for having me.

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I spoke to economists Omotola Abimbola and Adedayo Bakare on the Unemployment Report released last week by the National Bureau of Statistics. The conversation started with the various trends in the data, and the methodology of the report. Omotola and Adedayo are two of the smartest minds on the economy I know - and I thank them for speaking to me.

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I spoke to Ayisha Osori about our political structures and the various ways it is unaccountable to the electorates. She is the current Executive Director of the non-profit Open Society Initiative for West Africa (OSIWA). She also contested for a seat on the House of Representatives for Abuja in 2015 and has documented her experience in an eloquently written book. I enjoyed this conversation, and it was a pleasure to learn from Ayisha’s experience and knowledge.

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Transcript

TL: Welcome to Ideas Untrapped and today I am speaking with Ayisha Osori. Ayisha is a lawyer and she is the former CEO of [the] Nigerian Women's Trust Fund. She has consulted for various international development organisations, and she is currently the Executive Director of Open Society Initiative for West Africa. You're welcome, Ayisha.

AO: Thank you, Tobi. It's a pleasure to be here.

TL: I read your book... very very fascinating. And one thing that jumped at me straight away is the tension or the balance between political agents and systemic governance in Nigeria. In your experience, and of course from your analytical perspective in observation, where do you think the true power lies in our system? Is it with individual actors or with the structure that they've built around them via the party or their various networks?

AO: That's a very fascinating question. And it will be hard to say that it's one or the other. It's both. It's the individuals and it is the structures and I can explain. When I say structures I would be referring to something including the culture of what politics means and what political parties are designed to do or have been doing in Nigeria, some might say, from the 60s. So that DNA, the hard wiring of what a political party should be, the understanding of how it should be structured, how it should work, how it should be manipulated, all those things are part of the structures. The structures are beyond the internal mechanisms of the party, whether it's the National Working Committee or the National Executive Council, it's beyond those structures. So, when I refer to structures, I will be referring to, as I said, the DNA, the history, the hard wiring in our consciousness (both the public and the politicians) of our political parties should behave, what's expected of political parties...all those things help determine how power is obtained and our power is used in Nigeria. And then the individuals come in in that they are the ones who know how to manipulate and manage (depending on how you want to look at it manipulate is one way, manage is another) these structures for their benefit largely, the benefit of their close associates and a handful of hangers-on. And then maybe, you would argue, their communities where there's a trickle-down effect. I'll explain why the individuals are important. We don't have to go too far, we can just start with 1999.

In a way you would actually even argue that our parties have deteriorated in terms of structure - AO

If you look at some of the most powerful individuals in any of the parties whether it was PDP, whether it was ANPP, whether it was AC or AD, you'll find a pattern in the names and faces and where they go, who they align with and how the party sort of evolves. So AD moved to ACN, ACN did a merger with CPC to become the ruling party now, APC. So you find the individuals who are powerful within these structures. They're the ones who understand this hardwiring of how political parties should be. They're the ones who have been in the system for a long time and understand it. That's why I'd say it's both of them. And when these individuals decide to leave parties, they typically go home with almost everyone and the party doesn't survive after they leave which shows how powerful they are. It's also a reason why you see the same actors in the different parties because the individuals who know how to, let's just say, be politicians have the same ethos. Regardless of what the name of the party is, they have the same outlook toward how political parties should be run, how power should be gained and how power should be used.

TL: One thing you talked about quite early in the book is the role of ideology in politics and how it is missing (it's almost non-existent). One good example is a case of Kogi State where you have two senators, running against each other, four years apart, in different parties. There's the case of Edo where the upcoming elections would actually have, basically, the same people on the ticket of the two main parties, but now they've more or less switched sides. Cross-carpeting is the colloquial word we use for it, would ideology really help bring some stability and, hopefully, sanity to our politics? Because it feels like our politicians do not stand for anything.

AO: They would argue with you that they do stand for something and I'm sure many of the politicians that are in APC today will tell you that they consider themselves progressives (maybe left-of-center). I don't think PDP as described itself as center or right-of-center. Right being more conservative, Left being more progressive, but I've heard APC politicians describe themselves as more progressives anyway. Some of them would argue with you that they do have ideologies, but of course we know that it doesn't seem that way because of how easy it is for them to move between parties which I mentioned earlier. So if, as you point out, once upon a time, Ize-Iyamu didn't have the characteristics and values of what an APC person should be, you would have to ask what has changed in four years that suddenly he's able to be the ideal candidate for the APC despite everything they had said about him four years ago. You would like to think that as they present Ize-Iyamu now as a brand for APC that there will be some sense of how he has been rehabilitated from his prior point of views, his prior values that make him now aligned to APC. But there's no pretence in doing that because they know that, in a way, nobody cares, so to speak. And it could be that, is it that nobody cares (that us the public)? Or are we apathetic? Do we no longer care, did we care once upon a time? Did we never care?

For me, those are the more interesting questions, because this idea that you have parties where you don't know who your members are, that's been something that's been going on for years and years. It wasn't this bad in the run-up to the 60s when we had the old parties that were led Awolowo, Ahmadu Bello and Nnamdi Azikiwe NCNC or [the] inheritors of those parties, the National People's Congress (NPC) that started as the Northern People's Congress...so, in a way, you would actually even argue that our parties have deteriorated in terms of structure, but those parties had some modicum of membership, they had some modicum of order. But as time went on where the lines between public and private or the lines between, let's say, governance and the treasury (public officials and the treasury) became more blurred, the more being in government became a route to access to fantastic riches... the more important it was to be in politics, the more important it became to capture power because that was your route to fantastic riches.

So, the point I'm trying to make in a roundabout way is that the parties right now have no incentive to change their DNA or to change the way they've always done things. The formula has worked for them so far they would say. They win power, they might be out of it for one or two election cycles. PDP had said they would rule for 60 years, thankfully, they were out in 16. Now, APC probably has the same feeling that they will rule for 60 years but it's quite likely that they will not. The faces don't change, and even when the faces change, the behaviour and the values don't change. The culture of what politics is doesn't change. So would it not be up to Nigerians to say why do we keep voting for these parties that have no ideology? My point is, the parties will not change until we, the people, say they should change, and how many Nigerians care whether the parties have ideologies or not? So the truth is there's a disconnect - one, the people in the parties have been winning elections this way, nobody has challenged them, they're doing fine, they have no reason to change the formula. And two, Nigerians are not demanding that they should have ideologies or that they should speak on those ideologies.

I remember when in the run-up to the 2015 elections and even 2019 elections, there was this conversation about a debate (presidential debate) and Buhari, of course, wouldn't want to debate. He didn't want to debate in 2019, in fact, he had zero incentive to because he was the incumbent. He had nothing to prove, so to speak. But Nigerians still voted for him knowing that. Lately, people are saying things like: this is a man who has never written a book. This is a man that doesn't have even a pamphlet to show what his ideas are, what his thoughts are, what he even thinks about anything. Literally, people have just spent decades projecting their own feelings onto this man. He's never said anything. He's never put anything on paper, which is why it was also easy for him to deny some of the election campaign promises that supposedly he now says his party has made on his behalf [which] he didn't make himself in 2015. But Nigerians still voted for him in 2019. So, if I was a Buhari, why would I care about having an ideology if I can win elections without having any? if I can get millions of votes without having any?

TL: Let's unpack the history here a bit. Do you think that the stunting of our political evolution, particularly, by the number of coups we've had and military intervention played a role in this particular problem? Because we know that order than the rule by force and fear which is the method of the military, they also spent quite a lot of time and money buying allegiances from civilian elites which gave them some form of legitimacy, and which I think is now being replicated in civilian rule. What do you think of that?

AO: I would think it's valid, in a way - half and half. There definitely was a truncation of our political evolution and political growth and development. And not even only a truncation, a poisoning - there was a poisoning of our sense of what it means to be a citizen, a poisoning of our sense of responsibility and accountability. Some people would argue that we are all even suffering from PTSD because there was a lot of violence as well and it's hard for ideology to thrive where there is high poverty and where there is violence as well. So I would agree that, yes, to a certain extent the coups, the military rule definitely, in my mind, as impacted on our political development.

But we cannot blame them entirely because you know that we did have intellectuals. We had the radical ABU academics, we had [them] thriving even in Ibadan, Ife... there was a culture of resistance even during the military rule. But oddly enough, somehow this radicalism, this pushback on authority, it doesn't seem to have survived going back to a democracy in 1999. And some would argue that we are not even in a democracy right now, we're just practising civil rule but we're not quite democratic in the sense of our structures and the accountability between government and citizens. So I'll say, again, like, a lot of my answers will be that 'it's half and half.' I don't like us to shirk responsibility completely. Has there not been enough time between 1999 and today, that's 20 years, we celebrated 20 years of democracy last year of uninterrupted democracy which is the longest we've ever had Democracy in Nigeria uninterrupted. We celebrated 20 years. Is 20 years is not long enough to have developed this culture - if there was a deliberate sense not only from the politicians but also from the academics and the think tanks and civil society that it was important to develop our political culture and political theory? What you find though is that everybody seems extremely comfortable with the way our parties have evolved since 1999, built on some of the interference of the Babangida transition program which took a long time. So that's what I talk about in the poisoning of the well.

The years of military rule had helped us to compromise our academics, compromise our sense of values almost entirely and that's still lingering. The damage that was done to our unions, the damage that was done to student associations which could have also helped develop this thriving political culture, all those things were decimated during the military era and nobody has deliberately rebuilt it. You go to our universities today, you find that many student unions are not actually even democratic either. You find that in many cases the vice-chancellor or the ruling council of the university, if there's going to be [an] election, they want to want to be able to determine who wins those elections. That culture of manipulating who gets into a position has poisoned everything - the Nigerian Bar Association, I'm sure it's the same with the Nigerian Medical Association, I'm sure it's the same with either on the women's side. So, it's poisoned everything but as I said, where is the deliberate effort? You know, we're having a conversation where would you say over the last twenty years you have seen deliberate effort from politicians, one; two, academics; three, civil societies; four, even just concerned citizens to build an alternative model for what a political party should be?

TL: Why do you think that is? I'm curious. Is it ignorance, is it education, is it apathy? Why? Why has there not been that, at least on a scale that is enough to push the boundaries a little bit from the status quo, why has there been stasis in that regard?

AO: Ah... that one, eh. To be honest, I would say that [it's] beyond my pay grade or my understanding grade, to be honest. Because I am as baffled as anyone else about why this hasn't happened and the truth [is] I'm not a student of politics or political science, it's just interest that has made me do a bit of reading over the last couple of years. But, as you pointed out, I studied Law in school, maybe did political science for one or two electives before I entered year two in UNILAG. So I don't know but I would say, picking up from just observing, that it is a mix of apathy, which is odd. We didn't think that being under military rule was inevitable, but somehow we think that how things are done now are inevitable.

As time went on where the lines between public and private or the lines between, let's say, governance and the treasury (of public officials and the treasury) became more blurred, the more being in government became a route to access to fantastic riches - AO

I don't know what has happened to our sense of struggle and maybe that's it. Maybe there was no collective 'our.' I'm saying 'our' but the truth is it was a handful of people who pushed out the military. It was a handful of people who won independence from the British, and of course, that winning of independence from the British was not unrelated to what was happening across the rest of the world. The world war had ended about 15 years before, the idea of colonialism was sort of dying, so the time was right. Some people would argue that in the way that South Africans struggled to end apartheid, we as a nation, Nigeria... we've actually never struggled collectively for anything. Maybe the biggest struggle we've had was to get rid of the military but as I said even then, you'll be hard-pressed to feel that it was a collective effort as opposed to civil liberties organisations and a handful of people, the Beko Ransome-kutis and co. and co., when you hear those stories. And maybe the stories are not complete. So, framing an answer, why is it this way? It's a mix of ignorance, it's a mix of not being taught our history, the danger of the single-story that Chimamanda has warned us about. But we've only seen one side of our history, we're not sort of prepped to be citizens who are active, and I think this speaks to some element of decolonizing our education. Because when you're learning in school, whether it's primary school, secondary school, university... I did social studies, I did history for SSCE and I took some courses in university, you find that your history just raises you to be accepting of what there is as opposed to questioning. And I think a lot of the colonial countries, whether it's francophone West Africa or anglophone West Africa suffer from this educational system that was designed to just breed civil servants who would just do what they're told and protect the status quo. So, that's one. Two, I think we like quick fixes. And I am understanding of this. I have empathy for this feeling of wanting a quick fix, but,0 we need to invest long-term. Part of the reasons why we're not thinking about the investments that need to be made in changing political culture is because we want a quick fix.

Over the last couple of, maybe, like the year-and-a-half, the last year-and-a-half, I would say, there's been this romanticization of the NURTW. I've seen people on Twitter say 'oh, we should go and copy their model,' and I laughed, I smiled. And I'm like, 'what is their model designed to do?' I'm not saying it's an unworthy exercise to study them, you study every model if you want to dismantle it. In fact, you should know even more than the people who follow the model what the model is based on if you want to replace it with something better. But the idea that "well-meaning people"... because these days when people say they are 'well-meaning,' when people say they want to change things, we've learnt from the APC that we should be suspicious and ask questions 'what does change mean?' Because it might mean that you just want to capture power. You don't necessarily want anything to change. So back to NURTW, you want to use NURTW's model to do what? Because their model is designed to be exploitative, is that a model that you want to copy and use? For what? I mean, you have to think about these processes and ideologies and structures almost like a factory, a sausage making factory. Anything you put in will come out looking like a sausage. But we don't want to take the long-term view, we are always looking for the quick fixes.

TL: I mean, it's baffling. Maybe I should take a peek at your Twitter feed that anybody would even suggest NURTW as a viable model for political organisation.

AO: Whoa! Are you saying you've not seen that?

TL: No, I haven't, actually.

AO: Ah. No o. In fact, if not that I'm bad with names, so I don't want to, sort of, pick names, but I'm quite sure people like maybe, Alabi, the guy who, I think, is like a business entrepreneur who's gone to the House of Reps in 2019, is that his name? Alabi?

TL: Oh, Akin Alabi.

AO: Alabi. As I said please, maybe not him, but I just feel somebody with that type of name or maybe it might be...umm, I'm trying to open my Twitter feed now as we're talking, so this is an interactive conversation.

TL: Yeah.

AO: So, I've seen that from more than one person (say 'oh, you know'... ) maybe even Rinsola Abiola. I think she might be a fan of that school of thought and to be honest it's framed in a way to say 'oh, you elite people, you're sneering at the NURTW because they don't speak English,' it's not that. At least it's not that for me. It is, what is the structure designed to do?

TL: Exactly. If I may ask, sorry I'm interrupting. Do they have specifics, I mean, what about that model are we supposed to learn from?

AO: It's funny you said that because I remember that some other people pushed back now sharing stories of the kind of havoc that NURTW members have wrecked on their communities, or in [the] markets, and things like that. So, people were like, 'look, stop romanticizing these people.' But you're right, you know. There's this whole thing of 'oh, but they have spread, they're all over the place.' Yeah, they didn't wake up in the morning and suddenly had spread. So you now want to adopt a model but you don't want to interrogate what the model was designed for? In fact, I talked about decolonizing education, we should actually even decolonise our government.

Because the truth is our government was inherited from the British who were here to strictly exploit us for their benefit. It's not far-fetched to say that that's what our politicians are still doing today. And they're not alone. We keep pointing fingers at the politicians but the civil servants are also exploiting us on the structures that the British had left for us which we inherited and we haven't really changed since then. You see all sorts of things in our civil service like leave allowance - this was for the British who had to go home for the summer. We still have those things in our system. So when we even talk about decolonizing education, we even need to decolonise our governance and what governance is supposed to do.

So it comes back to the thinking that needs to be done but to be honest there's this sense of 'no, no, no, no, we'll enter government and then we'll change it from there.' And my theory, from the little that I experienced, again, I admit that I only experienced a little because all I did was primaries. But even the primaries showed me that what it takes to win an election in Nigeria, I doubt if when you finish you'll still... even if when you were entering you had lofty ideas of what you wanted to do, what you wanted to achieve, I can bet that by the time you win, at least fifty percent of those ideals would have been sheltered. You will no longer be the person you were when you started that process for you to succeed. And in the first place, for you to succeed, there are some traits that the party owners would have seen in you that will make you a good candidate. So I guess that's part of the dilemma that we’re in [which] is that we romanticize things, we're not thorough, we're not detailed... it could be a whole national malaise. We don't have high standards, we don't want to be held to high standards so that we don't have to hold anybody else to high standards. So, yeah, largely, we're just a collective of people who just want quick wins, easy way, we don't seem to see that the suffering that we are going through doesn't have to be that way, that there could be a better way of living. Now, everybody's gaze is on Canada. It's like a joke now but within the jokes and the banter, it's just the sense that nobody wants to build Nigeria, you now want to move to Canada where they have struggled to build their own country and they're still struggling. I've had the privilege of being in Germany for the last year and I've been saying to people 'I'm like Germany, they have light, they have water.' In the one year that I've been here I have not had cause, even once, to even wonder that if I touch the switch, it's just... it's not even in me. Whereas in Nigeria, every single day, it's as dominating as breathing or as air for you to wonder whether there is light.

TL: Yeah.

AO: So but here where they have light and they have water, they are on the streets every day. I'm not saying the whole city is on the streets but pockets of people who care about one thing or the other are marching and complaining and lobbying... because Berlin is the capital for Germany, sometimes farmers would come from across the country in their trucks, you know how big tractors are?

TL: Yeah.

AO: You'll find tractors all over the city, blocking roads, constituting a nuisance, they are protesting something to do with agricultural policy. So these are people whose lives you would say are fairly okay, but they're not resting on their laurels. They are not saying 'ah, everything is good,' they're still fighting, demanding, pushing, lobbying. Whereas we that have so much that's wrong, we're not even doing anything. So, it comes back to the ideology question - the people in power, they're looking at us and they're like, it's hard to tell that we want more. If you're Buhari would you think that the nation wants more? I don't know the governor of your state but if you're in Lagos State, does Sanwoolu feel like Lagosians want more?

We romanticize things, we're not thorough, we're not detailed... it could be a whole national malaise - AO

TL: It's interesting you talk about this demand for good governance which we don't have. I'm just wondering if you are a civil society Czar which you are, in a way...

AO: I am.

TL: And you want to take a stab at this problem, where do you start? Is it bottom-up, is it top-down? if you want to triage resources, where should we focus on first?

AO: I would say it's the middle. My argument is very simple, I say the middle because my knowledge of history, the limited knowledge I have of history and of struggles, is that it's the people in the middle. And I know that there is this argument that we don't have a middle class in Nigeria but I guess, for me, I will just say the middle is: me and you, who have enough to eat every day. We might not eat everything we want to eat every day but we have enough to eat every day. We have a steady income, whether it's every month or whether it's from a business that comes quarterly. We aspire, maybe some of us travel a couple of times a year [or] every couple of years; that class, that middle, the people who can afford data, the people that can afford the luxury of being on Twitter for a few hours every day, on Facebook every day, that's the middle. For me, most movements come from the middle. They would obviously trigger something with the lower class, the working-class people, the people who live on daily wages, at a point the struggle will tip over to them and they too will adopt it. But as you said the triage, my energy will go on the middle, my energy will go on the middle who are young if I'm also going to prioritize within that middle. Because those are the people who should have the luxury of thinking. Me and you, who are not bogged down by hunger... and poverty is real. Poverty is really real in Nigeria.

Are we expecting the people who are struggling for a daily meal to be the ones who are going to do the thinking, the planning and heavy lifting? I don't think so. So I would focus on the middle and what would I be focusing on the middle for? I'll be saying to the middle, 'how do we organise?' And you see, when I say "organise", I'm using that word in a technical sense. When we heard that Barack Obama was a community organiser I don't know how many Nigerians understand what that means? There are schools of thought around organising - there is the snowflake model, there is [the] Alinsky model, there's the LCN (Leading Change Network) model. These are models that I know are used in America and I ask myself what are the models for organising that we use Nigeria? What are the models of organising that we use in West Africa? So far I have come up with very little. For me in civil society, the new opportunity that I see is teaching organising in a structured manner. Creating a model for organising. And the truth is we have things in our history that we could build that model of organising around. We've had the Aba women's movement, I will put that as a classic case of organising. How did those women do it? What triggered it? What happened? It's not a footnote in history 'oh, there was the Aba women's...' which was how we learnt about it...the Aba women's movement, they did this, this, this. They put a tax on their salt and they were not happy. No. It is to go beyond that to see how they did it. How did they organise? How did the women get other women to buy into this?

In today's day and age where when to organise they're saying 'ah, how many people from Kogi State? How many people from Nasarawa?' Which is not, for me, the key thing. The key thing is, how many people who feel this pain? How many people who have this value? It's not about the geography. But even in terms of putting together movements in Nigeria you find that we're still looking at federal character. I'm not saying that that's a bad thing but I'm saying it cannot be the predominant thing because that's our politicians organise. We cannot keep using their models. There's a reason why they use their model. We cannot use their model when we want to organise to push them out. So that's where I would start - teasing out a framework for organising for us in Nigeria based on our own stories. What did them Beko do? How did they do it? What did they learn? What were the mistakes? What drove them [in] pushing out the military? Where did they go wrong, where did they go right? And then using our own 21st-century experiences from Sudan, from Egypt, from Algeria, Tunisia, from Black Lives Matter.

People are looking like at Black Lives Matter as if... I don't know how to explain it, as if somebody just shoots a gun and out came Black Lives Matter. They've been doing Black Lives Matter for years. This is where preparation meets opportunity. The longest movement or, at least, advocacy campaign we've had is Bring Back Our Girls. Maybe also in terms of thinking about a model for organising we'd look at some of the things they did right, learn from some of the things they didn't do well. But, for me, that would be the start. So you'd have that organising model and then you'll now democratise that organising model so that everybody can use it if they want. Whether it's the hairdressers on a street or in a community [or] local government who are tired of being taxed, how do they use that model to organise? But on a larger scale, then it would be how do me, you and other people that think like me and you who want to use that model to build the power that is needed to demand for the structural changes we need. It will take time. It will take research, it will take knowledge, it will take mobilizing, it will take organising to get to that point. But what should sustain us is that in the last decade, decade and a half, most of the real fundamental changes that have happened around the world have happened not through elections and have also not happened because of coups, and have also not happened because people that were oppressing suddenly woke up and said we're tired of oppressing. They've happened because of nonviolent movement, which requires between 3.5 percent or 5 percent of your population to want that change bad enough. I think we can do that in Nigeria but nobody is doing it.

TL: Listening to you, I tried to look at some of the potholes, so to speak, in this model. You talked about Bring Back Our Girls, I was at the Abuja sit-in in 2014 and I think... was it the second day or the third day and Dino Melaye came for whatever reason and said (I don't know how true that is) that 'oh, I hear that 150 million naira has been released by the NNPC to start a rival movement.' Now, that seems outrageous but by the very next day there was a rival gathering at Unity Fountain chanting 'Release Our Girls.'

AO: [Laughs out loud]

TL: Yeah. And by the next day of that rival organisation, it descended into violence. I believe so much in the middle class and changing the demand for good governance, but I keep looking at the threats, especially around poverty and how quickly the political class (the ruling class) can easily use money and influence to mobilize for violence. And I think that may drive apathy on its own. On the path of people that are willing and even able.

The key thing is, how many people who feel this pain? How many people who have these values? It's not about the geography but even in terms of putting together movements in Nigeria you find that we're still looking at federal character - AO

AO: I hear you completely. And to be honest, yes. In fact, it's now become a fad. As a member of civil society will know, for example, that Amnesty International is constantly picketed every time they come up with a report or a press statement that indicts the government and the military and soldiers for extrajudicial killings or overstepping their bounds especially in terms of loss of civilian lives, we find paid protesters coming out with their posters. To be honest we've seen this across board. We've seen people protesting for Diezani. The funny one was the 'leave Diezani' where it was spelt L I V E, "live our Diezani alone" which is like 'live'. It's now an industry, so we can expect it. But should that deter us? I don't think so. To me, it doesn't deter. And this is another mistake that we make. This is another mistake that "the people that want to change" always make that mistake because they want to keep following the models of the politicians.

Now, the average politician thinks 'okay, he can outspend you.' He probably can. But you know these protesters, we find that at the end of the day, they'll be fighting in one corner, maybe they were promised 1000 [naira] but he can only give them 500 [naira], it's not sustainable on their part. Yes, they can bring out their 'release our girls' people, day one, day two, if we were still going for day hundred, who's going to be bringing that money? Who's the politician will keep saying 'let's keep giving these fake protesters money to come out?' They will now have to change track, that's maybe is where they will now try to use violence or the tactic of Abuja now is to seal off the area where the bring back our girls used to sit in the name of construction or they might try and start infiltrating the movement to pay people off to be disruptive. We can expect these things because these are tactics that we know will be used. How do we prepare against it? That's all part of what the organising and the struggle is about.

I'm not going to tell you that it's not going to happen, but because we know it's going to happen, then we can mitigate against it. We can expect it and we can work around it. But the truth is, of course, anybody that benefits from the status quo is not going to let go of that status quo easily. We can, again, link this conversation to Black Lives Matter. What is so hard about saying 'stop killing innocent people?' Why is there such pushback? Why are we seeing such pushback from the police, about not arresting people indiscriminately, not shooting and killing people indiscriminately, not using indiscriminate force on people? Because, as I mentioned, the DNA of our political party, it's in the DNA of the United States police force. Because the United States police force is also tied to the legacy of slavery and dehumanizing black people. But does that mean we shouldn't struggle?

TL: Absolutely not.

AO: Exactly. So we see the pothole, we acknowledge the potholes and just as we do with our cars, we swerve and avoid the potholes. But the key thing that would help us avoid these potholes, Tobi, is the values that we used to organise. So as soon as me and you think that for our movement to a powerful, we need Dino Melaye, we need Adams Oshiomole we need Ghali Na'abba, that's our downfall.

TL: Let's move away a bit from that. We'll come back to some of that issue. Let's talk about gender-based violence which is something I noticed you've written about recently. If Twitter is a reflection of reality, there's been an incredible surge in such violent incidents over the last couple of months and like everybody else, I wonder what's going on? Has it always been like this or there is an underlying psychological reason behind the current wave we are seeing?

AO: Now, that's a fantastic question and I have the answer. One, this violence is worldwide. The violence against women and children that we're experiencing right now during covid is worldwide. It's been given a name - The Shadow Pandemic. As the covid pandemic is ravaging the world, there's a shadow pandemic that is also ravaging the world and the pandemic is waging war on women and children mostly. So is this a new thing? No, it's not a new thing. What covid has done more than anything is put a magnifying glass to problems we already had and two, it has sped up the rot. So, we already had rotten structures, rotten cultures, rotten response to social issues, deep injustices and inequalities in our system, what covid has done is exacerbate these things. They've made them worse overnight. Why? Because with covid we've also seen restrictions on movement, we've seen people's livelihoods being affected negatively, we know that more people are going through hardship. And when there's stress, and there's oppression, it's not to justify it but this is just the reality, when people are under pressure, they lash out.

When I'm under pressure, I'm more likely to snap at my children than when I'm not for the same thing. So, if I'm just chilling, I'm not particularly stressed out at work or nobody has bashed my car or I'm not frustrated at the diesel bill or they've not just come to cut our line, and my child breaks something... my reaction at that moment depends on just how stressed I am. So, likewise, with people's livelihoods being affected, a sense of oppression, a sense of uncertainty, all these things are boiling over as a war against the most vulnerable which is women and children. People feel like they need to take out their stress on somebody else whether it's beating them or raping them, and this is how some of it's manifesting. I'm quite sure that also domestic violence is high, but we're not seeing the stories in the news same way we're seeing the stories of sexual gender-based violence. But in Sierra Leone, a five-year-old was just raped to death. We've seen stories in Nigeria of three-year-olds, four-year-olds. It's across the continent, it's across West Africa, it's across the world. Then come back to Nigeria on sexual gender-based violence, we ordinarily... we've had a really horrible culture of sexual gender-based violence against women. There was the report, I think 2012, called women in Nigeria report that was a joint research done by the British Council and I think the Ministry of Women Affairs and Ministry of Finance because I think we had Okonjo-Iweala then. Yeah, this is around 2012, yes.

That was a time when we were making a lot of strides in terms of saying let's do gender budgeting and things like that. Anyway, the report showed that I think 1 is 6 or 1 in 5 women have experienced sexual gender-based violence, separate from domestic violence and just violence in general. So when you now look at the numbers in terms of prosecution, you'll see that very few people are prosecuted for it. We have patriarchy that sort of places men above women and children, then you have an ageist society where we believe older people over younger people, then you have a society where you have no law and order, where your police is ([for] lack of a better way of describing it) largely exploitative and designed to protect the regime as opposed to protecting the people, you have a judiciary that is weakened and not independent and likely doesn't care. Oh, let's not forget sex for grades...you saw the documentary that came out last year that the BBC did on UNILAG and in [the] other school in Ghana?

TL: I did.

AO: So it's in our culture. I hear that [the] National Assembly, when they do their budgeting for conferences and meetings, if you look at the items there is "conference materials." They say conference materials apparently include women. That conference material is a cover for women. I've heard stories of men in meetings (government meetings) where a good part of the government meeting is spent on whether they are going to travel with blankets, blankets being a code for women, so this is our culture. You have stories of people who are abused and then the whole family will be on the neck of the mother or the child who wants justice. The family. So, we have a real, real, deep societal issue. I agree that a state of emergency should be declared but the truth is a state of emergency was declared around sexual gender-based violence in Sierra Leone last year. Despite that, poor Khadijah was raped to death. A five-year-old. By her Uncle. With the knowledge of the Uncle's mother and the girl's Aunty.

So, declaring a state of emergency for me is rhetoric. What is going to be done? What needs to be done? How do you have somebody who alleges that she was raped (we've seen it not once, we've seen it not twice) harassed by the police? The truth is, again, like demanding good governance, do we want to see an end to sexual gender-based violence in Nigeria? It's almost, in a way, also, up to us. Do we want to have zero tolerance? Because if as a society we excuse it, if even on a family level we can find it in our hearts to excuse the people we know who are molesting young girls, when we refuse to believe young girls, when we refuse to believe adults who come forward, then as a society we're saying this is not important to us and the government will take their cue from there.

TL: I have a two-part question. And please indulge, maybe, some of my own ignorance here. Now, I look at history and there is some form of correlation, maybe not necessarily causal, that as societies get richer, they also improve in gender equality. So do you think some of these problems are economic? Is it so knotty as a problem right now because we are still largely a poor society?

AO: Is that the two-part question [or] should I wait for the other one?

TL: Yeah. Wait for the other one.

AO: Well, it's a good question and the truth is I don't have the research to say yay or nay. I do know though that in a few countries (I know Brazil is definitely one) where this sense that 'let's empower women economically' (I said I want to stop using that word: empower)... where women have been given or are supported to be more economically independent, we've actually seen violence rise in their homes. As the men find it extremely uncomfortable that the women are earning. Maybe not even earning more than they are, but just that the women are earning. They don't like the confidence it gives them and you see an increase in violence. That has been documented. When I think of women, let's just say like me, who are abused at home or who are abused in the workplace, we're not poor and the people abusing us are not poor either, so I would wonder where that comes in. Unless it is the entire society, even when you have pockets of wealth, there's some sort of mental impoverishment. I mean, that could be the only explanation. That's one explanation anyway, that you'll say that 'okay, so how do you account for sexual gender-based violence and domestic violence within rich or middle-class communities?' And this is not special to Nigeria either, it's something that happens everywhere.

So I still bring it back to patriarchy and culture. I still think that it's not enough to say it's because we're poor. Because then the argument will be, but your state is not poor. Why does my police not care? How much is the police budget? I'm sorry I wish I had that number at my fingertips. When a mother comes in with a child and says that child has been raped, why is our police too poor to be able to treat them humanely, question them humanely, capture their stories humanely, instead of reporting the mother or brutalising the girl by asking stupid questions about how she caused what happened to her even if she's under five years old? So where does poverty fit in where our judges who get a huge chunk of money... You can even excuse the judges maybe you'd say because if cases are not prosecuted by the state, this is a crime. So ideally, in these types of cases, it's not supposed to be the mother of a child or me who is a rape victim who is prosecuting the case, the state should be prosecuting the case. Is the state too poor to prosecute these cases?

When we vote for these people, what are we voting for? What do they do for us? What do they do for us that makes us have every four years go out and vote for these same people? - AO

Is the state too poor to hire public defenders for people who are too poor to hire lawyers for themselves? Is that what we're saying? The state is the one that's going to determine what kind of society that we want to live in. I'm afraid I don't really buy the poverty one, I think that it is a cultural one. Our problem is cultural, it's not poverty. It's not economic. Because even rich people exploit women and girls. Even educated people do, so it's now a culture, this is our culture. Pastors do it, Imams do it, governors do it, ministers do it, people in civil society do it, bankers do it, teachers do it, policemen do it, everybody is doing it. It's not about poverty, it's about culture, it's about what we accept.

TL: I love that answer, I wish we had hours to unpack all the various details and nuances. So the second part is, again, to be honest, I never tweet or speak publicly about this stuff because some of these platforms are not really optimized for a nuanced conversation and...

AO: Yeah.

TL: So I noticed that there is a pattern. I mean, when people pushback or advocate or complain or protest sexual violence against women and children, particularly against women now, there’s a pattern which is 'oh, stop raping women.' And, yeah, I have no problem with that message. But then, you have a certain group of people who say 'oh well, not all men are rapists' and then the conversation devolves into a lot of anger, name-calling. What are the nuances? I mean, in sexual violence there's biology, mental health and other things other than being a male or a female, do those other things not count or explain some of the cases?

AO: Hmm. I’m not sure I understand this last part, you might have to unpack that part. I understood up to when you said 'does biology not play a role?' Until that point I was understanding where you're coming from and where you’re trying to go. But this last part...

TL: Okay, for example, we know that, and when I say 'we know' I’m talking about, maybe, consensus in the psychological science that paedophiles, for example, have a certain psychological profile. They might not have a normal brain like an average person. And there is also some evidence that people who rape (there are serial rapists, of course, just like serial killers) they are also of a certain psychological profile. I take the cultural arguments. Absolutely. True. There's an ingrained problem with our culture with how we see women, how we treat women, how we talk about women and it reflects. But specifically about the violence which is quite troubling, which bothers me a great deal, which I would like to see a lot more movement in terms of change and not argument, and not controversy and all the things that poison that conversation. So should we start looking into mental illness and not just the gender of the accused or the perpetrator?

AO: Okay, now I understand and it’s perfect. Wow! This is very loaded and I’m really not sure I can do justice to it. Maybe after our interview, you'll have another session with people who are psychologists but I’ll try and unpack them one by one and in the different issues that I’ve seen in this last question or comment or reflection. The ‘not all men are rapists,' of course, it’s understood where that is coming from. But if we compare it as someone has done recently to... when we say 'Black Lives Matter,' and then people say 'All Lives Matter, there's also a reaction because in saying Black Lives Matter, we're not saying All Lives don't matter. We're saying black lives are in danger because the numbers tell us that more Black people are being killed by the police. So nobody’s saying white people don’t get killed by the police but what is saying is that there's a systemic structural racism in the US police force that targets Black people. Some people would argue that there's, I know that's hard to think of, but they there are fate worse than death, what the African-Americans go through in terms of being used as a feeder for America's prison complex you could argue that, for some people, that fate is worse than death. It’s like a living death and it’s not unconnected to the fact that the thirteenth amendment they abolished slavery somehow left an exception for prisoners still be treated as slaves, creating an incentive to have slaves and to be able to capture a good part of your population as slaves.

So going back to not all men, it angers women and men when some men say that because in saying men are rapists, we’re talking about the data. Nobody is saying women don't rape and it’s actually quite useful that many men are also now sharing very troubling stories of how their first sexual encounter was rape, literally. Which brings us now down to this mental issue - there’s evidence, non of it Nigerian based, but there's evidence to show that people who are abused go on to abuse. So if you were raped as a child, if you were molested as a child, some people would become molesters. If you were raised in a violent household where you were hit as a child, you watch your mother being hit (or let's just say, to be fair, your father being hit), you will most likely grow up into an adult will hit their child, who hit their spouse. This is documented. So you’re right. Sometimes when I hear these stories, I do think 'oh my god, we're a nation of [the] abused' and we're all going on to transfer our abuse to other people. You hear horrifying stories, [see] videos of women abusing househelp in very degrading, sadistic ways. And you’re like 'ah-ah.'

So this comes to the trauma that, it will be fair to say, maybe a good section of Nigerians are going through but we don’t invest in mental health. We don’t recognize it. And literally mental health is tied to health where, as a country, we've not put health as a priority - that’s also one of the things that have become glaring from the pandemic. We’ve known that our healthcare is inadequate, I mean, constantly we're Go-Gunding people who need to travel abroad, it seems that there’s no serious illness that we can treat in Nigeria. We just don’t have the capacity. Where we have the capacity, it is very limited. So, if we can’t even do basic public health right and basic public health is literally maternal mortality, infant mortality, just making sure pregnant women don’t die, making sure babies don't die, toddlers below the age of five don’t die. If we can’t treat accidents, gunshot wounds, basic things, how will we get to mental health? Where will the investment come from but the truth is we need investment in public health. To be honest, we can actually tie sexual gender-based violence going on against young boys and young girls and women, we can make it an economic issue because we can say 'what is the impact of all these people who are emotionally stunted in one way or the other (I’m not saying everybody who is raped or who has been abused has mental issues)... but in one way or the other, how are these things affecting our productivity as a society? How many man-hours are lost in dealing with these issues? How many man-hours, women-hours are lost in terms of productivity for women who are running, hiding, trying to dodge abusive husband, abusive uncles who feel entitled to the bodies of your daughters? How many man-hours and women-hours are spent on avoiding all these?

What will it take for 3.5 percent of Nigerians to say enough is enough? - AO

If we were really to treat all these cases the way we would, then you'd now be asking, what is the financial burden on our healthcare system? If we had a serious government, then the government will be saying 'this is a pandemic that we must stop because it is draining our people and draining our resources.' So I agree with you that the conversation could be expanded, I am hopeful that it will be because I think we’re getting there. I know that the conversations are quite painful, they can get quite heated, I personally welcome them as painful as they are. Because I think we're sort of undergoing the psychological therapy that we need to first to discuss these things. And you know they say there are stages to grief? I can't remember all the stages but anger is one of them. Maybe we're going through the anger stage. We will get through the anger stage and get to the solution part. Maybe the solutions will be home driven because we would now have had these conversations, had these revelations, had these stories told and told and retold. So people will get to where me and you are now, say, 'okay, how do we move forward?' Which is why in my first answer I said 'it's the lack of seriousness that the states treat this issue of sexual gender-based violence. It's in part a reflection of your society where women have been so objectified as sexual objects. There's a strong sense, in Nigeria, that any woman who has anything is because she's sleeping with somebody. So sex has been seen as a commodity which in a way is almost as if the women are the sellers and the buyers, which is madness. We cannot be the sellers and the buyers.

TL: Men are the buyers, obviously.

AO: Well, some of them are selling too, so I'm just saying this accusation that 'oh, sex, sex. Women use sex to get what they want. Women use sex to manipulate.' In fact, that narrative is now spilling down to small girls, innocent children. What are they trying to get? What do they want to get? So all these angry conversations should lead to us saying 'enough is enough.' I spend an in ordinate amount of time on WhatsApp platforms and groups where we’re constantly asking 'who can shelter one three-year-old? Who can shelter a four-year-old? There's a 16-year-old who is being by her stepfather, where can she go? And you're saying 'where is the state?' In the 21st-century, how is it impossible...I think only Lagos that I know of, forgive me if there are other states, Lagos is the only state I know that has a shelter for women as per it is a state shelter. And I'm quite sure that even what they can afford and what they can do and who they can cover is limited. But [in] most states, you do not have a place where a woman and her children who are being abused and being a terrorized can go to. Which makes it even harder for you to get the support that you need. So if, for example, your family is not with you in terms of trying to avoid the abuse of your daughter or your son in the hands of a relation, which is often the case. Where do you go? Do you now go under a bridge with these same children who are traumatized? Your state doesn't even provide for this, so again, it comes back to governance and politics.

When we vote for these people, what are we voting for? What do they do for us? What do they do for us that makes us every four years go out and vote for these same people? Which one thing? Which one thing are Nigerians passionate about? Which one thing, Tobi, are you passionate about that you're saying this issue is so important to me that if it is not addressed, I want some serious reform? I'm sure every single Nigerian has one of those such issues, yet we do not make it campaign issues, yet we allowed these people to just tell us lies. We cannot hold them accountable. Then the next four years comes again and we all troop out? Are we all mad?

TL: Pertinent questions. Thank you very much.

AO: Thank you so much. It's been really interesting.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com

Abubakar Suleiman, who is the Chief Executive Officer and Managing Director of Sterling Bank, is certainly the most interesting banker in Nigeria. In this conversation, we explored the nature of the relationship between business and government - with focus on regulation and the cost of compliance - and the thing that needs to change in that relationship.

Transcript

Tobi: You're listening to Ideas Untrapped and today I am honoured to be speaking with Abubakar Suleiman who is the MD and CEO of Sterling Bank. He's a man I respect so much and a very interesting thinker. You're welcome.

Abubakar: Thank you.

Tobi: I'll start with a basic curiosity which is if we go back, say, about a decade ago from the banking crisis that we had where it started globally, but it changed the financial landscape of our economy, so to speak. In your view, what are the most enduring legacies of that experience? Because, for me, one thing that I see (and I'm open to being wrong about this) is that it expanded the regulatory role and the oversight of the Central Bank in a way... because it had to step in, do a clean-up of the system, provide liquidity and I believe there are costs to that which are kind of feeding into the system now...what are your views on that?

Abubakar: Sometimes it's difficult to argue that the lesson from a decade ago where was really learnt. You'll see behaviours that suggest that we may have gone back to business as usual. But in one area where we have not reversed completely the changes that were imposed on the system is actually in the cost of doing business and the cost of compliance. So, from a business perspective, I think of it as the cost of compliance. The most obvious one is that the scale of capital that you need now to play in financial services has suddenly been ramped up. And so if you were here in 2004 or 2005 before the consolidation, you could very easily start a banking business with 2 billion naira. Today, it would be risky to start it with 10 billion even though that is the minimum requirement because you will immediately understand that that would be operating on the edge, so those are [the] fundamental policy changes that have happened. And when we moved into the crisis, those then became even more central to how regulators operate.

The other thing that then happened is on the back of the AMCON intervention, the cost of remaining in business was also immediately ramped up. So, if you understand that the minimum target return for a financial service starts at 1 percent, but you pay close to 0.5 percent in charges for the AMCON resolution, for instance. You then begin to see that the cost of remaining in business for banks never reverted back to what it used to be. And this is particularly interesting because the deposit insurance is still there and it's still being paid for and unfortunately it's not one or other, it is actually both. So you're right, there has been, from a commercial perspective, a significant increase in the cost of doing business and the cost of compliance. But from a regulatory purview, I don't think the regulators in financial service as ever been as powerful as they are now and it's across the world. Sometimes you might say is justifiable given the circumstances we've gone through, but you're right, there are economic consequences for such power. And where they are properly used it could save the day. So, for instance, in the United States, the TAP intervention literally saved the American economy and we have similar intervention in Nigeria too. But at the same time, it also, sort of, created risk-taking appetite that was not consistent with the returns in the market. So you have so much liquidity in the market that people then effectively started to take far more risk. So, it is not without consequences.

Tobi: This got me thinking about the relationship between big businesses because, obviously, the capital required to be in the business of banking is quite high, there are no SMEs in banking, as they say. So, the relationship between big businesses and regulators, the government, generally. It seems to be a one-way relationship, like, regulators always have the bully pulpit, they always have the power to change the game. Whereas I think, in a way, big businesses should have some leverage in that relationship to have some kind of balance between risk and social protection. So, what's wrong with business lobby being progressive in Nigeria? We seem to always be faced in one direction.

Abubakar: I think the way to understand this problem is to look at the regulator and the DNA of the regulator. The average regulatory institution today was reconstituted under the military era and despite the fact that we've now become democratic, the thinking and the leaning of most regulators is that of absolute power. And because the opportunity for redress through the legal process is not quite as straightforward, businesses are forced to avoid confrontation. So primarily leveraging on the power that they accumulated for themselves under military rule and the existing relationship between the public and the private sector which, sadly, is certainly not one of two parts of a pair, but more of [a] father-son relationship. That kind of relationship does not allow for the kind of engagement that would lead to collaboration. So what we see are, the government that is more of a lawgiver and we are takers.

The average small business is either a vendor to a much larger business or a supplier. Very rarely is a small business whose customers are other small businesses or just the consumer. There's some level of dependency on big business. - AS

Now, is that justified? Absolutely, in some cases it is. We've seen instances where private sectors have abused the opportunities and they've created problems, often with the collaboration of people in government, but that's true. And that then empowers the government to sort of push the frontier of regulation further. But, is that positive? My sense is that it is not. I keep saying this that over 80 percent of the resources in this country is still in the private sector. There has to be an understanding that programming the private sector to solve social problems is the fastest way to get resources into the economy, and I don't think that is happening enough. I think, today, we have a situation where we still believe that the 10 to 15 percent of GDP that passes through government is how we solve the big problems and it is not.

Tobi: That's an interesting angle - [the] private sector and problem-solving. One thing I don't hear very often especially when it comes to business regulation or we are talking about driving investment, there's a lot of SME talk and that is justifiable, everybody starts small at some point. But there is a lot less emphasis on the role of big businesses which I think matters - they are large employers, they certainly have the capacity to invest in a meaningful way. It seems like something that when properly incentivized can have an immediate and even a big impact. So why is policy (at least publicly) so focused on SMEs? Whereas I think you've also expressed that same view at some point that even most small businesses depend on big businesses to survive. So, is it about signalling or is it about social justice? I don't know, why is big business not on the agenda?

Abubakar: You're absolutely right. The average small business is either a vendor to a much larger business or a supplier. Very rarely is a small business whose customers are other small businesses or just the consumer. There's some level of dependency on big business. And it's difficult to say with certainty why the discuss and the engagement with big business is so antagonistic. And I think it is antagonistic. But I think a part of it is that we've equated big businesses with rich people, with the elite, and they are not in high demand right now. From the political space, those who are successful are somehow deemed responsible for the state of the economy. It is believed in some circle that their businesses do not lead to social progress. And it may be true in certain cases, especially for people who are rent-seekers and a lot of Nigerian big businesses are rent-seekers. But it's not always true. There are lots of big businesses that create real employment and enable other people to succeed. So if you ask me, I think, there is a part of it that has to be [that] the businesses themselves must reconfigure to be more impactful so that people start to see big businesses as sources of growth and progress for the country, I think that's important; and this is not about some CSR communication gimmick, this is about actually running your business in a way that creates real impact in a society, I think we need to do that.

I have a rule of thumb. I believe that for every big business, there are a hundred small businesses that survive because of you at the minimum. If that rule of thumb is true and it's probably even more than that, then the way to get small businesses to grow is to ensure that the big businesses function properly. And what do big business[es], what do they really need? What are they asking for? They're not asking for money from government. All this idea of throwing money at them is not the solution to the problem, it is just another opportunity for the market to be distorted. What they need is for the government to create a seamless process for them to remain in business, to start and remain in business. Seamless process means - reduce the point of contact between people who are tax collectors, fee collectors, rent-seekers, all kinds of people that don't create any economic value but are supposed to somehow monitor those who do.

I'm not saying they shouldn't do the job but reduce the point of engagement to the minimum possible, reduce the cost of that engagement to the minimum possible, create transparency around that process. If you do that, big businesses don't need you to give them discounted financing. Discounted financing because it can never be given to everybody fairly and equally, is a way to distort the playing field. What can be given equally and fairly is good policies, simpler policies and to some extent where infrastructure is required that can benefit every producer equally, then do that. Let's put all of this money that we are putting into trying to solve private-sector problem which is access to capital, let's use it to solve public-sector problem which is access to infrastructure. So, that is how the government can start that relationship while the big businesses themselves must commit to running their business in a manner that is socially impactful and contributes to economic progress.

Tobi: Thinking about that I see a sort of chicken and egg problem. Looking at the classic dilemma of a political economy which is the knowledge and the incentive problem - if you're trying to solve a problem, do you have the knowledge to solve it? Are you properly incentivized to solve that problem? Right now, currently, and this is my opinion, is that we have a policy regime that actually believes it can allocate capital more efficiently than the private sector. I think that's false, that's my view. Now, who has to move first to really...

Abubakar: To get started.

Tobi: Move the needle? Do big businesses have to demonstrate that 'oh, yeah, we're better at this' or is it still about government understanding that, oh yeah, there are actually people who are properly incentivized and who have the knowledge, who are on the front lines to solve this problem?

Abubakar: Well, if you think of the question in terms of government versus private capital, which is what it really is, then you'll understand that the government is in a disadvantaged position, especially when you think of private capital in its global form. Because the government has so little of it and doesn't have a lot of time and has a lot of pressure point and therefore their need for private capital is far more pressing than the need of private capital to operate in Nigeria. Because, again, private capital as other alternative destinations where the circumstances are being improved for them. So if you go to Ethiopia today you'll see what has happened in Ethiopia in a very limited amount of time or you go to Ghana too and you see what has happened with private capital coming into Ghana. So the government sadly may not accept this but they need to move first, and in moving, what we are asking for in moving is just give people predictability. Give people predictability, give them a sense that the rules by which they start an engagement would remain in place for a reasonable period of time, so it's not a huge move that we are asking of government.

The question as to whether it's a chicken-and-egg thing is that it is a chicken-and-egg thing to the extent that Nigeria is 200 million people and therefore a potentially vibrant market. But it's not very attractive if the terms of engagement are not improved very very quickly. So I'm not sure that the pressure is on private capital to come into Nigeria at all cost, I think the pressure is on [the] government to attract private capital. Now going to incentive, the government needs to understand that their number one incentive is to create employment above all else. Without creating employment they don't even have a viable country to run. All the security conversations we're having are economic conversations, so therefore if the government understand that they are incentivized to create employment and they recognise that even in the best of countries at least 80 percent of the workforce, most likely 90 percent, work for the private sector. Therefore, they must then incentivize [the] private sector. And the way to incentivize [the] private sector is to attract private capital. And it's not just about foreign capital, it's also about local capital. It's about Nigerians that own real estate out of this country because they don't think that [it] can retain value by staying in, giving them a reason to come back because they can see a profit opportunity. And a way to then use private capital to create employment is to create ecosystems where you take the big business within an ecosystem and then you create [an] opportunity for the small businesses within that ecosystem to support the big business.

So for instance, if you take the Dangote business model where the Dangote cement is a big successful business but it has thousands and thousands of distributors who are then small businesses. Right? And that model can be replicated. If you take a banking franchise like Sterling Bank, our agent banking business as over 15,000 people who are deemed small businesses who were operating as a result of what we do. This can be replicated over and over again and we need to understand that as the basis for creating employment. Unlock value through infrastructure, through policy and through the big capital and then allow the small businesses to take off from there.

All this idea of throwing money at them [big businesses] is not the solution to the problem, it is just another opportunity for the market to be distorted. - AS

Tobi: But do we have the right systemic balance for that? Because I think about this a lot and we have this phrase "patient capital" and all that. So it makes me think about the investment game in emerging markets generally...is there a tension between social impact and long-term returns and immediate gains? Like, if I own a bank, what's stopping me from lending to an oil firm that has an exploratory licence than to put it in a business that has a twenty, 25-year return timeline but possibly with a bigger impact, because the total number of jobs that are created in the oil sector cannot even move the needle on the scale of the employment need of the country. So is there a tension between instant returns and long-term impact especially in the emerging markets, developing country context?

Abubakar: I have two perspectives on this. The more obvious one is the conversation around incentives and what people respond to. But the one that is often ignored is the conversation around information because what we deal with in finance is really information. And the quality of the information improves as you get closer to [a] specific point in time. As you move further away from now into the future, as you gain duration information is impaired and so there's less clarity. For instance, if I have a 90-day transaction, the quality of information that I have, the quality of forecasting, the quality of control that can exist in a 90-day transaction is far more superior than if I had a three-year transaction where a lot of the parameters can change. So that information quality is one of the things that drive people to invest in trade, import-export, rather than, for instance, in a start-up (where your information quality is disperse). If I'm making an investment in a company that already exists, that has a CEO with a history and I can evaluate that is different from making an investment or funding someone who does not have a history as a CEO. So it's that formation quality. One of the things we must do therefore to make a 25-year impact organisation as attractive as a short-term asset-heavy organisation is to close the gap in the quality of information.

Interestingly, one of the ways to close that gap is to have policy certainty. So if I'm making an investment that is 5 years and I don't know what the government is going to be after 2023 and I don't know what is sacrosanct, which of the policies are sacrosanct that will not be altered by a new government, if I don't know that, how do I make that investment? How do I confidently, as a lender, tell my depositors that I'm going to make a bet on the company based on a policy that has been put in place by the government of today knowing that there will be a change in government and I don't know if the new government will uphold that policy? So it's down to how do we reduce uncertainty in our systems? And it's not done by a lender, it is done by the government, it is also done luckily for us because we have technology now, we must invest in data. We must invest in collecting data, we must invest in digitising existing data, but more importantly, we must invest in integrating data. Because what that data does is it removes uncertainty or reduces uncertainty and makes it possible for whether it's an equity investor or a lender to put money behind impact long-term business.

It is generally believed that those impactful long-term businesses actually generate better economic returns, but you cannot make those bets without higher-quality information. That's the one side of it. This issue of incentive is actually rather mundane, if you'd ask me, it is what do you pay for? So you ask me to publish my performance every quarter, that's the law if I'm a listed company today, every quarter I have to put out my numbers. So I wake up in the morning thinking the quarter is coming, what is going to give me the best return for that quarter? I'm not going to go to my shareholders and say 'I've got something that's going to do really well in two years time, so please ignore this quarter performance.' Shareholders are not listening to that. So we have created a system that actually encourages us to stay focused on the short-term. The same is also true of the way employees are rewarded, the way management is rewarded. So most management reward is a monthly salary plus an annual bonus scheme, and so your focus is how do I ensure that we meet the monthly numbers so that we get the monthly salary and then how do I ensure that at the end of the year we deliver a profit?

Some of the most impactful investment long-term do not give you that especially when you've got a tenure and you want to make as much for yourself as you can within the period in which you are in play. Whereas, if you had long-term reward system that says that you can build on to this but this is your equity in it, you cannot take it out, you'll get 20-year period to earn on the equity or you'll earn part of the profits of the future, those are the kind of conversations that are not normal in boardrooms today. Can I have a conversation that says 'look, I'm going to work on this company, I'm going to give up part of my immediate compensation but I want a share of profit for five years after I have left the system?' That kind of conversation would mean that I would take decisions today, that doesn't yield profits today, but has [a] much more higher return in the future.

So the conversation is real, incentives are real. And finally on incentive, we have not incentivized regulators in any way. They are incentivized for zero error. Right? Essentially, they are the exact opposite of risk-taking. So what they're doing is they're limiting risk-taking as much as possible because as long as there are no risks taken, they then have done their job. And at the end of the day, their return or their salary is not tied in any way to the performance of the sectors that they regulate. So incentives are also sorely missing in the regulatory space.

Tobi: You hit upon a very interesting perspective in my view which is regulation reducing information asymmetry. Because I've long thought that part of the problem with the way our economy is regulated and which obviously affected the evolution of our political economy is that the business space is not permissionless enough. So, like, if you want to invest, if you want to take risks or you want to start a business, you first (especially if you want to do it formally)... you have to think about what does the environmental allow? And that lets you control for a lot of things. You adjust for a lot of things. You cross out a lot of things and at the end of the day, it reduces the feedback that comes into the entire system because there's a lot of things that you should be doing that you're not doing because you're thinking of what does the environment allow? How do I not lose money? How do I not lose my skin?

How do I confidently, as a lender, tell my depositors that I'm going to make a bet on the company based on a policy that has been put in place by the government of today knowing that there will be a change in government and I don't know if the new government will uphold that policy? - AS

But, the irony is that in the informal sector, it's not like that, except in the case of outright coercion. I mean, I can fry my chin-chin or take my buns and just put it on the side of the road and, yeah, maybe a few guys come and extract some rent, but there's a lot of forbearance in that area. Whereas in the formal sector where government actually can get some revenue, we've killed almost the appetite for risk because there's so much permission. You have to worry about a lot. You have to worry about taxes, even though you might not even have a properly documented book yet and it's an interesting...

Abubakar: I mean, If I were to sum it up, the reward for formalization is very weak.

Tobi: Absolutely.

Abubakar: And the penalty for remaining informal is non-existent. So you are absolutely right. If you want to see businesses become formal, you have to insert reward into that process, not just cost. And some of the rewards might be access to capital, it might be access to a market, it might be access to support from [the] government, none of this is there. If you think about registering a business today, all you have is just a whole line of cost and as you become bigger the cost just scales up. We need to ask ourself ‘what is our relationship with our businesses, with the private sector?’ That relationship is broken. In some cases, it's almost disdainful how owners of private capital are treated by the people who should actually be supporting them, and we have to be frank about it. If you are not influential enough like a Dangote business, for instance...(again, I keep using that example because it's just a perfect example) where you can influence the process, where you can lobby for changes for your industry. If you're not like that, if you're smaller than that, what then happens is that you have no input into the process, you have to be again, a law taker and in many cases, these laws are clearly disruptive to your business. And for me, that's not how you're going to get the formal sector to grow. It's the reason why people stay informal.

My final comment on this issue is that, if you want to solve a problem, make it profitable solving that problem. If you want businesses to become formalized, let it be more profitable to be a formal business than to be an informal business. The way it is structured today, unless your business becomes so big that you're almost compelled to formalize, there is very little motivation or incentive for people to build formal businesses.

Tobi: It's an interesting point you made. The Economist Lant Pritchett had a very interesting paper on this problem. Like, we focus so much on the World Bank Doing Business Report, after a while, the World Bank itself came out with its Enterprise Survey and he sort of exploited the balancing of that data and it was an interesting finding that in developing countries, businesses survive by dealing. The rules appear the same on paper, but in practice, the environment still favour who can deal the most, and like you said, who has the biggest influence. Like, if you and I apply for the same construction permit, there is a variance in the amount of time it takes...

Abubakar: Absolutely.

Tobi: To get it. But the Doing Business Report just averages that and say 'oh, yeah, we've made progress because we've cut it from 15 days to 5 days.' Whereas in practice, the cut might be due entirely to the most influential businesses.

Abubakar: Absolutely, and the average person is still no better off.

Tobi: Yeah, yeah. It's interesting. I keep asking a silly question and I'm going to ask you again. One sector that seems to be doing really well (I don't have the numbers) is the tech sector in Nigeria and some parts of Africa. So here's the silly question - why is, at least openly, (why is) our financial industry missing entirely from that space?

Abubakar: Interesting question. First of all, I don't believe there is a sector called a tech sector. I think when we start to think of tech as a sector we miss the point. Tech is just a tool that is being applied in many sectors, and obviously finance is one of the big places where it's being applied.

Tech, again, must understand that they cannot build technology on nothing. It has to be something and in some cases they have to walk back and fix those things... You have to have those people building machines and basic stuff on which technology can then leverage. - AS

Tobi: Yeah.

Abubakar: So once we have that understanding, then we can appraise tech in how it has functioned in agriculture, how has it functioned in telemedicine and in [the] health sector. And then we can say what is the ratio, for instance, of the tech-enabled output in [the] health sector relative to the traditional doctor and offices? That's when we start to evaluate how well it is doing. And when it comes into banking, financial services, I think that the tech companies in financial services are the banks, the others are the SMEs of banking. So the other tech enablers are just SMEs in banking. You just have to take a look at the data, not in terms of a what the customer transaction or deposit [is], look at the data in terms of tech investment, how much capital are the banks putting into technology today in one form or the other? And it starts with hard investment in data centre or operating investment in connectivity to soft investment in, not just the softwares that runs the core banking, but also to the locally developed softwares that are then customer interfaces and optimisation tools. When you think about the investment coming into technology in financial spaces, the banks are still dominant. And I mean this without [a] doubt. Are they cutting edge? The reality is that they are far more cutting-edge than it looks. Because if you think about it, there are four major aspects to technology in banking the way I look at it...the first one is payment and there's a lot of conversations around payment. The truth is that what we have is a few support technology for payments that have a larger than life coverage, so they look big. The biggest would be Interswitch today which is really to a large extent a bank-led investment. Maybe the next one is NIPSS which is not just bank-led, but bank-owned. These are two massive tech companies in payments and they're not without the bank input.

Of course, you've seen a few others that have come on like flutterwave and they are doing a good job. But then you now need to move away from payments, right? Move into lending, and then you really look around, how much investment has gone into lending in the tech space? There's not a lot. There's been a few, quite loud, but when you look at it as a share of the lending space is very insignificant. For instance, we made a tech investment in lending, and in the first full year of operation we were able to receive 500,000 applications. Successfully processed over 200,000 and we lend to over 50,000 and the value involved was over fifty billion. You're not going to hear this conversation in the tech space. I don't know that there is any tech lender that has achieved this sort of volume. So it kind of tend to go under the radar because the bank is doing it. We've done it and it was the same level of efficiency, target turnaround time. So I think tech in banking, I don't know if banks are missing out... I think banks may not necessarily be well-positioned to benefit from the halo that comes from a startup or a bunch of young kids doing great stuff.

And the reason why the rest of the tech outside banking seems so cutting edge is that it is a tiny slice of a really big pie. So they are able to really give their best to that tiny slice and it looks really good. But I'm doing payments, I'm doing lending, I'm doing investing. So I've built tech for investing either in collaboration for people that I invest in or internally like a double. Looking at wealth-tech, we're building wealth-tech that would also come into the market. And then when you move from investing, you now move into advisory where, really, there's not been any major tech breakthrough in advisory in financial services in Nigeria, and hopefully it will come up. But I would take a bet that it's more likely to come from a bank than it would come from a startup. Because it's all about data, it's all about how much information you have historically and how you can then translate that information into advice. So, I don't think banks are missing out. I think banks are actually the real tech in fintech, it's just that there is this desire to somehow discount the banking tech as if, for some reason, it doesn't count. But it does.

Tobi: Okay, I'll be a lot more specific now. So I go to a pitch event or any of these startup things that they do. And you see VCs, you see people seated, stakeholders at the table, you don't see a lot of the banking sector represented. I mean, if the impact is as big as you say, I feel there should be a lot more visibility. Like, why can't Sterling Bank, for example, have a VC fund? You can call it whatever fancy name [cos] you want to make it media compliant. So I'm wondering, is it a demography thing or is banking just not sexy enough?

Abubakar: I actually think that every serious bank in Nigeria as the equivalent of a VC fund internally. And I think all those events that you go to, we have the equivalent in our boardrooms every other month or every month. Those conversations are happening. I probably have more than two hundred people in engineering, in tech engineering working for me. I have maybe a dozen product managers. I've got all of those internally but I don't need capital from the external source because I've already got the vehicle called the bank that is able to attract equity capital. So when you see me go to market to raise capital, that's a fundraising for a VC right there. Or a PE firm doing fundraising right there. Whenever we take a decision on our budgeting to say we're going to spend half a million dollars in a particular aspect of our tech in our business, that is actually capital allocation going on right there. It's just not as sexy and it doesn't go with the same media coverage. But I'm making the argument that those tech investments are happening, so I'll give you a couple of examples. We are focused on education, it's one of the hard sectors, and we realise that being able to get affordable literature to people on an e-reader was an important part of our progress. We put the money down, made an investment and we've now built an e-book reader and we then have relationship to then deliver content to it to our customers, that is a tech investment right there. We took an opportunity to back Tremendoc , which is the telemedicine solution way before Covid-19, and we did that because we believe that telemedicine was the way to go. That is a tech investment right there. We are part of a consortium that formed AFEX which is the digital commodity exchange targeting their agricultural value-chain essentially the tokenizing both agricultural commodity as well as the input so that we can have [a] free and direct exchange between the producers and the final users, that is a tech investment right there. Obviously, we've built a digital bank from scratch that today, I would insist, is if not the only, is one of the few digital banks that can claim the status of a bank. We have a lot of digital payment systems, we have a lot of wealth-tech but we've been able to combine the payment system, we've combined the online credit or the digital credit process and we've combined it with an investment process, so on that, you actually get the different component of banking which is not just payment but intermediation. We built that and it's out there in the market. And in the first month or so of pushing it out, over fifty thousand people are on it. So, maybe twenty, thirty thousand are actively using it already. That's a tech investment right there.

It is generally believed that those impactful long-term businesses actually generate better economic returns, but you cannot make those bets without higher quality information. - AS

So these tech investments are ongoing and in many cases, they're just owned by the banks, they sit in the banks. We hope that at a future date some of this investment will then be taken out for white labelling and as a support. I believe that at every point in time there are at least a dozen startup tech operations going on within the bank. And I don't think this is only about Sterling Bank, I think any serious bank is making this investment today because buying... not only is it not going to be customised to solve the local problem that we have, it's also very expensive to essentially grow with the market when you buy technology because every improvement is an expensive dollar-denominated cost. So I do believe that what you've described is happening, it's just happening in a more conventional, less exotic way. Because, again, banks still remain a highly regulated entity and therefore have to operate within the regulations.

Tobi: I mean, from what you said, I thought something about the allocation of talent as well. So if you have 200 engineers working on your various technology products and platforms and you have product managers and of course being a bank, capital raise is quite easy, I'm not saying it's that easy, but... I'm building a startup, I'm not a bank, I'm struggling to raise capital and at the same time I'm struggling to find engineers, I'm struggling to find product managers and other forms of talent. Wouldn't a more open space between what the bank is doing in tech and what a lot of all these smaller startups today [are doing]... wouldn't a lot more synergy be more beneficial to the eco-system, generally? A situation where talents flow freely because, of course, if we go to the same labour market you'll be able to attract a lot more engineers and product managers than an uncertain startup. But I'm looking at a situation where not just capital but talent can flow freely between these sectors.

Abubakar: You're right about the ability of the bank to offer a much longer runway because when it comes to startups, the most critical thing is your runway.

Tobi: Yeah.

Abubakar: No matter how great your idea is, if you haven't got the funding for the runway to take off, your not going to take off. So, banks offer that. Unfortunately, I don't think it is necessarily a positive thing when it comes to talent. The reason is that the banking environment has struggled to offer the sort of work environment that the tech ecosystem is used to. We have pushed the envelope and part of what we did was to set up a product organisation within the bank that operates with its own complete subculture different from the bank. Started with zero staffing and within a year, I think in a year-and-a-half, we're well over 40 people now working in the product organisation and they operate, obviously, remotely now. But even when they were operating from within the bank, they had their own space and their own subculture and we encouraged that. So that's one. I guess the challenge has always been banking is traditionally reluctant to embrace change. Some of the reluctance comes from the fact that a lot of people have spent decades in their lives doing things in a particular way and it's very difficult for them to see a different reality. The rest of it comes from the fact that we're highly regulated and every move we make requires multiple layers of approvals and understanding and so you cannot move fast. So to some extent, it's actually better for the tech ecosystem to operate at arm's length so that we don't weigh them down with some of our limitations.

What they need to do more, however, is that they need to be selective in the problem they solve in a way that the problem [solution] enables the whole ecosystem. In many cases, I think they're trying to solve problems that, to my mind, are not priority problems. And you can only figure out what the priority problems are if you kind of engage with the existing operators as well as the consumers. So for instance, a bulk of the investment going into tech continues to go into payments. And yet in Nigeria, we have instant payment that is significantly secured, the losses to customers when using our payment system is next to zero. It's very limited. It is cheap. Payment in Nigeria is actually one of the cheapest around the world for an instant payment and to my mind is increasingly accessible which means that if you have over 40 million people with BVN, for an adult population that is just trending around 100 million. In fact around 80 million to be honest, we are further down the road and we realise. So when you're investing in payment, I have to question, where is the monetization strategy for that? Because eventually, the cost of payment or the reward for payment is going to tend towards zero. So they must choose fights that are, in my view, more targeted to value creation than value extraction.

And the last leg is that tech, for me, needs to be built on something that exists. There has to be a real process, then you can then bring the tech to optimise that. We've seen instances where those real assets are lacking and people have decided to bring in tech, it doesn't end well. The best example, for me, remains those that went into ride-hailing, whether it is bike hailing or the Bolt and Uber. They assumed that there was an existing process on ground for moving people around and that they were going to use technology to optimise it. They suddenly realise that there were not enough bikes, not enough trained bike riders, not enough decent vehicles, the drivers that are available to be on Uber systems are themselves not service-oriented. So all of these real-life complications suddenly start to pull back the tech. Tech, again, must understand that they cannot build technology on nothing. It has to be something and in some cases, they have to walk back and fix those things. Which is why we have so many software engineers and very few hardware engineers and almost no real sector engineers...

Tobi: Hmm.

Abubakar: And they can't build on nothing. You have to have those people building machines and basic stuff on which technology can then leverage.

Tobi: Thank you very much, Mr Suleiman.

Abubakar: It's a pleasure.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com

Garett Jones is one of the smartest people I have ever talked to - and he is at his usual brilliant best in this conversation. We started by trying to see how his latest book fit into the context of less developed countries with weak rule of law. I have often remarked that Garett is underrated as a development economist. I still think so.

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Transcript

Tobi: WeIcome to Ideas Untrapped and today I am on with economist, Garett Jones. Garett Jones is a professor of economics at George Mason University and he has written two excellent books "Hive Mind" and "10% Less Democracy". Welcome, Garett.

Garett: Thanks very much for having me, Tobi.

Tobi: Thinking on the margin is something I admire so much which is what you did quite well in your latest book 10% Less Democracy. Are economists just better at this than everybody else, and if yes, why?

Garett: You're right. I do try to do that a lot in the book. I agree with you, Economists, I think, are better at this than other social scientists because it's just so much a part of our training. It's so normal for us to think, do you want to buy two more peanut butter sandwiches or two fewer? Should this company hire three more workers or fire two workers? So that kind of marginalist thinking which is where... the Marginal Revolution of the 19th century embodies that. Yeah, that really helps us think about big social questions in a very productive way. When I applied this to democracy what I realised it was quickly, something that a lot of people know, which is that all of the things we call democracies are a blend of democracy with oligarchy of one form or another. So getting the balance right is more important than an all-or-nothing question. All or nothing is off the table, thank goodness, but getting the blend right between insiders and outsiders, between elite and the masses, that's something that can be evaluated and fortunately, my economist friends have evaluated it.

For some people, they'll quite naturally assume that democracy means an independent judiciary, the rule of law, impartial, fairly uncorrupt government. And those things are not democracy. They are good things but they are not democracy. - GJ

Tobi: So given all the trade-offs that are involved with social decisions and reforms, how can we be better at thinking on the margins? We live in an era of protest movement where people want sweeping changes and that's not really how society works, so how can people better train themselves to be marginalist thinkers?

Garett: Yeah, you're right. There aren't that many questions where we have to go all or nothing. Most policy questions can be a question of incrementalism, so I think whenever possible we should just ask ourselves 'if I can dial this up a little bit or dial this down a little bit, which would be the better way to work? Which would be the better way to move?' Whether that's thinking about whether I want my judges to have a little bit longer terms, whether I want my voters to have a little bit more information before they walk into the voting booth, whether I want a healthcare program to be available for people who are 62 rather than 65? Just thinking about it in terms of small changes helps us better evaluate...it helps the mind better weigh the benefits versus the cost of the decision. Because when we talk about revolutionary change, there are often just too many things going on for our brains to even weigh them, to even weigh the benefits, and weigh the costs. So marginalism, I think, is better suited for human minds and fortunately most, but not all, political decisions are well suited to a little more vs a little less.

Tobi: I read your book, great book by the way...

Garett: Thank you very much.

Tobi: The writing is fantastic, I'm a big fan. In the book, I know you are applied the 10% Less Democracy framework to rich countries...

Garett: Yeah.

Tobi: But I've been trying to extrapolate and apply it to developing countries, and one thing I noticed (you can shed more light on this) is, sometimes it feels like low-income and middle-income countries are torn in some kind of institutional paradox. You have multilateral institutions like [the] IMF who have these prescriptions that are bureaucratic but have long-term benefits - Central Bank independence, don't manipulate the exchange rate, keep inflation low, be responsible with your budget, and all that. And on the other side of that, you have think tanks, aid agencies and other foundations (who are also interested in development and give it advice) who seem to favour radical democratisation of everything, basically. So what do you think, as a policymaker, as a voter in a low and middle-income country, how best to approach this paradox on a mental level?

Garett: I think a message that I bring up early on in the book is that most of the clear benefits of democracy come from a moderate level of democracy. As Amartya Sen, the Nobel laureate who showed that if you want to avoid famines, what you need is democracy. In modern times there's never been a famine as he defines it in a functioning democracy. But his measure for functioning democracy is a pretty basic one. It's competitive elections and a free press. And that's not too hard a standard for a lot of countries to meet and more countries are meeting it now than they were meeting it, of course, three decades ago though, perhaps, less than a couple of years ago. So if you're pushing for democratisation, I think we should draw on the best evidence we have for what it is, what kind of democracy we need to get the benefits of democracy, and that seems to be a moderate level.

Also, there is a lot of lazy talk about democracy where people stuff all of the good things they like into the word democracy. For some people, they'll quite naturally assume that democracy means an independent judiciary, the rule of law, impartial, fairly uncorrupt government. And those things are not democracy. They are good things but they are not democracy. So I think just clearly speaking about what it is that you want is valuable because we realised quickly that the things we like out of modern so-called democracies are a blend of the rule of the people and the rule of insiders, with a third thing that I don't talk much about in the book directly but the rule of law - the impartial rule of law, a bureaucracy that just operates on its own according to [the] rules that have been around for a long time. That is undemocratic and it seems to be very useful.

So simply talking clearly about what it is we want in a reform and is this valuable reform truly about the voice of the people or is it more about something like an independent bureaucracy? That would help us get away from this lazy jargon of calling everything good democratic.

Tobi: You also discussed the relationship between democracy and growth in your book and you conclude that the evidence is a bit of a muddle. What I was thinking when I was reading that part, I thought about Chile...

Garett: Uh-huh

Tobi: And one of the famous examples when economists and some other thinkers discuss Chile is to look at GDP growth from the Pinochet years and the democratic years, and then they conclude that, oh, GDP growth is higher after Pinochet and hence democracy is better. But again, if you look at that history a bit, you'll see that there were some things, though they weren't palatable and I'm not saying I prefer autocracies here or anything...there were some hard reforms that Pinochet pushed through that clearly had benefits even during the Chilean democracy. One such rule was the inability of the parliament to hike the budget. You either cut it low or you pass it as it is which introduced a lot of fiscal responsibility in the budgeting process. So what do you think is responsible for this muddle in the evidence in the relationship between democracy and growth? Why can't we get a really clear picture?

Garett: A big problem is the real-life fact which is just that a lot of autocrats do a terrible job. They come into power and they make the place worse off. So some autocrats come to power and appear to make the country better off, or at least, it predicts better performance and other autocrats come into power and things get worse. So when we stop looking at individual anecdotes and when we pull them together and do something rigorous and statistical, the evidence that autocrats are more likely to create great reforms looked pretty weak. There are plenty of anecdotes, right? We can call them case studies where autocrats are associated with and may have put into place things that look like good pro-growth reforms. Pinochet gets a lot of credit for this kind of stories but also Park Chung-hee of South Korea. The problem is that (a) we don't have a great counterfactual (b) maybe they just got lucky. And that's why using rigorous cross-country comparisons is more useful than individual case studies and when we do that, it's very hard to find evidence that either democracy causes growth or that an autocrat taking over causes growth. It's too much of a coin flip to recommend any particular policy if our goal in choosing a government is economic growth. So this is why we should stick to the things where we have better evidence and so these big changes - autocrat in charge versus free press multi-party democracy, there there's a muddle. That's the reason why the framing in my book 10% Less Democracy is about smaller changes where we have better identified better causal stories with better testings like independent central banks, independent judges. We have more evidence for the small things than we do for the big things.

Thinking in marginalist terms is important but also good public education really can improve policy if we teach true important economic ideas to people - GJ

Tobi: Looking at this really well, is it really about voter control? Because I imagine the issues are different, for example, I think voters care a lot about Central Bank independence than, say, a national minimum wage for example. So isn't the case that in some situations or on some issues, again, sticking with Central Bank independence, politicians adjust ill-informed or ignorant and they're not necessarily responding to voter preference?

Garett: That's a great point. It's always a good idea to wonder whether the politicians themselves are poorly informed and they don't have an incentive to be very well-informed on most policy issues. A friend of mine had a conversation with the prominent United States politician who I won't name and this person said...the elected official said 'my job isn't to understand all the details of the policy, that's what my staff job is. My job is to keep track of all of the other members of Congress and find out how to cut deals with them.' So their real specialty is deal-making, deal cutting. They don't know that much about the detail of policy. So you are right that basically part of the problem is that the politicians themselves don't know that much, but they need to know enough to be able to pick someone who's good to run some of these things. So running [knowing] someone who is competent to run an independent central bank, it's kind of a hard job but you can outsource that to some staff; and if you're worried about things working pretty well for a long time, then you'll task your staff with picking somebody who seems like a pretty good candidate who won't cause much trouble and who will make the economy look pretty good before the electorate. So this idea that elected officials don't know that much themselves but they do have an incentive to get some things right when they know they're going to be held accountable by the voters.

Tobi: But again, wouldn't less democracy, at least, in some cases lead to populist backlash? I mean, we're seeing that with Brexit...

Garett: Oh, yes.

Tobi: Some part of the American polity is also in that mode. The EU is a very good example where some British voters say 'oh, we are not going to be subjected to Brussels' rule'. There's a case of Africa, also, where people respond quite negatively to what they perceive as external technocratic interventions. So wouldn't less democracy run a risk of populism in the long-term?

Garett: Actually, that's a great point and it's the one that I literally never discussed in the book - it's the idea of a populist backlash. Because it's one of these things that is important and too hard to quantify. The risk of a populist backlash to 10% Less Democracy is a little bit like the risk of a doctor being reluctant to give someone tough advice about diet and exercise because the person just might not come to the doctor anymore. So this is an important question - when should informed people, when should people who are relative experts just not push that hard for the best solution because they are afraid the patient won't take the medicine? In a way that's part of the reason I stick to 10% Less Democracy. I just want people to think about a little bit longer term, a little bit more independent Central Bank because I think these things are less likely to provoke that kind of backlash. But, you're right. But know this, to the extent you're right, this should tell us something about the cost of democracy - if one of the costs of democracy is that voters don't want things that are actually good for the voters, this should be part of our understanding [of] what democracy really is. If the problem is that the voters don't want to take advice that's just some person's opinion, 'ok, well, who cares?' Voters shouldn't have to listen to some person's random opinion. But if voters don't want to take [a] medicine that's actually good for the voters themselves, that should be part of our understanding of one of the weaknesses of democracy and something we should try to find a solution to. Maybe it's the solutions I present in my book, maybe it should be something else, but understanding the weaknesses of modern democracy is important to improving it.

Tobi: A good illustration of that point is trade policy. I was just reading Matthew Klein and Michael Pettis's book where they basically say that trade wars are class wars.

Garett: Uh-huh.

Tobi: It's a reaction. And also it's a tactic for politicians to whip up voter sentiments and possibly win votes. How can people, again, I'm quite interested especially on the key issues that matters like central banking, like trade policy... things that affect the welfare and long-term prosperity, how can voters be a lot more informed to know that taking the choices out of my hands does not really mean I'm being oppressed?

Garett: Yeah. This is really an important question. Part of it is that there is some evidence that just education in schools really changes people's minds. So when my colleague Bryan Caplan - he wrote a great book Myth of the Rational Voter, and he wrote a follow-up article where he looked at whether education or IQ scores were better predictors of pro-market attitudes. And he found that particularly on free trade, there was evidence that education itself, years of education was a better predictor of pro-trade attitudes than IQ. This is a signal and it's a reminder of something that made a lot of us believe which is that one of the things you learn in school is that people in other countries are good and, sometimes, they are great people and you should care about them. Also, you might learn some complicated ideas like the benefits of free trade. So education that is focused on teaching true and important facts about public policy, I think, can be a big part of this. But there is another element, another solution is just that we should think like a marginalist and go up the marginal cost curve. Push for a little less populism on topics where the voters aren't going to resist as much. Voters around the world have been pretty cool comparatively speaking with independent central banks - letting neutral banks lend out money and respond to financial crisis, (and) I think people can kind of understand why that's better than having one political party trying to lend to its buddies all the time. So, yeah, thinking in marginalist terms is important but also good public education really can improve policy if we teach true important economic ideas to people.

Tobi: Let's let's go of the cuff a bit. Why did East Asia converge faster than the rest of the developing world?

Garett: This is a great question. I mean part of it you could say that they actually had pretty high levels of productivity before say about 1800. This is part of what the deep roots literature shows, of Putterman and Weil and Bill Easterly at NYU - that, like, before 1500, before the great age of exploration, East Asia was pretty close to the technological frontier for the planet as a whole and so what's happened in the last 50 years in a way is a return to trend. That's not an answer. That's just more of a reminder that sometimes the more things change the more they stay the same. But when I look for the proximate cause, something more like a proximate cause, then I turned back to my first book, Hive Mind, which is that as far back as we have data on test scores, East Asia with particular countries we had good tests on in the ’60s and early 70s - Hong Kong, Taiwan, Japan, and soon after that Singapore - these countries were doing pretty well on standardised tests no matter how we measure it. And I think that good cognitive skills are [a] really important ingredient of being able to jump to the technological frontier, and I think that good cognitive skills are an important part of running a good competent government. Those aren't the whole story, fortunately, China's decision to turn away from communism was one of the best decisions in all of human history; that mattered a lot for well over a billion people. But the fact that as far as we can tell, test scores, human capital as currently measured was pretty high in East Asia in the sixties and early seventies, that gave them a good solid launching pad for modern prosperity.

Tobi: You've hinted I think on your Twitter feed, I'm not sure anymore, that economists know the causes of long-run prosperity. What's your explanation for that?

Garett: We're really good at the proximate causes, the very nearest causes. These are simple things that come from the Solow growth model. Robert Solow, [the] Nobel Laureate, just helped us think about where do GDP come from and having a lot of machines per worker, having a way for people to use them productively is really crucial. Machines aren't your enemy, they are your friend. A lot of technology isn't your enemy, it's your friend. But when we try to look one step behind that, say, why do some nations wind up with a lot more productivity and lot more capital per worker than others, then there's more debate but a lot of people would jump just straight to something like institutions. Some places have great institutions, good competent governance, neutral rule of law, and that means the capital is willing to flow from around the world to good places. I would also add on human capital however measured - whether it's years of education or test scores are both very quite robust predictors. So economists know what works and the simplest version is one I said years ago which is, have pretty high test scores and don't be communist, and you're probably going to be rich. So if a country can find a way to raise its test scores through better run schools, through better public health, and it can avoid the massive mistake of totalitarian communism, then it's got a pretty good future ahead of it.

Tobi: In your view why did you choose test scores, I mean, what's the best case for cognitive ability in human capital and long-run prosperity ahead of all these other proximate causes you mentioned like institutions or geography or industrial policy and all these other factors?

Garett: The simplest version is just that it's what shows up in the data when I and others have run very serious horse races. So Eric Hanushek, professor at Stanford, leading education researcher, he's found that test scores whether you call them IQ or math and science scores are very astonishingly robust predictors of national prosperity and they really beat out years of education. There's a lot of emphasis on trying to raise measured use of education but the problem is that we know that there is schooling and then there's schooling. So if you just get a diploma but nobody ever taught you anything, the schooling didn't really make you more productive.

Another reason though is because of the well-known finding from psychology research which is that skills predict kills. People who are above average in math tend to be above average in verbal stuff. People who are above average at vocabulary test tend to be better at solving three-dimensional puzzles, and so for reasons that are still poorly understood there is what I call a DaVinci effect and what others call a g-factor across mental skills. So running a modern economy at a high-level involves kind of a little bit of everything. It's a little bit of a smorgasbord, it's a little bit of a casserole. It's probably unlikely to be the case that there is going to be this one simple thing that solves all the problems. What you really want is something that is equivalent of a Swiss army knife, something that's a mediocre tool for everything rather than one tool for just one thing. And cognitive skills whether you called them IQ or g or whatever seem to be this version of sort of Swiss army knife where there's a little bit of everything. So people who do better on standardised tests tend to be a little bit more patient. Groups of folks who do better on standardised tests tend to be more cooperative, they're more likely to see the invincible hand and support market-friendly policies, they are more likely to be tolerant of others who are unlike them and these are all great things for a nation. So like I said, running a modern economy near the frontier of productivity involves a lot of little things - low corruption, competent governance, foresight, voters who understand the benefits of trade; the one thing that I can get us a lot of all those little things is higher cognitive skills.

Tobi: You wrote a paper a few years ago which I like very much...

Garett: Thank you.

Tobi: O-ring sectors and Foolproof sectors. And if I understand your model correctly (and you're welcome to set me straight here)... so thinking about this paper and this model, if I am a high-skilled worker in Nigeria, for example, overall you're saying the returns to skill for my education and my skill level is marginal compared to a low-skilled worker. But if I move to the United States of America where obviously there are a lot more high-skilled workers than in Nigeria, the returns to my skill will still be marginal but then there's this huge gains at the national level between both countries that are pretty large, can you explain how that works?

Garett: Yeah, so I'm building here on the work of Michael Kremer who just won the Nobel prize last year. He wrote a great paper about the O-ring theory of economic development. He said that a lot of economic tasks in modern economies, especially the richest economies, are kind of like building a space shuttle where if you make one mistake, even in a very complex process of launching a space shuttle, the space shuttle tend to blow up killing everyone on board. This is actually why the space shuttle challenger was destroyed because of the failure of an O-ring (basically a big piece of big rubber band) that was an important part of keeping the rocket safe. So one small failure can destroy the value of an entire product, of course, that's true with a lot of things that we value like smartphones, automobile transmissions, one broken link can destroy the whole thing. Thing is that economists without even realising it, we use another model, routinely, that's not O-ring often without thinking about it - we kind of assumed that workers of different skill levels can get to be mushed together and it's nice to have skilled workers, but maybe you can throw maybe two high-skilled workers and three low-skilled workers, maybe they are perfect substitutes for each other. You know, just throw more bodies at it and eventually the job will get done, there are certainly jobs like that. So part of what I did and really my contribution in this paper, the O-ring sector and the Foolproof sector, was to say 'what if some parts of the economy work like Michael Kremer's world where things like building a space shuttle or smartphone? Not if other things are like the way economists normally think about the world, the Foolproof sector - where if you throw enough people at it eventually the job will get done.'

And I said 'what if workers have to decide which of these two sectors they are going to work in?' So let me think about you as an example... high-skilled worker, and you're trying to decide what sector you're going to work in. Well, one of the great ideas in economics is that you're going to go to where the pay is highest, ignoring all the other complications for your life, and so really the net message is that there's always going to be some combination of workers balancing between the two sectors. So if low-skilled workers are superabundant and high-skilled workers are scarce, just about all of us are going to be taking on these foolproof tasks where perfection, exact precision is not crucial. And if high-skilled workers are really abundant, most of us will be working on O-ring type tasks but there will always be some of us, sort of, in-between. This helps explain why the capital goods, hi-tech goods are made in just a few places in the world and in particular, they're usually made in places where the workers are really really expensive. You would think that firms will try to find the cheapest workers possible for any task but instead hi-tech manufacturing, especially cutting-edge hi-tech manufacturing, tends to happen in countries that are pretty high wage. The only thing that can explain this, if people are rational, is that it must be critical, it must be crucial to have high-skilled workers working on those tasks. So one of the lessons of this is that lower-skilled workers can find something really useful to do in a high wage country because if they come to a high wage country, they are competing against a lot of other high-skill workers, so all they have to do is be an okay substitute for that high-skilled worker in some tasks, maybe it's mowing lawns, maybe it's doing routine legal work and all of a sudden those workers can earn a lot more than they would in their home country. So the O-ring-Foolproof paper is in a way an important message for the value of low-skilled workers in high wage countries, but it also helps explain why cutting edge, frontier technology innovation only happens in the highest skilled countries where workers are super expensive.

Tobi: The national returns to skill, how does it work with these two sectors?

Garett: Well, there is an element of, sometimes, the real world is more complicated than the model, and that's, of course, true here. I have to say that I suspect there is a critical mass element to high-skilled workers. For instance, if I can bring a million of Japan's best engineers to a lower-skilled country, a million of them could run a lot of fantastic factories, be great workers and end up giving a lot of great employment opportunities to lower-skilled folks, so there is this element of...outside the model of... a critical mass element. But the O-ring-Foolproof story is a reminder that high-skilled workers who are in relatively low-skilled countries are often going to be, like, unable to make use of their full potential. Being able to have an O-ring sector of your own to go work in is really where the magic happens of economic prosperity. The greatest things that are happening and the way that economic frontiers are being built is in these O-ring sectors, and, to me, it's a reminder that this is a case for the brain drain. A case that the brain drain actually helps the world as a whole. Brain drain issues are complicated and there are lots of forces pushing both ways but I want to emphasise that there is this positive element to the brain drain which is getting high-skilled workers into countries that can make great use of high-skilled workers really helps the whole world. Has Michael Clemens has pointed out, one benefit of that is that migrants who go from low-skilled to high-skilled countries send back a lot of remittances and those remittances are super valuable. I'd like to emphasise another point, which is getting those high-skilled workers from low average-skilled countries to higher average-skilled countries means that they can contribute to the growth of ideas which makes the global pie bigger.

Tobi: You sort of preempted where I was going with that. There was also this essay by Michael Clemens and I think Justin Sandefur about this brain drain issue where they sort of asserted that another element to the brain drain issue that the incentive to migrate and earn more in high wage countries leads to more production of high-skilled workers even in low-wage countries. So Nigeria exports a lot of doctors to the UK, it means a lot more students would want to be doctors so that they can migrate to the UK or wherever where they can earn a lot more than they would in their home countries. Now, here is my question: isn't there a sort of negative effect to this in that their home countries get stuck in the poverty trap... a lot of these high-growth sectors never gets built and some of these countries just depend on remittances which can be pretty tricky?

Garett: Yeah. This is a hard problem. Another problem with the brain drain is that it means that the government which really needs a lot of high-skilled workers to basically run competent bureaucracies and manage difficult technical questions, a lot of those folks are gone. They've gone to move to other countries where they can earn a lot more. So I don't want to pretend that the brain drain issues are simple to resolve. But I think that the point you're making, I tend to think of it as less of a problem because people are very reluctant to move. There's a lot of evidence that people are reluctant to move from their home country and they need a really big wage premium. So if things were even sort of mediocre, if there were some moderately hi-tech positions in the home country, you would have very high rates of retention. I think that's pretty clear from the evidence from the fact that people are very reluctant to move. If they can find any excuse to stay, they stay. That's speaking a little informally but I think the data backs that up.

Also though, there is this element of where the threat of exit does make home countries behave a little better. The fact that some people might leave does make a home country government say: well, we want to make ourselves more inviting. If we think about what's happened in China (to give an extreme example) over the last few decades, there's been a lot of brain drain from China as Chinese graduates, high-skilled workers often, have moved to many different countries across Asia and across Europe and North America, and one of the reasons that the Chinese government wants to be somewhat open, somewhat...wants to be unlike its totalitarian past and more like [its] authoritarian present is because they want to feel like they can come back. So the threat of exit does discipline national governments in an important way that we shouldn't forget. Brain drain means it's harder to build these hi-tech sectors that you're pointing out, but a brain drain also gives those home country governments a better incentive to behave well. I think of this as a sort of Tiebout voting with your feet story which economies should always be open to, that people voting with their feet sends a very powerful message to governments and informal and formal evidence, I think, backs up that.

Tobi: Can national IQ be deliberately raised on a scale that matters? I know you talked about nutrition in hive mind. Also, I look at things like assortative mating and other things but can it really happen on a scale that moves the needle on national prosperity?

Garett: This is a great question. I feel like one reason I wrote Hive Mind was to get more people thinking about the very question you asked. Like, my comparative advantage is what does IQ cause rather than what causes IQ? But I believe the Flynn Effect is real. I believe [it is], at least, substantially real. The Flynn Effect is as you know, but your listeners may not, is the longtime rise intelligence scores that's been documented around the world. Public health interventions, people getting healthier and living longer lives, I think that obviously is increasing people's cognitive skills (like, the public health element has just got to be real). I'm less confident but I'm still fairly confident that good education raises cognitive skills big enough to move the needle. And the third one is this broadly cultural story which is really Flynn, I want to attribute this to Flynn himself. My colleague Tyler Cowen and I talked about this in our podcast back in January when I was on Conversations with Tyler - IQs in East Germany rose at least five points, maybe much more, in the decade or so after the end of communism. I think there are these cultural influences on intelligence that are not just teaching to the tests, there is something about a modern open society that I think challenges the mind and makes it work better in a wide variety of settings. So I want to stick with those three right now that public health interventions are first order, good broad-based education is suggestively very important but I can't say conclusively, and then third; there is more evidence I have to say for this big cultural effect - that when your country becomes more like Popperian open society, more [a] mixture of capitalist and loosely democratic, people seem to use their brains in different ways on a regular basis that shows up on the IQ tests.

Tobi: Why and I'm sure you must have experienced this maybe in discussing your work or maybe on social media and in other ways. Why is intelligence still a taboo subject so to speak? When I sit with my friends and we talk about development and I bring up Hive Mind...and people bellyache about 'oh, we can't do this or that' and you mildly suggest that 'hey guys, have you considered that our national IQ is pretty low and maybe, maybe that's why we can't get some of these things done.' There's a natural push back that you get. Why is intelligent still such a taboo subject?

Garett: I think part of it is because people assume that when you're talking about intelligence you're talking about something that is supposedly a hundred percent or nearly a hundred percent genetic and something that is essential to a person in some very deep way. So I think it's very essentialist as an explanation. I think that's a mistake, I think the evidence does not support that position. And here's a test of it, because instead of using the word "intelligence", use the word "national test scores" and you talk about how education can raise test scores in an important way, then people get much less defensive about it. People are much more open to these very same ideas, the very same channels. So I think a big part of it is that intelligence sounds like something that is intrinsic to a person, unchangeable, nearly immutable and so any ascription of causation to that is personal. So I think discussing it in a Flynnian way, the way that James Flynn has, which is very evidence-based (and) where we think of intelligence as being something like an intermediate outcome... it's not the deep root cause of everything, it's an intermediate outcome that in turn is caused by other stuff. I think that opens people up to thinking about how people's minds create the economy we live in. I'd much rather talk about how our minds create the world around us than talk about what some deep, supposedly essential thing called an IQ score. Of course, the history of the misuse of IQ test is important. The mistakes and evils that have occurred in the name of intelligence research are important. But there are many other things that have been used in evil ways in the past and we cut them slack, and democracy will be, of course, one of those. But I think something about intelligence makes people think it's intrinsic, it's basically immutable and so you're telling people to despair. And if there's one thing to think about when thinking about human cognitive skills is we shouldn't think about despair, we should think about trying to find ways to improve all of the nations in the world not just the lucky few.

Tobi: That's interesting. Tell us about what you're working on right now what's your next big project.

Garett: I'm on sabbatical and finishing up right now and I'm writing my third book in what I call my Singapore trilogy. And that's going to be a book really about the deep roots literature which I'd mentioned earlier. I'm interested in why the past is prologue. Hive Mind is a book, in a way, about the short-run. About almost proximate causes. 10% Less Democracy is a book about the rich countries. My third book is going to be a book about the whole world and a book about persistence. A book about why the more things change, the more they stay the same. So, again, this is going to draw on the deep roots literature, it's going to draw on the late Alberto Alesina's work on cultural persistence - how migrants carry their attitudes from their home country to the country they move to to a large degree. It's been a lot of fun to write this book because it's so data-driven and it's based on a lot of research that is very influential within economics and not influential at all outside economics and my job is to change that.

Tobi: You've been an advocate so speak of high-skilled migration.

Garett: Uh-huh.

Tobi: How does your argument square with people like Bryan Caplan and who call for open borders, I mean, just let them come?

Garett: So Caplan's comic book where I make an appearance on open borders, that's a great fun read I think people should look at that and give his ideas careful attention. I like to remind people that institutions do not just create themselves ex nihilo. That they are actually created by people and I just really want people to think about that a lot. High-skilled immigration means bringing in more informed voters and low-skilled immigration means, 'well, we really need to put a lot of effort into educating those folks' and hope that they support great institutions that will keep the country rich for a very long time. Fortunately, there is a lot of evidence that even the most optimistic supporters of open borders tend to emphasise that high-skilled immigrants have a lot of positive externalities, it's easy to make that case, and less skilled immigrants have... they are more like a wash, there is probably a plus in the short to medium run but closer to a wash than with high-skilled immigration. So I want people to think hard about where good institutions come from and if people coming to your country are going to support better institutions, that should be great news. And if people [who] come to your country are likely to tear it down, you have a little bit more concern. Caplan addresses this in his book in a number of ways with his keyhole solutions. But I think the next 20 to 30 years of both academic research and historical experience will let us know which way low-skilled immigration is going to shape the government of rich countries.

Tobi: Charter Cities. Are you optimistic, are you a fan? How best to think about it from a skill and immigration perspective?

Garett: Yes, so, Charter Cities which is an idea that's often associated with the Nobel Laureate Paul Romer. The idea that countries should create small little areas within there that are governed by another country's rules. A country that's well-governed, frontier. So say a poor country could say 'hey, we're going to let Singapore run a small part of our country or let Singaporean legislation or Singaporean case law hold sway in this part of our country. I tend to think that the biggest barrier to charter cities as the revenge of democracy. It's very hard to avoid what voters want. I would like to believe that countries with great institutions could franchise their institutions to other poor countries, but the problem is that institutions are created by people and we need to figure out why the institutions are weak in the first country (the country that's starting the charter city). There's a pretty good chance you're going to get a revenge of democracy there and a reversion to the old ways. Some of my GMU colleagues and I have joked that Singapore should franchise it's government to a lot of countries the way McDonald's franchises it's operating model. It would be great if we could do this but it's hard to avoid the norms of democracy especially when, as I note in 10% Less Democracy, some degree of democracy is really important to have.

So Charter Cities being in tension with democracy, that's the real problem we have in making Charter Cities durable. I think the solution is to have moderate Charter Cities. Countries where, say, Singaporean law or Japanese law or South Korean law is the default but the local voters can overrule it with a two-thirds vote. Something like that might be much more durable than a full charter city solution. Starting with the default of some rich country's rules but let the local voters overturn it piece by piece and build that change into the original set of rules so that people don't feel like this is out of their control.

Tobi: I'm going to ask you a very specific question. So, say, I win the election in Nigeria and I ask you 'hey, Garett, my country is going to be 300 million people in 2050, what are the policies that we can embark upon right now that can get us to a middle-income country over that time period', what would be your advice?

Garett: I think my biggest piece of advice would be: find a way to become a credible, attractive place for massive amounts of high-skill immigration. How do I get five million people from China, a million and [a] half people from South Korea, two million people from America to move to Nigeria? Some of those folks will, perhaps, be people of Nigerian descent, people whose ancestors are Nigerian and who want to come back. Some of those folks will be folks who just saw that there is going to be some great tax deals, some great tax incentives to move back. I think people are policy and becoming an attractive place for high-skilled immigration like Singapore is a great way to make your country richer.

Tobi: Thank you very much. I've been speaking with Economist Garett Jones and it's wonderful to have you Garett.

Garett: It's been great talking with you, Tobi.

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I had a quick chat with the IMF mission chief in Nigeria, Jesmin Rahman. I started by asking her whether Africa is facing another debt crisis. We ended the conversation with Jesmin outlining some reform measures that can put the continent on a long-term growth trajectory.

You can find us on all podcast platforms, some links to sources here. You can also find us on Spotify by simply searching for "Ideas Untrapped".

TRANSCRIPT

Tobi: Welcome to Ideas Untrapped and today I have with me, virtually, from Washington DC, Dr Jesmin Rahman who is the IMF Mission Chief for Nigeria. Welcome, Jesmin.

Jesmin: Thank you. Thank you for having me, it's a pleasure.

Tobi: Where to start would be that is Africa facing another debt crisis especially in the light of Covid19?

Average debt to GDP ratio in sub-Saharan Africa has increased by ten percentage points in the last decade, while average revenue to GDP ratio largely remain unchanged - JR

Jesmin: That's a very topical issue. Africa's debt gained global attention even before the Covid19 crisis. The debt level has been on the rise for quite some time and this is particularly true for low-income countries in sub-Saharan Africa. More than half of these countries were assessed to have been in or at risk of death distress in 2019. But even [for] those countries who were not facing [the] risk of debt distress there were two important vulnerabilities: the first is composition of debt - a growing share of debt has been to external commercial creditors, for example, this year more than half of sub-Saharan Africa's debt service payments are going to be made to these creditors whose terms are not as favourable as they are, let's say, for international financial institutions like the World Bank or the IMF. And the second vulnerability comes from [a] reduced capacity to repay debt. Average debt to GDP ratio in sub-Saharan Africa has increased by ten percentage points in the last decade, while average revenue to GDP ratio largely remain unchanged.

So, in other words, debt servicing capacity has fallen behind debt. So they were already vulnerabilities before the crisis on the debt front. What has happened since Covid19? The pandemic's impact on fiscal balance has been particularly devastating for commodity exporters, but really nobody has been spared. In the IMF's latest economic projections that we have just released, we are expecting real activity in sub-Saharan Africa to contract by more than 3 percent this year. Compare that to an average growth of 3 percent in [the] last two years. So we're expecting a sharp contraction in output, and, as you know, output contraction means lower fiscal revenues which together with higher spending needs to support life and livelihoods will raise deficits and debt across the continent. We are projecting average fiscal deficit in sub-Saharan Africa to nearly double this year compared to last year. Average debt level is also projected to rise significantly reaching above 60 percent of GDP.

Now, this is considerably lower than the levels that were reached in the 1990s, but there is a wide divergence across countries. Some countries are reaching very high debt levels. So bottom line, without a question, as a result of this pandemic, we are likely to see the number of low-income countries in Africa facing debt distress increase.

Raising revenues is Nigeria's largest fiscal challenge, I would say - JR

Tobi: You talked about divergences within the continent itself, so let's zero in on Nigeria here a bit which I'm sure most of our audiences are interested in. How large are the fiscal challenges that Nigeria faces? I know there have been some worries in some circles that the current path is not a sustainable one.

Jesmin: So [indistinct words] is one of those countries where debt level per se is not considerably high but debt-servicing capacity faces a precarious situation due to very low fiscal revenues. So let's look at debt first - overall public debt stock is estimated at 29 percent of GDP. This includes not just general government debt, but also all known potential government liabilities (in the IMF we like to be comprehensive). Now at this level, public debt is roughly half of the average in sub-Saharan Africa, it is also lower than various thresholds typically considered safe in analytical literature. As you know, there is no magic, one safe threshold that can work for all the countries. It depends on a country's growth performance, strength of policy and institutions, and risk perception, among other things... and we have looked at Nigeria's debt level from all of these angles and public debt appears sustainable. So that's on debt. But when we look at debt-servicing capacity, that is where you get out of the comfort zone - interest rates take up a large share of revenues. So for example, this year, all of [the] federal government's revenues are expected to be spent on interest payments. The problem is not exorbitant interest costs, the problem is low revenues. Adding debt without raising revenues only increases vulnerabilities. Raising revenues is Nigeria's largest fiscal challenge, I would say. Total revenues that include oil and non-oil was at 8 percent of GDP last year. Now, this is among the lowest in the world. To give you some perspectives, the average for sub-Saharan Africa is twice as high, the average for oil exporters is five times as high. Every government needs to collect a minimum level of revenues to deliver basic services and provide an enabling role for the public sector. We did some cross-country studies in IMF and based on that the IMF estimates that this minimum threshold is at 12 percent of GDP, now Nigeria's collection is much less than that. So this is a challenge that Nigeria must overcome if it is to put its fiscal house on a strong footing and provide the kind of service its citizens need. What is needed to be done? There is no easy fix. This is going to require a lot of technical and policy efforts in the areas of tax administration and tax policy, but above all, [a] very strong political will.

Take for example the CIT (Corporate Income Tax), Nigeria has a rather high rate at 30 percent but collection efficiency is very low because of widespread use of tax holidays and exemptions which are kind of sub-optimal compensation for a very difficult business environment. So raising revenues does not necessarily mean raising rates - JR

Tobi: Let's stay on this revenue issue because the usual discuss and I'd say, sometimes, response in policy circle is to conclude, as you've laid out this problem, that the government needs to collect more revenue and that means more taxes. But like you also said, the economy is shrinking. So isn't that a double whammy of some sorts, can you really raise revenue from a shrinking economy? Shouldn't growth policies be the priorities and then a growing economy means the government can then strategize ways to collect more from sectors that are growing?

Jesmin: Yeah, so let me unpack that... what I mean by increasing revenues, that does not necessarily mean increasing tax rates. Take for example the CIT (Corporate Income Tax), Nigeria has a rather high rate at 30 percent but collection efficiency is very low because of widespread use of tax holidays and exemptions which are kind of sub-optimal compensation for a very difficult business environment. So raising revenues does not necessarily mean raising rates. It means collection efficiency and this is particularly true in the case of Nigeria - the active taxpayer share is very low across tax categories whether we're talking about VAT (Value Added Tax), CIT, [or] PIT (Personal Income Tax). So, indeed, the first order of business is to broaden the tax base by taking away some of these exemptions, improving the large taxpayer units, making sure that you have a taxpayer register which is up-to-date, properly segmenting the various taxpayers into small, medium, large taxpayers so you can properly target them, improve compliance...so these are really much more important than, let's say, increasing tax rate. On tax rate, for example, Nigeria has a very low VAT rate. It used to be 5 percent, was increased recently to seven and a half, and it's much lower than let's say ECOWAS countries which are your neighbours and comparable to Nigeria. But as I said, this is not the time to look at the rate increase. Indeed, the first order of business for Nigeria is to actually make sure to collect what is collectable while it increases efficiency.

But this crisis is very different. It is unique and massive in its scale. This is not your typical balance of payments crisis that a developing or emerging market country faces- JR

Tobi: Thanks for that clarification. Looking at the liquidity challenges that some countries have faced especially in the light of the crisis, emerging markets by some estimates have seen capital outflows of over 40 billion dollars. Some have argued, and I want to get your reaction to it, that the IMF has an important role as some of intermediator or lender-of-last-resort given that the access of countries to dollar swap market is not equal. So is that a role that the fund is really stepping up to at this moment?

Jesmin: You are absolutely right. Countries typically come to the IMF when they are facing challenging circumstances. For example, the government is not able to pay for vital public spending or there is not enough foreign exchange to pay for necessary inputs or service debt. But this crisis is very different. It is unique and massive in its scale. This is not your typical balance of payments crisis that a developing or emerging market country faces. We have a global pandemic which is wrecking a havoc on lives and economies across the world. Countries are being hit by not one, but in some cases three to four simultaneous shocks, right? You have a health crisis, you've got a commodity price shock, lack of access to the international financial market, and plunging external demand. So there is [a] super urgent need for financial assistance, and no wonder some 100 member countries have reached out to us for assistance.

So how is the IMF handling, sort of, this very unique crisis? Now fully understanding the nature and depth of the crisis, the fund has stepped up lending through its two emergency financing facilities. One of these facilities which is called the Rapid Credit Facility is fully dedicated to low-income countries. And loans from this facility have a zero interest rate and a grace period of five and a half years. What that means is that if you borrow from this window you don't have to pay anything for the next five and a half years, so it takes you through the whole crisis period. There is a second window which is called the Rapid Financing Instrument, that's for our general membership and it also carries a very low interest rate right now of one and a half percent. The IMF has also temporarily doubled access limits for these two facilities. So why these facilities and not through regular IMF loans? Well, these facilities allow the fund to provide emergency assistance without the need to have a full-fledge program in place. As you know this full-fledged IMF programs take time to negotiate, they have conditions and these take time to put in place.

Under the emergency facilities, money can be disbursed very quickly, to access member countries, [to] address their health and other vital fiscal needs. And we have so far disbursed some 10 billion US dollars to Africa, and this amount, to give you a perspective, is about 10 times our average in recent past. Typically we lend about a billion-dollar a year and this is 10 billion already and we're not done with the year. So that tells you the enormity of the crisis and also IMF's commensurate response. So we're still a lender-of-last-resort if you like. In this crisis, we have played that role as countries have come to us facing large financing needs and being shut out of market access. But in addition, if you like, the IMF has also played kind of a role of a first responder, in some cases, rushing to provide emergency aid to member countries.

In addition, the government has also committed to undertake a safeguards assessment of the Central Bank. Let me also mentioned that the Nigerian government has specified two very important policy tensions as part of the RFI request: first, to move towards exchange rate unification and greater flexibility; and second, to strengthen domestic revenue mobilization efforts once the crisis passes - JR

Tobi: Using the RFI, which I believe Nigeria has accessed (that's the Rapid Financing Instrument)... using that as a case study now, the general information made available is that this instrument comes with no conditionalities, but a standard practice with the fund [is] that there are accountability measures. Can you explain or lay it out for us some of the accountability measures that are required to access and implement this fund?

Jesmin: The two emergency financing facilities as their name suggests are intended to be rapid. So money is disbursed upfront upon approval of the request without our traditional ex-post conditionality. But as you mention, it is important to ensure that resources are not improperly diverted. At the time of urgent crisis like this one, where many countries are under lockdown or there is restricted mobility, one has to zero in on what is absolutely critical and implementable, right? And without unduly burdening the government. That's what we're trying to do. So let's look at Nigeria's RFI, the government approached us for emergency assistance being hit by the twin shocks - covid-19 pandemic and a plunging oil price. The IMF board approved assistance of 3.4 billion dollars which is equivalent to 100 percent of Nigeria's quota under the RFI on April 28th, and the assistance is meant to help Nigerian government provide critical support to the healthcare sector, help shield jobs and also limit the decline in the national reserves. So even though there are no conditionalities, there are important policy commitments made to safeguard the use of resources.

Let me give you the examples: the government has committed to create special budget lines to record all emergency response measures - these will be published on Nigeria's treasury online portal. They have also committed to undertake an independent audit of crisis mitigation spending and related procurement processes. Again, the procurement plans and notices for all emergency response activities including the names of awarded companies and beneficial owners are to be published. The idea behind all of this is to strengthen budgetary oversight of financial assistance through full transparency. In addition, the government has also committed to undertake a safeguards assessment of the Central Bank. Let me also mentioned that the Nigerian government has specified two very important policy tensions as part of the RFI request: first, to move towards exchange rate unification and greater flexibility; and second, to strengthen domestic revenue mobilization efforts once the crisis passes. You mentioned in the beginning, you know, [that] one has to carefully look at the revenue situation given the current economic crisis that we are in - so we urge the government to step up these efforts once the crisis passes. And both of these policies are very critical to ensuring macroeconomic stability.

Tobi: I guess an obvious question is... governments have committed to some of these policy measures in the past and either for political reasons or otherwise, they've reneged. Are there at enforcement measures for compliance?

Jesmin: We are very much engaged with the government in terms of policy dialogue, assisting them in any way through technical assistance, through analytical support, so we will remain engaged with the government in coming months to help them implement these measures. But as I mentioned these are not conditionality per se, so in that sense, it's not like a typical IMF program where you have a review and the team goes and checks implementation against a sort of benchmark.

I used to work in Europe and before that [in] Asia, when I compare Africa to, let's say, European growth model or Asian growth model, one thing that stands out is how low the contribution of export sector is to growth in Africa. You have more [some] successful cases but generally speaking, this is a lake that Africa hasn't relied on too much - JR

Tobi: On a final note and this is speculative a bit... What are the long-term growth reform measures that low-income countries can put in place to get out of repeated sovereign debt crisis? Because it's like an old story and where does it end? How does it end?

Jesmin: Yeah. You raise a very important issue, it feels like deja vu, right, every time we get into the debt crisis. A few things: we talked in the beginning of our discussion and the importance of revenue mobilization, I think that is absolutely critical. When you look at what happened to revenue to GDP ratio in let's say sub-Saharan Africa over the last decade or 15 years; as I mentioned, it hasn't moved much, and we try to find successful cases of sustained revenue mobilization period in sub-Saharan Africa. And when you look at this long period of time, let's say, since 2000, there are only a handful of these episodes (6 or so). So it's incredibly challenging. Not just the technicalities of it, [but] because it's such a slow-moving animal if you like... achievements come very slowly and political cycles are short, you really need someone to own the process and be the big push - the big political push behind it to bring in large gains. So first thing would be to put the revenue house on a secure footing, increase domestic revenues so that you don't have to go out and borrow as much, right? That's first. The second would be to improve the growth performance so to say. Not having growth too tied to commodity cycles, so economic diversification... I used to work in Europe and before that [in] Asia, when I compare Africa to, let's say, European growth model or Asian growth model, one thing that stands out is how low the contribution of export sector is to growth in Africa. You have more [some] successful cases but generally speaking, this is a lake that Africa hasn't relied on too much. But the same time Africa is a young continent, it has a lot of human resources but you need to build these resources up so that investment comes.

Weather investment comes from outside or whether domestic or regional or continental investors pick this human resources up and make good use of it, it doesn't matter. But you need some ground conditions to be in place. You need a business environment that people can count on, that investors can count on. You need regular trade facilitating infrastructure in place. So all of these what we call sort of structural reform (you know, good structural conditions, enabling conditions for businesses to take off), you need all of those reforms as well as good investment in human capital so [that] population is not a liability, [but] population becomes your resource and that's how growth will take off. And if you've got the domestic going revenue mobilization and you have your growth going, that is how the continent can take care of its debt problems in a lasting way.

Tobi: That's a very interesting answer and there's a lot to unpack in there. Thank you very much, Jesmin, it's been wonderful talking to you.

Jesmin: Thank you, it has been my pleasure.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com

The former Managing Director of Frontier Capital, Olufemi Edun provided an insightful tour de force of the intricacies of financing and managing big infrastructure projects and investments. He provides rich historical and political contexts to such projects in Nigeria. He also has an important commentary on development policy towards the end of our conversation.

You can listen or download in the player above, all other listening options are here. Or you can can just read the transcript. You can also rate this podcast on any of your preferred listening apps or directly here.

Transcript

Tobi: Welcome to Ideas Untrapped and today I am on with Mr Femi Edun. Femi Edun is the former Managing Director of Frontier Capital Limited. You're welcome.

Femi: Thanks very much, Tobi.

Tobi: One thing I first want to discuss with you is public-private partnerships in the finance of big infrastructure projects like monumental projects or special economic zones or ports. What really are the barriers to making them work and why haven't we seen some kind of explosion in its impact in Nigeria?

Femi: Perhaps I should start by telling a story. Last August, I was in Togo meeting with the top executives of one of the largest fashion brand companies in the world, and they are considering setting up multisite manufacturing operations in west Africa to support their global business. And they said, "we just want to get comfortable with all the countries that we are planning to locate in". They were in Togo at the invitation of the Togolese president who had met with them in London, as well as in China - and he said, you know, doing large projects and making large investments in a country is like getting married.

Tobi: Hmm.

Femi: So first there has to be a courtship, and these days smart countries are the ones that go out courting investors and then we get comfortable. And when we get comfortable, then we get married. Because we're going to business together for a long time, and a major investment - whether by a domestic investor or a foreign investor, it doesn't really matter...a major investment like that is in a sense like a marriage. So why are we not getting married in that space? It's a number of things. I think we need to be a bit more deliberate and systematic in our messaging and in the signals that will send out to investors. So on the one hand, we're telling investors that they are welcome and their investments will be protected, on the other hand, they are seeing examples of activity that may suggest that that is not exactly the case. And certainly as far as foreign investors are concerned, one of the things that foreign investors will tell you is that they want to see how a country has treated its local investors in the process of making decisions about whether to invest or not. Then beyond all that, in making the investments, is there a smooth seamless process (going) in these investments? What are the rules, are they well-known upfront? How much work has the government of Nigeria done? Has the public sector side demonstrate its readiness to investors?

With all of these projects, usually, there's a significant amount of project preparation that has to be done in order to demonstrate, at least, in an outline and preliminary way the viability and the desirability of these investments. We need to be very clear about the legal and regulatory regime. We need to be clear about how the relationships are likely to be structured. We need to be clear about the extent to which investors will have protection for their funds. These are some of the areas that we need to improve. So we have an Infrastructure Concession and Regulatory Commission, the ICRC, that does a great job, led by very good people. The CEO there is an ex-Shell executive who's got an engineering background, worked on large projects, he knows how the world works. And there are some excellent people working within the ICRC. But beyond navigating ICRC, there's the whole question of how you just deal with the octopus that Nigeria can be - lots of regulation, there are lots of government agencies and entities that have some form of oversight or some form of regulatory role to play in these projects and we've just got to be able to do a better job of bringing all those things together in one place. And it goes beyond lining up 26 agencies in a hall and saying that it's a one-stop-shop. It really goes beyond that. We really need to be a lot more joined-up in the public sector in terms of how we approach the private markets for capital for these projects.

Tobi: Is it a failure of communication because interesting thing you mentioned... you can have the Ministry of Trade and Investment that is trying to bring investment into the country courting investors and all that, and you can also have an example of a regulatory agency that is more or less standing in the way of growth for a fledgling sector or industry, so what could better improve this synergy in communication to present a common agenda on the investment front?

Femi: Again, I'm a great believer in the power of stories. Let's go back to two examples. Nigeria is a country of interesting paradoxes because one of the most successful PPP entities in the world is in Nigeria.

Tobi: Hmm.

Femi: Nigeria LNG is one of the best examples that you can find globally in the area of public-private partnerships. That's something that was constructed very very carefully to create alignment between Nigeria and the international oil companies (the IOCs) in the process of trying to exploit our gas resources. Now, if you remember the history of Nigeria LNG, it took a while... it took a number of years for it to actually come out of the ground and become operational. But I think one of the key messages there is that there was a very careful and deliberate process of creating alignment between the public and the private sectors. The public sector being [the] government of Nigeria (the NNPC), the oil industry, at least, the publicly owned oil industry in Nigeria and IOCs who brought in management and capital of this project. So we brought our gas, and for that we got equity. The IOCs brought cash, the knowhow, the management expertise to run these multiple projects over several streams that represent the company to create what is the largest fleet of LNG vessels in the world, to build a company that has paid billions of dollars (tens of billions of dollars) to government in dividends over the years. So beyond communication, I think the real point is working hard to ensure that there is alignment; that's something that we hear a lot in investing, in private equity, in principal investing, in any type of investing where partners are involved - it's critical for you to have alignment between the partners, that's why the analogy of marriage is such a powerful one when you're thinking about PPP projects in Nigeria. So, yes, just as you need communication to make good marriages work, you need communication to make good PPP projects work. That communication is even more critical early on whilst you're trying to find the partners and whilst you're trying to create alignment.

Tobi: Hmm.

Femi: It's not exactly a PPP project but the process by which we conducted the auctions for the GSM licences that brought private companies coming in to take spectrum from government in what was acknowledged as an open, fair, transparent, very professionally managed process is certainly one of the high points in the history of Nigeria in terms of attracting foreign direct investment; and if we just apply those lessons on a consistent basis to the things that we do, take time to be very clear about our objectives, take time to make sure that we communicate those objectives very clearly, design a playing field, level it, and make it open and use sensible criteria to determine the sorts of partners that you want. One of my old bosses always used to say that one of the things that's important for you to do in life in building a business and selling a product or services is to define your target market clearly.

Tobi: Hmm.

Femi: Even going into partnerships like marriages you've got to be very clear about it. So we were clear that we wanted investors that had experience in deploying telecoms networks internationally, that had experience in working with the manufacturers, that had experience in rolling out the technology, also evidence of a particular capability to make these things work and that's why we got the results. So if we follow these sorts of processes and we make sure that they're run properly, openly, by people of integrity, then we'll get the results that we're looking for. So we have great people in the ICRC, they are credible, they have character, what we need to do is just add the other bits, then just get our signalling right as a country, get our priorities right as a country and start singing off the same hymn sheet.

Tobi: Since we're on the subject, maybe you can help me untangle one puzzle that has personally haunted me for years and I haven't been able to get a good answer. What went wrong with Tinapa? This was a project that had so much promise, there's so much investment and, of course, we've gotten a multitude of answers... some will say "oh, it's because government didn't build the port" or "Calabar did not have the natural advantages" blah blah blah, in your own opinion, what went wrong with that project and would you say we have learnt the lessons from some of our failures?

Femi: Well, you're right when you say that, you know, depending on who you talk to, you'll probably get many answers as questions to the question of what happened to Tinapa. In my view, from the perspective of an interested bystander, in the sense that I was somewhat involved in the credit rating process of the project financing that went into that. And I certainly was involved from just my interest in governance and political economy. But my view is that like most other project financings, when a project has lots of externalities - in this case, things like dredging, modernization of the ports, improvement of road, air, infrastructure going into Calabar - were outside the role of sponsors, Cross Rivers state and their investment company. When you have those sorts of things and those who were involved are not tied into the financing themselves with clear obligations in order to make the project go forward. Tinapa was a great project, an interesting location but if they had put it, perhaps, closer to the existing infrastructure in Lagos even as poor as it is and as stretched as it is currently, maybe they would have had a better chance of success. But you see I think one of the issues there is that we've got to realise that it's important for a country of this size for us to, if you like, democratise the development of infrastructure. We roll it out, so that we reduce the pressure on Lagos. But Tinapa was a few years ahead of its time and it was also a victim of externalities that were outside the control it's [indistinct word].

Tobi: Would you say we have learnt the lesson from that experience?

Femi: Well, I think the way to answer that question is to say that when a project sponsor is a public sector entity or a sub-national government, to the extent that it doesn't try and repeat projects like the one that failed, it learns the lesson, right? But when we see similar projects coming to market and getting broad support across the board? No, we haven't learned the lesson. One of the paradoxes of the financial market especially the banking credit markets which goes through cycles, seven to ten-year cycles, everybody that was involved in the last banking downtown, the last growth of non-performing loans either retired or they lost their jobs and the institutional memory sort of just stays on the shelf and we end up making the same mistakes in different ways. But we forget everything and we learn nothing. That's what the history of the financial markets tells us, that's what the history of the economic cycles tells us. I don't think that's anybody's fault in particular, it's just that, usually, what we end up finding is that there is a triumph of hope and optimism over experience.

Tobi: Another passion of mine is special economic zones which I have actually researched quite extensively and there are a number of them in Nigeria. As a matter of fact, we've been doing it for years under different aegis whether industrial parks or export processing zones. Again, why haven't we seen the kind of impact for this idea as we saw in the case of places like China and Korea? What's going on?

Femi: Nigeria was actually an early adopter of the idea of special economic zones and our export processing zone decree was written in the Babangida administration, so this is something that we did in the early 90s. The development of Calabar export processing zone, Calabar free trade zone which was the first one which is fully government-owned, I think started in 1993. Kano free trade zone which is also government-owned started, I believe, in 1996. So Nigeria was an early adopter of the idea but when you think about government ownership of special economic zones whatever name they are called by, we've got to look at the fact that one of the drivers of the success of these things is the quality of infrastructure, the ease of doing business, and the cost of doing business. So it's supposed to be a magnet for investment by offering world-class infrastructure that makes it easy to do business and lowers the cost of doing business. What that means is that government needs to make significant amounts of investment in the hard and soft infrastructure, both inside and outside the fence. Outside the fence in terms of the connecting infrastructure - road, rail, air, sea or water transportation, power, these days ICT and so forth. You need to make sure that there is also infrastructure within the fence. You need to make sure that in addition to all the hard infrastructure, there is also the soft infrastructure in terms of the regulatory framework in terms of the supply of skilled labour both operational and managerial. So there's a huge amount of investment that needs to be made in hard and soft infrastructure both inside and outside the fence of these SEZs, and that requires government to come up with substantial amount of money. Now when you think about all of the competing demands on the treasury - for education, for healthcare, for public infrastructure, for the justice system, for the police, for the armed forces, the court system - we will struggle to be able to come up with the amount of investments required to make these projects work, at least, to the standards that are required and to the levels that we see when we go around the world. That is something that we cannot run away from and government hasn't been very successful in being able to attract private investment into collaborations with the public sector in that space. The best examples that you will see in Nigeria of special economic zones are private ones - the Onne free trade zone in the Port Harcourt area is a great example, that's an Intels project; the LADOL project in Lagos is another example; Nigerdock is another example, even though Nigerdock, the basic infrastructure there was invested in by government in the late [70s] and early 80s and it went through a process of privatisation. But the real issue is that government would struggle to come up with the amounts of capital investment required and its patient money that's required to stay there over 15-20 year time frames. So I think until we figure out a sustainable way in which to attract private investment in collaboration with government because there is a very important role that government will play as an enabler, as a regulator, as a facilitator of the operation of these special zones. Until we find that solution, I think we'll continue to struggle.

Tobi: Do you think that in making some of these policies, particularly regarding special economic zones, do you think we are pragmatic enough about the economics? And here is why I say this: some of these projects you'll see, at least, in my own reading of some of the initiatives and some of the policy documents, you see things like, oh, wanting to put a zone in all the six geo-political zones and trying to be ethnically correct or politically balanced, where actually in some cases those are not what works. Special Economic Zones primarily should be able to facilitate trade and you have industrial parks located in landlocked places in Nigeria. So are we being pragmatic enough about how we apply these policies?

Femi: As to the question of pragmatism, my answer is no. As to the example of locating zones across what we now call our geo-political zones, I beg to differ slightly.

Tobi: Okay.

Femi: If you look around Nigeria, there is no part of the country, there is almost no state you would look in where there's not some compelling argument for some type of investment. I remember looking at the northwest and a place like Sokoto and you will say it's far from the port, it's landlocked blah blah blah, but what most people usually buy as Moroccan leather is mostly the hides of goats that are killed in Nigeria. If you look in the southeast, some of the best quality lead and zinc on earth is buried between Abakaliki and Ishiagu in Ebonyi State. If you look in the southwest, you look in Ogun State, you will see its ability to support major investments in ceramics. If you look in almost every state in Nigeria, I daresay every state in Nigeria, there is some compelling case that can be made and that's not to suggest that you should put a special economic zone in every state, I think that what is required here is to actually take a regional view and use these things as regional levers for development. Use them to leverage regional development by making them magnets for infrastructure investment, magnets for development of manpower and almost like hubs around which regions of the country can grow. So I think that's actually being pragmatic when you take a regional view of development of Nigeria and I think you will be able to establish viability as long as you do the hard work of approaching it correctly and making sure that they're set up properly. However, that's not to say that generally as a country we approach our economic decision-making primarily from a pragmatic point of view. There's a lot of emotion, there is a lot of emotiveness that goes into our policy-making and there's the diversity of views that complicates decision making in Nigeria. There is the fact that we are a democracy which is a good thing, but it just means that every voice will be heard, every voice must be heard and in the policymaking process, in the context of ideas it seems to be that it is the loudest and most strident, most emotive voices that carry the day rather than the voice of reason. So I really think that we need to bring a lot more pragmatism into our policymaking as a country, but on the specific case of citing special economic zones regionally in the country, I think that's actually a very pragmatic thing to do.

Tobi: I agree with you, there's a case for investment in every state in the country, no doubt, given the overall general level of investment. I guess my point is that there should be room for a variety of approaches. You have Ondo state that is building ports, and you have Ekiti State - I've actually had Akin on the show and he says that they are going with business process outsourcing - they are going with services rather than manufacturing. I just think they should be room for a variety of approaches and that leads me to the next question which is, should decision-making on some of these policies be decentralised, either at the region or at the state or whatever unit of analysis we choose?

Femi: Absolutely. There is a very strong case for decentralising as long as we decentralise, we also simplify and streamline the process of making those decisions; so that we don't just decentralise for the sake of it and then we end up getting tangled in even more bureaucracy and more red tape, and more complexity as we decentralise. Certainly, there is a good argument for everyone developing according to their comparative advantage and focusing on where their strengths either lie or potentially could lie if they did the right thing to enable those strengths. So, yes, there must be diversity in approaches because there is no homogeneity in factor endowment anyway.

Tobi: Yeah.

Femi: Different parts of the countries are blessed differently. And speaking to the case of Ekiti, I think it's actually a very clever thing that the state has done to say it wants to focus on services as a pathway to rapid development and job creation.

Tobi: I want to hit you with a bit of a curveball here. How much influence would you ascribe to history in our political economy, generally?

Femi: Well, history does play a very important role and there is no doubt that history has shaped the political economy of Nigeria. The evolution of political economy is a historical process anyway so history has shaped it. What I quarrel with is, and I'm sort of adjusting my stance to the curveball that you have thrown. What l quarrel with is our using history as an excuse for our failure to perform, our failure to deliver and the abysmal lack of results, the abysmal lack of progress in certain areas and the abysmal deterioration that we have seen in things like the quality of the public service, in things like the quality of the educational system, in things like the quality of public health. Some of the things that should be the building blocks and part of the engine of the development of the country, we have seen significant damage done to those things. That damage we could say, maybe, was inevitable considering our history, but we can debate that for years. Certainly, I think that with all of its imperfections, one of the things that British colonialists bequeath to us was the Colonial Civil Service which became the Nigerian Civil Service and unfortunately that Nigerian Civil Service is now no longer fit for purpose in terms of its ability to deliver on a sustainable basis the, if you like, the infrastructure and the delivery framework for governance, for policy-making, and policy implementation in Nigeria.

Tobi: That's interesting and I'm just going to keep them coming, so another curveball - resource curse: does it really matter? Is it as deterministic as some analysts would have us believe?

Femi: Well, just look at [the] Scandinavia, look at the North Europeans who have oil and what they've done with the oil, it doesn't have to be a curse. The resource curse is potentially a curse when you allow it to be. It's almost like saying that you have a genetic predisposition to diabetes or hypertension, now you can beat that by subjecting yourself to the discipline of a certain lifestyle or at least you can delay its onset or mitigate its results. So the resource curse is not the death sentence that some of the influential thinkers in political economy and economic history have made it out to be. There are countries that have beaten it, that proves that it's beatable.

Tobi: Yeah, so, corruption. How much weight would you ascribe to that? Some people would argue "well, it doesn't matter". Some will say "oh, it is everything that is wrong with us". What's your reaction to that?

Femi: Corruption is huge. Corruption is a huge problem. Corruption reduces the amount of money that is available for the important things that we need to do. Corruption increases the cost of doing business. Corruption compromises our institutions. Corruption is like cancer, but side-by-side with corruption is just the frightening level of [in]competence that you see when you go into the public space. There are some amazing people in public services and there are parts of it that work better than others, and this is not a blanket condemnation but certainly, we do need to strengthen our institutions. We need to strengthen the capabilities of the Civil Service to support the development and implementation of policy, to support government, and to ensure that we achieve the objectives of government. That capacity is almost as important as the cleanliness that we need as well. We need both character and competence.

Tobi: What about ideology in our politics - do we need more or less?

Femi: I'm not a huge fan of ideology. I think we need to be pragmatic. I think many of those ideological arguments are good for the ivory tower, they're good for the think-tanks, they're good for the luxury of being outside the cold phase of making decision in government, we just have to be pragmatic and put the national interest and the interest of the people first. When you want to develop a country as big and diverse and complicated as Nigeria, and you want to develop within a hurry, you have to put pragmatism before ideology.

Tobi: But don't you think that ideology can be useful in terms of competition for dominant ideas? For example, at least, in my own, again, reading of the situation, almost every regime in Nigeria since 1999 regardless of political party or persuasion do protectionism and some form of mixed or closed economy model. So some will argue that if we have ideology enough in our politics there will be competition for some of those ideas and we would actually see better pragmatic policies.

Femi: I'm not sure the issue is one of ideology, I think the issue is about the choices that we've made. So the big choices we've made in the political economy are choices that have really not been in our best long-term interest as a people. So if we're talking about ideology, I think the debate around capitalism and communism have been won and lost. I think the debates are really around doing what works and if you look at the economic history of the 20th century in particular, there are some ideas out there that have been proven to work. For countries that are in a hurry to develop, there are some things that you do. You've got to go for aggressive, inclusive growth. You've got to go for job-rich growth. So you select the policies that help you to do that and the question really is is that what we have done? You have to go for significant investment in hard infrastructure, you have to go for significant investment in education, have we done that? And have we done that in a way that is in our best national interest? So I think those are really the issues we should be talking about rather than ideology. I think it's really about the quality of the choices that we've made rather than the ideologies that we have followed. What is Nigeria's ideology? We don't have one. We don't have a national ideology.

Tobi: Interesting.

Femi: We had our national development plans of the 70s that talked about government controlling the commanding heights of the economy and then went through a process of privatisation after the structural adjustment reforms of the 80s and the 90s and the reality is that everywhere you go, China is a communist country but China practices state capitalism. The Chinese state as elevated capitalism to an art form. Few years ago I was sitting in a seminar at Harvard University and the director of the China Centre was saying that western countries are taking delegations to China to learn from Chinese government officials how to court foreign investments and how to form strong public-private partnerships with private investors. Countries in the west after the last big economic crisis nationalised banks, gave bailout to car companies, gave bailouts to all sorts of companies. We're going through a Covid pandemic now and the countries that can afford to give bailouts are giving bailout to countries [companies]. So there is a role that government plays, there is a role that markets play and what we need to do is really to find what works for us and do it. As opposed to having this, as far as I'm concerned, fairly sterile arguments about ideology.

Tobi: That's a lot to think about. One final question which is a bit of a tradition on the show, what's the one big idea you would like to see spread all over Nigeria both publicly [and] privately? What's one idea you're passionate about and you'll like to see spread?

Femi: There's a few of them in my mind so I really don't know who wins the competition for first place among those big ideas. Certainly one is that the role of government is to be an enabler of the success of its people, its businesses and its corporations. Government needs to be an enabler rather than a gatekeeper or a gamekeeper or someone that shortens the gains against its people. Government should be opening doors and playing a facilitating and enabling role and helping everyone to actualise their potential and we need to go back to our colonial history and just fix that. It's a big mindset thing but it needs to distilled down into the values and ethos and the way that government works in Nigeria. The Colonial Civil Service was designed to exploit the resources of the country and suppress the citizens for the benefit of the crown. We have replaced the Colonial Civil Service but we really haven't taken that mindset out of government and that's a big thing that we need to do as a country.

Another thing that I would like to see us just understand is that technology has given us two pathways to rapid development. It used to be from the economic history of Japan, the Asian Tigers, China, the more recent countries that are industrialising, that industrialisation was a pathway to growth starting from the industrial revolution - what happened in western Europe, what happened in America, what has happened across the world - industrialisation is the pathway to growth, and it creates jobs in their millions and raised people out of poverty and you can do that very quickly. China has done the economic miracle of taking most of its people out of poverty in one generation and that was largely through just doing manufacturing investment. But now we can pursue new economy investment in services in addition to old economy investment in manufacturing. So we have two pathways to growth and we need to exploit them quickly because we have a few hundred million young people that we need to put to work. We have an existential crisis that is brewing. It's already upon us as a country and we are not really treating it as the national emergency that it is. So all of the unrest that we see, all the difficulty that we see, all the killings, all of the social vices that we see are really not happening by accident. We need to create opportunity by the hundreds of millions. We have a crisis but we are continuing with business as usual.

Tobi: I do hope people listen. Thank you very much, Femi Edun, it's been fantastic talking to you.

Femi: Thanks very much, Tobi, it's been a pleasure talking to you.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.ideasuntrapped.com

I had an excellent conversation with Samo Burja of Bismark Analysis. Samo is one of the most original thinkers I have encountered in the last two years, and it was great to have him share some of his ideas here. You can follow him on Twitter, read his writing, or watch his videos on Youtube. Here is Samo on Botswana and political stability - and how Rome handled the "succession problem". The manuscript of Samo's book is here.

You can find us on most podcast platforms as "Ideas Untrapped".

TRANSCRIPT

Tobi: Welcome to Ideas Untrapped and today I am with Samo Burja. Samo is a sociologist and he is the founder and president of Bismarck Analysis, a consulting firm. Samo is also an original thinker who has come up with his own theory of history that he called the Great Founder Theory. Welcome, Samo.

Samo: Thank you, Tobi. It's a pleasure to be on the show.

Tobi: Briefly please, explain the Great Founder Theory. You call it the Theory of History, can you explain it, in the most simplest form, for us.

Samo: Well, everyone has a theory of history. There are some people who believe that history is driven by technology, that technology is the most important thing that changes the world. There are others who think that it is the great people - the generals and individuals and scientists and artists. And still, others think it's driven by economic forces like capitalism and so on. So, everyone has opinions on it. Many historians have arguments on it. Many economists have arguments on it, and political scientists. Great Founders Theory which is my theory proposes that history is driven by the exceptional individuals who make the institutions that we all rely on - the founders of states, the founders of exceptional companies, the founders of religions, the prophets or the statesman or the industrialists of history - and that were you to remove someone from history where there to not be that particular individual, that exceptional and unusual individual, history could have gone very very differently. And also it's not just a way to interpret history it's a way to predict the future because it means that instead of necessarily looking at just the economic fundamentals or just the technological fundamentals of a country, you might actually want to look at: well, is there anyone in the country that might be a founder of new institutions? Because I think that be it a state, a company, or an organised religion, over time as you move away from their founding, these institutions can become corrupt or dysfunctional. So even if a country seems to be doing extremely well, if it doesn't have this type of person around who might rebuild the institutions or build them anew, 50 years from now, 100 years from now, 200 years from now, it will do worse. And a country that at first might not seem promising, might suddenly, like, shift to become the centre of the world if it had enough of such people.

Tobi: I found your theory on Great Founders interesting. One is that the conventional wisdom, if I can call it that, on thinking about institutions is not vested in people. There is a common saying that "oh, it's about the institutions and not the people", that's how you build enduring systems that can be fair, that can be just, that can order society. So, now, I think the fear...or in places like Africa where there is a long history of coups and bad leaders, how does [the] Great Founder Theory differ from the Great Man Theory of history?

Samo: Yeah, it's an important distinction to make, because not every powerful person is a great founder in this sense. They are often people who appropriate or merely direct institutions and organisations that others created. And then at times, if they tried to create an institution, they might not be very good at it. So the big distinction that I would make is that the individuals who can be exceptional - this kind of, like, far-sighted social engineers, I think they are extremely rare. I think they are not just rare in African history, they were in European history and in Asian history but, over time the fruits of their labour accumulate. An example in SouthEast Asia I think would be Lee Kuan Yew. I think that he was an excellent founder of the city-state of Singapore, which was previously a British colony and developed it extremely well. I think in Africa there are some leaders who are definitely worthy of administration, I think that I wrote an article on Botswana for Palladium Magazine where I examined the origin of Botswanan stability and how the royal family of the country actually made extremely good decisions as to how to approach decolonialisation (sic) and so on. And then Paul... I think Paul Kagame deserves, despite his critics and his critics do have a point that he is very much authoritarian in a way, I think he's done a remarkably good job of both developing Rwanda and healing the deep social wounds that the Rwandan genocide caused in the 1990s. And I can certainly relate to that because the 1990s was also the period where - you know, I'm originally from Slovenia, it's a country in the former Yugoslavia - that country was also torn apart, right? So this kind of, like, tearing apart of societies, I think that can be done by almost anyone. The building together of societies, the re-creation of them, the healing of them, the transformation of them, that is very very rare. So I think that that would be the big distinction.

Tobi: Yeah. One issue that you've written extensively about is succession, and...

Samo: Uh-hmm.

Tobi: This is a very important problem with institutions and leaders and founders as well. Two examples: you talked about Kagame...

Samo: Hmm hmm.

Tobi: I've always found Kagame interesting because Rwanda seems to be in an equilibrium where Kagame does not really trust anybody as a successor, so that's why he's been in power for so long. Some of his speeches, some of the analysis that comes from...[trails off]. It seems like he sees himself as probably the only credible custodian of that healing process, from that horrible experience; and also in Nigeria here we had a very good example when we transitioned to democracy in 1999 and we had a president who had a particularly good second term in office. There were economic reforms, and there was growth. There was some form of shared prosperity in the society and he wanted a third term because he could not trust anybody, even within a system that he built or that was built around him. So explain to us - how important is the succession problem and how do civilizations and societies that have managed that problem really well, how did they do it?

Samo: It's an extremely difficult problem, and I think solving the succession problem probably distinguishes the most successful societies or the most long-lived ones from, like, the ones that struggle. In particular, I think that it has two parts: there is skill succession and there is power succession. Where skills succession means that the next person in a position has comparable skills and knowledge and ability to carry out an office. If say, hypothetically, in ancient times, a wise king is succeeded by a foolish son, right? The song can easily undo what the father had done, they can easily endanger the society. On the other hand, you might have a situation where there is a failure of power succession where, for example, there is a wise ruler but there is another wise individual who could come into power but doesn't really have the resources to reach for that position, even if the formal position still exists, it might be encumbered or disabled. There is such a thing as a powerless president. For example, today in Afghanistan, the president of Afghanistan is best understood as the mayor of Kabul. The power of this government does not extend beyond the capital city itself, with the outline regions still - 19 years after the US invasion, they're still basically governed by the Taliban or are directly governed by, like, basically US military forces. So in that case, the power just is not there to govern the space. Now, with regard to the trust between people, the trust has to be justified on a number of grounds. The very interesting thing here is if you consider [that] it's best to have a loyal competent person work with you and work for you and eventually when you have to go, as all people do, either because of old age or because of term limits or because you want to do something else with the remainder of your life, that person is the best person to hand it off to. It is, ironically, sometimes better to have someone who is loyal but incompetent than to have someone who is disloyal and incompetent, at least when it comes to politics. So, in an interesting way, as you point out, Kagame has difficulty finding someone or trusting someone. He has this fear of political opponents and I think this fear is locally rational but ideally, it would be best for society as a whole to have a higher level of trust. There are societies that have transitioned in history from lower to higher trust setups. One example I like to bring up is in the ancient Roman empire, there was a period of the so-called Five Good Emperors. One of these is Marcus Aurelius who is very famous for his stoic philosophy.

Tobi: Yeah.

Samo: The Roman empire was in a period of crisis then, so this is not when it was most powerful. This was when it was engaged in civil wars where generals would fight each other and direct their armies against each other to try to win in these wars and become emperor. And the solution was very interesting, perhaps a little bit a matter of happenstance, perhaps a little bit a matter of design. The Romans had this institution of adoption where you can declare someone your son and you adopt them as your son even if the person was already an adult. So there was this interesting political trick that was only possible because everyone so firmly respected [not only] family but simultaneously also this kind of strange idiosyncratic practice of adoption where you spiritually make someone your son even if they are not biologically your son. Not all societies have this, only a few societies practice this in human history. So because adoption was [a] widely spread practice, when a Roman emperor who was old would declare a general his son, the idea of killing your son will just make you so unfit to rule that whoever was adopted as the Emperor's son understood that they were most certainly safe.

And on the other hand, they also understood that it's no longer in their interest to undermine the works of the previous emperor or raise themselves in rebellion because all they have to do is support the current emperor and then they get to their turn afterwards. I note for example that Botswana has a very good string of presidents where each president was the vice-president of the previous one and the vice-presidents are carefully selected for this kind of skill and partially also their friendship with the Botswana royal family, so this has helped them to avoid a lot of the troubles of other resource-rich countries. So that would be a different example than the Roman example. And a third example of a way this can be done is the Japanese practice of Moko Yoshi which is the practice of - in Japan, again there is a strong emphasis on family and there is a strong emphasis, however, also on honour and on company performance. And they well understand sometimes that your son might not always be...first of, you might not have a son, but secondly, your son might not always be the most talented at business. So the practice of Moko Yoshi is called son-in-law adoption - it means that for a wealthy industrialist or entrepreneur, they will try to find for their daughter a husband who has business sense and then the daughter marries the man with business sense but the daughter doesn't take her husband's name. Rather the husband takes this prestigious name and some of Japan's biggest companies in their past had made use of this. I think Toyota was an example and I think a few other of their household name companies.

This allowed it so that the next CEO of the company, the next head of the company had reason to trust this person because this person is their son-in-law and not only their son-in-law, [but] because the Japanese put so much on to the owner of the family name, this person would be interested in supporting it and supporting the original vision of the company. So this is another way you can produce this kind of trust. These are the three interesting examples - one is through marriage, another one was through adoption, and another one was through this long period of cooperation where you have someone that is your right-hand man, that you work with for 5 or 10 years, you are the president, they are the vice-president, and you sometimes would do interesting things where I think the succession went like this ...I mean I have to possibly check my notes on this but they [Botswana] also had some aspects of this familial bond that can overcome this distrust where, you know, basically president Festus Mogae served as Quett Masire's vice-president but then...

Tobi: Yeah.

Samo: President Ian Khama who was the son of Seretse Khama who was the first president to try to lead this effort to leave the British empire and achieve independence. So he didn't put Ian Khama directly in charge, no, he rather put Quett Masire and this gave this opportunity that, you know... if Ian was not the best selection, you could have just gone with his vice-president but instead there was still this opportunity to rely on the family connection at the end of the day because someone who was like a close family friend, it would feel difficult for them to move against the son of someone else who was once their close friend and someone who had raised them up to the position of president. So, again, the relationship had to be developed before the country became independent in an interesting way, right? This initial friendship, because then the stakes are lower. So I would say that testing and building close ties before you are in the position of power might actually be the best way to get relationships you can rely on even after you are in power. This was a long answer and relatively involved, but I hope it laid out some of these mechanisms well enough.

Tobi: Listening to that bit, I'm wondering does not democratic ideals or what we have come to define as democratic ideal not conflict with these succession strategies that you laid out. I mean I'll give you an example.

Samo: Uh-hmm.

Tobi: In party politics, for example, in Nigeria, politicians practice some kind of what you would call the "adoption system" but in social discourse, in political discourse, we have labelled it as "God Fatherism" and it is fundamentally perceived as unfair - that whatever comes out of that process does not represent the consensus of the people and so there's an instinctive reaction negatively...

Samo: Yes.

Tobi: To that. So does democracy conflict with succession in a way, the way you look at history?

Samo: I think that democracy is very interesting. I will describe democracy as something that can deeply undermine trust or can deepen trust immensely. And it kind of depends [on] how well-functioning the society is in the first place. So I would say that in a well-functioning democracy, you might have people who compete and in public criticize constructively their opponents and proposed better plans for the good of the country. Yet then, when the president is elected or when the party is elected, the two parties or the two candidates who are rivals still trust the other side to adhere to [the] rule of law and believe that at this point, now that the election is over, the best course for everyone is to work together towards a better country and then you repeat this process every 4 years or 8 years or 10 years...so this is, I think, democracy at its best - where it allows you to express constructive criticism, advancement, the public good on the basis of the social fabric of already well-developed political relations, where there is a sense of shared interest among all the citizens of the country. Now, where it works the worst...I'm going to now reference back the example of the introduction of democracy in my own country Yugoslavia (I was born in Yugoslavia, I was a kid when it broke apart in the 1990s). The best way for Slobodan Milosevic who was a Serbian to win elections was to stoke the sort of resentment and anger of the Serbians that, to be honest... some real problems...there was a real conflict between Albanians and Serbians in the province, of course. But this immediately made it so that Slovenians, Croatians, Albanians, and others felt increasingly uncomfortable, they didn't want to live in a country that was completely dominated by Serbian elites in Belgrade. Before 1980, there was essentially, like, a dictatorial system where Tito was in charge. From 1980 to 1990, there was this tentative federal balance that was non-democratic, so there was this balance of power between the various wings of the Communist party, and then this balance of power was shattered by the introduction of democracy. So what I'll say here is - democracy is extremely powerful...it's a very powerful way to transform the balance of power of a society and put to the test the trust that already exist in a society or does not. So I would say that what is popularly understood as a democratic ideal which is that democracy itself will bring about higher trust, I think this is false. It is however true that high trust, high maturity, and high sense of, like, shared destiny and responsibility among a people, and among the elites of a people of a country, that this can allow democracy to express very very good government. And in fact, if you think about it, in a well-functioning democracy, the selection process should work better than, say, in a monarchy. Again, the hypothetical example of a monarchy that's hereditary, you know... the first son inherits or the kingdom is split between all the sons of the king. These were the two methods of inheritance in the ancient Middle East or Europe in medieval times.

Either one of those systems is kind of a throw of the dice. It's sure that the successor will be loyal, at best, if they're good son but they might not be competent, and in a well-functioning democracy and a high trust system, you should, in theory, have this. But I think it's a very delicate machine, I think it relies on [the] rule of law, and it relies on elites that feel that there is [a] common ground. So even though it's a democracy and there is a will of the people, even in democracies some people are more powerful than others. I think this is a fact. If you look at modern... any western country you want to look at, some people are wealthier, some people are more powerful, some people are more influential, some people have more sway over the public's opinions, some people are charismatic - whether it's America or Canada or Germany or any of the Asian democracies such as South Korea or Japan, it works this way. The elites still matter. I think that in this sense, the best way to implement a democratic system is to first create this sense of shared purpose and shared destiny in a people, and to balance the interests of all the groups that live in the country. And I think here I would reference the work of Machiavelli who wrote in one of his books, I think it was on the Discourses on Livy - he said that the constitution of a country, be it a monarchy, a republic or a democracy is always the work of a single man, the single individual. I don't think that's quite true. I think it's usually a small group of people, organised around an individual, like say, America's founding fathers were... but I think it says something very real. I think democracy has difficulty producing the preconditions for its own success.

The question is, do you want to be friends and do you support the entrepreneurial young man that doesn't have much money to his name? - SB

Tobi: That's interesting. That sort of leads me to my next question.

Samo: Uh-hmm.

Tobi: Are there deep roots element to having a great founder? And here is what I mean: from research in cultural evolution, I think from the works of Joe Henrich and co., societies are classified as either low trust or high trust...

Samo: Hmm.

Tobi: And we know that high trust societies (they) tend to handle some of these problems like (we've talked about) succession really well. So are there cultural or biologically intrinsic elements to societies that managed to invent credible institutions or produce great founders, at least, more than other rival civilizations?

Samo: Well, there is an interesting question of what exactly is producing great founders, right? I don't think I really know the answer to that, I believe that an openness to exceptional skill is very worthwhile. So a society that values the great scientist or the great artist or perhaps be kinder to the great religious and spiritual leader or the wise and thoughtful political leader or the very productive and industrious economic leader, and importantly it will be open to what these people look like before they are successful. Like, everyone wants to be friends with Rockefeller when Rockefeller is already rich. The question is, do you want to be friends and do you support the entrepreneurial young man that doesn't have much money to his name?

Tobi: Uh uh.

Samo: I think this kindness to what the beginner's stage looks like because if you imagine someone that can go on this trajectory to shape a society - to, like, notably improve it - this person is going to be saying some very strange things when they're young. They are not going to be doing whatever everyone else is doing. His parents might be like "well, you should become a lawyer or a doctor" and instead this person has this seemingly crazy dream that just later on in life turns out not to be crazy. They might still, as part of this dream, receive a lawyer's education. But instead of, say, going to a law firm, they might create either a political party or they might start lobbying for the change of a particular law that enables a particular kind of business or city government or they might run for an office or they might spend 10 years reading books and being a scholar for some reason that's very difficult to explain to others. So there has to be in a society, I think, a desire for excellence, some tolerance for eccentricity or at least the harmless kinds of eccentricity and an encouragement or at least... it cannot be too focused on trying to stamp out creative. Now, ironically, I think some very high trust societies will actually suffer some long-term problems because they have this philosophy where, you know... you hammer the nail that stands out. I think in say modern Denmark or Scandinavia and perhaps also in modern Japan. It's actually extremely difficult to be someone that does something different. Partially because things seem to be working pretty well - there is a healthcare system, the streets are clean, the economy has been stable, everyone's been rich for as long as they can remember - so why are you being a troublemaker and saying you do everything different from everyone else? Who are you to think that you are special or that you know better?

So this actually, I think, in the long run, might make Japan, again, and Denmark fragile. And I think this is an advantage to say, some other rich countries such as the US and over time more and more China [which] actually still retain this possibility of being contrarian, not in your words necessarily. It's not respect for necessarily people who are disrespectful to society at large or loud (though certainly such people that can succeed in the United States), it is more [of] a tolerance for a very different way to approach your career and intellectual and economical life. And then I'll add some more components to this - so I had this drive for excellence, this tolerance for eccentricity, the tolerance for the beginner to choose a different life path than other talented young men and women might choose. I think the availability of local traditions of knowledge is immensely important. Where, by traditions of knowledge, I mean the possibility of finding mentors who themselves are exceptionally skilled or exceptionally successful or exceptionally insightful.

Historically, there were some universities that played this role and they didn't necessarily play this role through "well, you know, the students and the students are taught by the teachers", it's more as... if you went in medieval, times in England to Oxford, it was just a place where all the smartest scholars of Europe had gathered or say the Cervon in France. And whether or not you were a student of the university, if you could travel there, you could talk to them and you could write with them and you could listen to them. The availability of this knowledge immensely sped up progress and similar things can be said of Florence in the Renaissance. Florence is a city in Italy renowned for its great art. If you were a sculpture or a painter, your craft - your art - will progress much much faster if you could go to Florence and ideally apprentice yourself to someone. But even if you couldn't apprentice yourself, merely walking through the streets of Florence - they had the practice of having these workshops that were open to the street, you could actually just literally see what people are up to and what kind of stuff is produced. And it had this, again, this culture of critique where they would have high standards, so they would examine critically what artists are making and compare it to each other and they were quite direct and open about it much as Italians sometimes are even till today - they are quite disagreeable. So I think this availability of other experts, people who perhaps themselves are not great founders but have quite great mastery in things like rhetoric or law or human organisation or technology or understanding of the country and its issues. The availability of such people can greatly aid great founders. So this perhaps is just kind of the preconditions for this and I'm happy to comment on any specific countries or regions but each of those is like quite involved things... so...

Tobi: Let's talk about China.

Samo: Perfect. Perfect.

Tobi: Interesting article, by the way, yesterday. I read it. Packed with so much insight. And of course, China, in the last decade, has been the most important economic partner to most African economies, so whatever happens in China, the extension of its global power reaches every corner of the African economy.

Samo: Uh-hmm.

Tobi: You talked about Deng Xiaoping and how he managed to handle the succession problem and Xi who is currently torn between keeping the fire of Marxism burning or watch it die out with modernism and all. How big a threat is the internal political contradictions that China face right now? How big a threat is it globally?

Samo: Well, I think that China is facing an immense challenge, I'm very glad that you enjoyed the article. The article in Asia Times outlines my position which is that they did an immensely good job of resolving the contradiction of how to have economic growth with a Marxist ideology. But the problem is they do need the Marxist ideology to keep their political system together. So the succession problem there is driven not just by this difficulty with Marxism where it can always be interpreted in this way that actually shuts down capitalism and economic production - where if the successors of Xi don't take it seriously enough, they have no political principle with which to maintain power and perhaps this could be replaced by something like a democracy but I think that's not trivial at all. It might very easily shatter the country apart as it had numerous times in its long history. China has this long history of dividing into smaller fighting countries and then reuniting. These dynastic cycles have happened several times in the twentieth century. They had terrible civil wars at the start of the 20th century. So it's very risky to undermine the political structure of the country, it's very risky. And then on the other hand, if you take the Marxism too seriously, especially if you take the Maoism too seriously, you might end up destroying this engine of economic growth because then how can you have in a communist society billionaire's, which China obviously does, right, Jack Ma and so on.

I think that civil society enables a civilization robustness. Hyper centralised systems can seem very efficient but they can be very fragile. As soon as the centre fails, everything fails. - SB

The succession problem has an even more fundamental issue where while Chinese industry allows for exceptional and strange individuals, like a lot of the billionaires are somewhat eccentric, their academic system does not. Their scientific progress is much slower and the students are very very good students but they don't pursue bold research and a lot of the members of the Chinese Communist Party go through the somewhat academic selection process. And then there is another selection process of "well, which party member advances within the Communist Party of China?" Well, it's the one that doesn't rock the boat. It's the one that's, you know, quiet and agrees with the policy and supports the policy. And in an important way, of course, you can have someone like Xi who he is very reserved in speech, very obedient, plays by the rules and when they come into power they pursue their bold plans they had all along or they acquire and grow into [the] office and become bolder. But for the most part, this is just going to be "yes men" and Xi is the last member of the generation that saw the possible failure of the Communist system. He saw the failure of it in his youth when his family and he himself were targeted by the Chinese red guards during the so-called Cultural Revolution. For a few years, he spent his childhood exiled in the countryside feeding pigs, and that probably stuck in his memory. He understands how despite, I'm sure Xi is... I’m sure he believes in Marxism but he understands this failure part of it and then later in his life he saw the collapse of the Soviet Union.

We have to understand that for the Chinese, the Soviet Union in the 1980s was kind of the elder brother, just as in the 1990s Eastern Europeans might admire the wealth and development of Western Europeans. So in the 1960s and 70s, Chinese communists both admired and envied the global power and the technological development of the Soviet Union. So seeing the Soviet Union collapse was this big shock for the communist part of the world, only a few communist countries stayed communist after the fall of the Soviet Union - North Korea, Vietnam, Cuba, and China and that's basically about it. All of the African and European countries that had experimented with socialism basically abandoned it, it was no longer a viable system. Xi saw this again as a young man, and already on his career...so in a way, he saw both of the failures in [indistinct word].

Tobi: Hmm.

Samo: He is going to be in power for a while more and I don't think anyone who is of a younger generation has that sort of experiences. All they have is the experience of maneuvering in a Communist Party, ruling an already fairly developed China. So their intuitions and knowledge of what does failure look like for political system or how do unwise decisions come about? it's going to be in a way much impoverished. So I think there is a knowledge transmission problem here. I think power succession works fine because the Communist Party has such control over the country but knowledge succession is a big problem for them and they have a lot of difficulty solving it.

Tobi: Somehow I wonder whether these are not (maybe they are, maybe they are not) symptoms of increasing prosperity. One very important point you made in that essay was how much order is necessary to create and maintain a market system. I think a lot of people underestimate that. We all like to believe in this Hayekian vision of an emergent market. So...

Samo: Like an idealized market set of rules where people exchange goods and they, sort of, discover what's...together they discover what's the best economic outcomes through the price system and so on.

Tobi: Yeah, yeah...I mean, we've been taught to believe that. So when I look at China, people like Ang Yuen Yuen have said that Deng Xiaoping reforms were based on having a decentralized approach to policy and here you have Xi, again, who is so centralised in his approach to economic management. But if you look at cosmopolitan cities like Shenzhen and every other metropolis in China that have seen incredible prosperity in the last 40 to 50 years, isn't the current tension a necessity? That is, when people make more money, when they become more successful, they demand more rights. They become less obedient, they become less conformist, what do you think of that?

Samo: I think that there is a strong set of prerequisites in terms of enforcing these relatively strong rules that enable personal liberty in the first place. That you don't have to fear whether or not your store will be expropriated and that you can rely on [the] courts if someone else, say, double-crosses you in a business deal, those are absolute absolutely massive. It just means that people, once those two things become true, then the most rational course of action is to participate in the market and benefit from the market. Until those things are true it's very difficult. And again what is supporting those courts? What's supporting that political order? Well, that's not trivial at all. That took a lot of work in the first place. And I think that this development that we saw in China was that... the aftermath of the Cultural Revolution was a quiet realisation among the remaining members of the Communist Party because they had been purging each other (those internal fight), was that "you know, this got out of hand, I would like more security in my political career. I don't want to be killed on charges, I don't want to be imprisoned, I don't want to be exiled, I'm going to work together with the other people to make sure nothing like this can happen again. And as a side effect of this almost kind of self-interested political aspect, this enables a reformer like Deng Xiaoping to produce something that has not just given political safety to this party officials, but gives economic and political safety to everyone in the society, at least to a much higher degree than was previously available. I'm not ignoring at all the fact of how heavy-handed the Chinese government can be, I'm just pointing out that the mechanic of the change that enabled this broader liberty was partially driven by the people who are already powerful. You can't obviously have this be driven by everyone in [the] existing elite, but I think every reform of society has had one sub-section of the elite interested in change and bringing in new people as allies, who previously were not part of the old elite to become part of the new one. So, there is a change in the ruling coalition... that can happen. And I think often those can be very positive if designed well and can result in what's essentially this higher degree of safety. And I think once the safety is guaranteed, then there's more room for personal expression and this bottom-up order.

Tobi: Interesting. Interesting, Samo. So I'm just going to toss out a few theories and framework and I want to hear your reaction to that and weather GFT affirms or refutes that. Acemoglu and Robinson talked about inclusive and extractive institutions, what do you think about that framework?

Samo: I think that inclusive or extractive institutions is a good path... it's an interesting frame, right? I think that in the real world, an institution can be both inclusive and extractive. So I think there is some insight there, but I think my perspective on institutions is that they can easily combine many things that seem mutually contradictory. So I'll say it sometimes gives the correct answer but it's basically not as total as it's presented.

Tobi: Hmm. In their framework, at least they've extended their theory with their new book, they talked about this narrow corridor where... I don't want to call it perfect, but this balance between the power of the state and the freedom of the civil society as this zone where prosperity sort of exists. Is that...I find that hard to believe somewhat despite all the evidence they marshalled in their book and other research papers...

Samo: Uh-hmm, Uh-hmm, Uh-hmm...

Tobi: So what role does civil society play in GFT?

Samo: In GFT, civil society is the space where new institutions can be designed without the approval of the centre, without the approval of central power because GFT has this self component of high-medium-low...where I think civil society is the space where the middle powers can be built. In other words, to build a great successful company you ideally don't need to have that many government friends. To successfully pursue a new political ideology or new social or ethical ideology, you shouldn't necessarily have to fully wrestle with everyone in society immediately... so, again, another additional aspects of this is I think that the civil society represents this very important redundancy. Redundancy in the positive sense where if you are on an airplane and the electronics of the airplane fails while you are in the air, you really hope that there is a backup electronic system; or if you are in a hospital and you are recovering and the electricity goes out you very much hope that there is a power generator attached to the hospital allowing whatever equipment that is needed for your health to keep on running. I think that civil society enables a civilization robustness. Hyper centralised systems can seem very efficient but they can be very fragile. As soon as the centre fails, everything fails. A strong civil society on the other hand enables not only [a] healthy competition and experimentation which of course should not endanger the centre or should not endanger the coherence and common destiny and stability of the civilization or society, but it enables a backup. So if the centre fails, there is something that is not too far from being able to become the new centre.

Tobi: Interesting. Let's talk about technology for a bit, Samo. One of the things that this notion of catch-up growth is built on in economic development is that if you can facilitate technology transfer between a nation that is advanced to a nation that is behind, then you can engineer some form of economic growth. But you also have this concept of social technologies that in my own interpretation do not transfer so easily. What are your thoughts on that?

Samo: I think this is very much true. I think that it's very easy to transfer, say, the adoption of a physical technology. It's like not that hard to have the users...you know, everyone has then a smartphone, right?

Tobi: Yeah.

Samo: It's a little bit harder to have it be sold that the workers and managers exist to run a phone factory, on the other hand, that's a little bit more difficult. And social technologies play a role in this and I think the transfer of social technology is something very interesting and tricky. I feel it is important to note that naively trying to completely copy social technologies from a completely different society can have disastrous or ineffective consequences. Because, in fact, there are already social technologies in whatever society. There is no society without its own ecosystem of highly specialised social technologies. The beautiful balance happens when one is able to learn from other societies and then customise what is introduced. I'm going to use the example here of 19th century Japan. Nineteenth-century Japan, sort of, forcibly opened to trade by Admiral Perry, basically, they are behind on military technology.

They understand very well in the aftermath of the Meiji restoration that it's not just the adoption of Western science nor is it the adoption whole-scale of just Western culture and views, but they are very selective. What they do is they send their most talented students to Germany and the United States with specific missions; some of are tasked by the Japanese government as representatives to learn everything they can about how the officer system work in Germany, for example, in 19th century in Germany, 19th century Prussia? How do the ranks work? What kind of discipline and training do the soldiers go through? And they return changing the Japanese army from this relatively archaic system that's feudal, that has samurai because if you arm the samurai with the machine guns and whatever, they're not actually using the artillery, the equipment well nor are they fighting coherently or employing the correct tactics. So the army would in effect be terrible. But they copied the Western system of ranks and training - everything up from the military academies to the organisation of the provisions. They go and observe it. They participate in those armies and then they return to the country, and with the full political backing produced this transformation. And then for the ones that go to the United States, they observed the organisation of railway companies and how American companies operated internally.

And note this, of course, was a very different America. This was an America that was still at the frontier - the transcontinental railroad was barely built, so there were definitely people there that knew how to build a completely new railroad system, how to finance it, how to even deal with security issues - and then that transfer goes back to Japan. And then there are people who are in London just working for several years as basically shipwrights that return and then oversee the construction of the first ship. So these are not just technical skills, all them are learning some technical skills but they are also learning things like what does a relationship look like between a soldier and a commanding officer? What does the internal organisation of a shipyard look like? How do shipyards connect with funding and with resources? And how do they select skilled labour vs unskilled labour? How do they enforce workplace discipline? What do you do if the shipwrights come drunk to the shipyard, how do you respond to that? These all seem very trivial everyday problems, but for the most part, we rely on our social understanding, our cultural, our social technology to see what is acceptable and what are the expectations that should be set and should be respected and how to resolve various kinds of conflict and how to reach various kinds of decisions - these are all things that have to be patented. Yet, despite all these expeditions to do this learning, they intentionally combined this and pursue this strategy where they picked and choose which of these practices were compatible with Japanese society. So Japan stayed Japan and successfully industrialized… and it was unsuccessful during World War II obviously, but even after WWII, Japanese society remains distinct and actually in some ways functions better than Western societies. Like, if you go to their high-speed transit, it's maintained at a higher level than you see any western country. So they combine this with some of these strengths that they have... this very broad attention to aesthetics [and] this high level of politeness that they had inherited from that particular kind of feudal society. So yeah, you have to live in a new society, I think. You have to observe it happening, and then not only do you have to live there, you have to return; and not only do you have to return, you mustn't change everything. You must change just something very narrow that works on the strengths of the other social technologies available rather than trying to wholesale imitate something that ultimately has its own flaws.

Tobi: Economist Gareth Jones has this concept of hive minds where he says national IQ matters more than the IQ of an individual person and these are correlated with how successful and prosperous a society is. I'm not even going to ask how true or false that is but are higher IQ societies more likely to have great founders than not?

Samo: It's a very interesting question. I mean IQ is one of those things that it might not be a good measurement, it might be a good measurement in some circumstance. I think that... yeah, I think there is whatever (I won't measure it with IQ)...

Tobi: Okay.

Samo: But I do think societies with intelligent people or with greater respect for intelligence or with greater ability to produce intelligent people, I think they do have an advantage here, yeah. You require also other things because as I noted, you might have extremely intelligent people that are however doing exactly the same thing that everyone else is doing. If you imagine a classroom of very very diligent student that mostly to just do the same thing that all the other diligent students...like, that might result in like, say, some well-run things. It might like result in trains that go on time or on factories that can rely on a high level of skill of their workers but the problem is those same students would never have built the train system in the first place or would never have pushed for its creation nor would they have ever pushed for the creation of the factory. So there are additional factors here. I remember reading some articles about Gareth Jones's book, I will say where he's very very right is that if you have a higher culture of intelligence in a society, it becomes easy to not have to worry about things. You don't have to worry whether trivial everyday things are taken care of, you can focus on the truly difficult parts. Again, you can rely on the train that takes you to your class to be there on time, for example. That's like easier, it's not just a matter of organisations, [it's] also a matter of, like, the competence of the rail workers and so on... and these small everyday differences, if you imagine them just through the lifetime of a potential great founder, they make a massive difference.

I'm not sure I think that you need to have absolutely all of society be like this, I think it's actually sufficient to have a city that's intelligent in this way. Like I give the example of medieval Europe and the city of Oxford. I think it was quite sufficient to just have Oxford where there were a bunch of smart people around. I think it didn't much matter whether the rest of England at the time was very intelligent or not.

Tobi: Hmm. That's interesting. You also talked about Life Players in your book which I greatly enjoy and for the audience, I'm going to put up a link to the publicly available manuscript for the Great Founder Theory book. How can one recognise Life Players in society or in an institution?

Samo: I think Life Players are going to the people that have succeeded at very very different tasks. So they are going to be these individuals that have, perhaps, either changed careers (two or three completely different careers) and have been successful at all of them; or completely changed their interpersonal style and were as successful when they were strict as when they were jovial, when they were easy-going or people who have done intellectually completely different things. So what you're looking for is not only a very high skill in an area - again, it's very possible to be extremely skilled in an area and ultimately not be that well-adapted - what you're looking for is the combination of both skill and execution, intentionally observing their environment and success at transitioning. So (a) success at transitioning to completely new strategies and this might look like an entrepreneur that has built a successful company in one industry that [they] then specialise in a different industry and very quickly build a successful company there too. Elon Musk might be a good example where he both has created this business that's a car factory that makes electric cars - Tesla - and has also succeeded in aerospace with his company SpaceX which recently brought American astronauts to space again for the first time ever on a privately built rocket rather than a rocket built by NASA.

Tobi: Uh uh.

Samo: A different example of a Life Player and I have to emphasise here when I say Life Player, I don't mean I agree with everything the person does. I'm just observing that they have the skill and adaptability. I think Vladimir Putin has showed over the last twenty years in Russia an extreme adaptability where Russia pursued many different strategies to try to maintain its position in the world, and Russia right now punches above its weight. For example, the annexation of Crimea was completely inspired. Nothing like that had happened in Europe before...

Tobi: Uh uh

Samo: And it was done with, like, killing almost no people, I think something like three or four people died. It was incredible how they orchestrated the mere surrender of the Ukrainian army because the Ukrainian army was so confused and honestly scared with the appearance of these Russian soldiers that, note, were even not officially Russian soldiers. They were wearing no official flags or patches, so they wouldn't give any answers as to who they were. They could plausibly say that they were Ukrainian because Ukrainians and Russians (they) look similar, they speak very similar language, there's a Russian minority in Ukraine and...you know, Crimea declares independence, and then immediately after declaring independence asks to join Russia and Russia says "yes". It's kind of amazing how that can happen. Not saying it was good for Ukraine, definitely, it was good for Russia, I think. And this results in this very creative process because there is no way in the world that Putin ever planned for there to be a civil war in Ukraine, but having the fact of the civil war happen, he and his team very quickly moved tens of thousands or hundreds of thousands of people and carried out a military operation that had never been performed before by the Russian army. The Russian army has a long history, many centuries ago but believe me they've never engaged and subtle stuff. They usually had this very overt, very heavy-handed interventions in other countries. If you think about it like this intervention in Hungary in the 1950s, in Czechoslovakia in the '60s, they just roll in the tanks and, like, assert authority. And here? No no no. Much more flexible, very subtle. And because the conditions were so unpredictable, this is how we can know that this was not planned a decade in advance. This was a quick adaptation over the course of, possibly, as little as six months to a completely changed situation. So I think that even if you were within the same industry, if this company, if this government, if this organisation, if this institution adapts quickly to massive changes, that's a strong sign that a Life Player he is at the helms. Because no automated system continues working when the operating conditions changed. It stops working if it's the preconditions are not met.

Tobi: Hmm. One of your ideas [that] I've also found very interesting is the concept of Intellectual Dark Matter. How can a society benefit maximally from its intellectual dark matter - the tacit knowledge that's around?

Samo: Intellectual Dark Matter refers to this concept that makes the analogy to physical dark matter because currently when the physicists and the astronomers look at our galaxy and they count all the stars and put together all the mass, they realise that there must be much more mass there than only what's visible...

Tobi: Yeah.

Samo: Because, otherwise, the gravity wouldn't be strong enough to keep this spinning galaxy that we find ourselves in and other galaxies together. So they don't yet know what this missing mass is but they are investigating it. And with Intellectual Dark Matter, I think if we put together all the books, all the stuff that's on the internet, all the stuff that's recorded, I think we still find that there is missing knowledge. There is knowledge and skill that we have not explicitly, formally recorded - written down or put into words that deeply matters. And once you start thinking about that, it's very easy to come up with examples of stuff that is very difficult to put into words or put into writing. The skill of a heart surgeon that saves the patient's life. Like, that's a remarkable set of skills but how do you put into words how to perform a heart surgery? Very very difficult, right? Takes a lot of words. I have an article titled "How YouTube is Revolutionising Knowledge Transfer" and I point out that...

Tobi: Yeah, I read that.

Samo: I point out that for a good enough camera, recording the hand movements in these very skills, and it doesn't have to be just heart surgery, it can be as trivial as cooking or perhaps the way you treat complex machinery... recording the video and others watching this video might be much much better way to convey such knowledge. I also think that we in society, in general, like seeing the results - we like seeing the finished essay or the finished theory by a Thinker. So if I go back to the world of abstractions to either philosophy or science or whatever, we like seeing the finished theory.

What we don't see is all of the crazy or stupid ideas that this very intelligent person came up with before they got the right idea. They usually do that on their own or with a close circle of friends. So, one might be tempted to think and look at an extremely successful thinker and assume that they were always very polished, that they were always very eloquent, often this is not the case. Often they are immensely long learning period. Now, I admit I might be a little biased here because I did spend most of the last decade pursuing this kind of, like, thinking, reading, investigating and for most of this time period, people were not immediately interested in my ideas.

Tobi: Hmm.

Samo: But about two to three years ago, the material not only clicked together but I found the words to express what I, to myself, felt I had understood for several years before, I just could not really find the way to relate it and show to others in a short period of time how in fact this is useful to them. So I think all of these things form part of Intellectual Dark Matter and there is much more. There is, for example, we might not know what the exact process is that allows you...that allows Elon's team at SpaceX, engineers at SpaceX to make that rocket, and we might not even have that available anywhere because it might be classified. There are probably rules, I actually know that there are laws in the US that prevent SpaceX from simply explaining how they're making this vehicle to a company based in a foreign country. They don't want to teach all the countries how to make rockets for obvious reasons, and more importantly, SpaceX probably doesn't want to share its rocket designs with Boeing - their competitor.

Tobi: Uh uh.

Samo: So there is also an element of proprietary knowledge and trade secrets for stuff that is understood explicitly, stuff that can be put into words, can be put in a document but the person who has this knowledge wants to keep a competitive advantage; sometimes for very good reasons or the organisation that possesses this knowledge doesn't want to share it. So, that also forms a type of intellectual dark matter - it's knowledge we can't directly examine.

Tobi: Interesting you talked about YouTube. The global pandemic has seen an increase in virtualisation, are we going to see a reform in education away from the classroom and a reduction in direct instruction?

Samo: I think that we will see an increase in autodidacts - so people who know how to learn on their own. I think, however, that most people will return to the classrooms once the pandemic has died down. I don't think there will be permanent remote instructions and I think the reason for this is that the performance seems to be much worse. It seems to actually be the case that unless you are inherently interested in the material. If you're just a kid who's going to school or taking online classes because you have to take online classes or because you have to go to school, it seems your performance is going to be worse. You're going to learn less than if you physically go there. And I think that for autodidacts, there is going to be an abundance of resources - everything from recorded lectures to tests made. So it's going to improve those chances of those who are seeking knowledge out of curiosity primarily, or out of self-development and professional development; but for the majority of people learning, I think this transition is going to be temporary. I don't think it will be a permanent shift.

Tobi: So, Samo, it's kind of a tradition on the show to ask this final question. What's the one big idea that you want to see spread globally?

Samo: That's a great question. I think if there is one idea that I would like to put in everyone's minds or everyone's hands, it's this realisation that...I think that the surest sign of good knowledge is the ability to act on this knowledge. So I think that there is some deep confusion as to when knowing things and when doing things - how do these two relate to each other? And I think if only we understood that there are many things that have the appearance of knowledge, such as eloquent speech or perhaps particularly good writing that don't carry the substance of it. We should always observe the practice of the individuals and organisations claiming to have knowledge. For example, the WHO...I'm sure it's made of many excellent experts - they individually know many things about the coronavirus but the organisation as a whole despite claiming to know, in its public communication seems incapable of relaying that knowledge. So I think the result should be "well we should take them less seriously on the coronavirus". And if this map between who is believed to have knowledge and who actually has knowledge, if we improve that map, as a species, I think that our ability as human beings and our societies would really rise. It will be a remarkable thing to see and I think the societies that went through golden ages, I think they basically had these happy periods where the two coincided. You know, times like the Renaissance or whatever.

Tobi: That's a great idea. We're sure to help you spread it over here at least.

Samo: Thank you so much for having me on the show.

Tobi: Yeah. Thank you so much, Samo.

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