Abhijit Banerjee: evaluation

Transcript context

…Let me start with a question about economic development. Dani Rodrik has argued that premature deindustrialization is a significant problem for emerging economies, that in essence, they are moving into manufacturing at a time when automation already has happened. And this will not, for these countries, build a middle class. What do you think of this argument? Well, it’s sort of beyond my competence, to be honest. It seems like reading lots of tea leaves, but my instincts are that he’s right, and I think there’s additional problems. One of them is, the fact that there’s so much inequality in the world means that the products that are being designed now — a lot of the new money is being spent on — are products where the component of quality to it is extremely high. They tend to be products that are — think of kids’ toys. Most of kids’ toys are a matter of checking and making sure that they have nothing dangerous about it. And the checking is often done, actually, in other places — in Germany, for example. For some of the things, the checking is done in Germany even though the manufacturing is done in China. As a result, the cost part of manufacturing is an extremely small part of the price of the good. So what we pay in the US for the toy — a tenth of that might be the labor cost and the capital cost of it. But that means that, essentially, the things that generate large earnings for people are not happening anymore. Lots of this is just very, very well-designed products, of which brand-naming, marketing, making sure that they’re okay — all of these things are a huge part of the price. Therefore, essentially, if you think of the rest of it, which is a small amount — that means that, if you’re a worker, you’re getting 40 cents for a $10 toy or something, and that’s just not going to make a lot of rich people or even middle-class people. One of the early papers in your career — you seem to be arguing there was too much petty entrepreneurship in emerging economies. Do you think that’s still the case? And if so, how do those economies make the shift away from that?…

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