A Problem-driven Approach to Complexity, Public Policy and Economic Growth

6 mins read

Guest blog written by Claudio Roberto Amitrano

What is development? How is it driven? How can we get there? Who is it for? What do countries have in common? What are their specific problems? How do we identify them? How do we find solutions? Who will lead, authorize, design and implement them? Who are ‘We’ and how do we build the ‘Sense of us’? What can we learn from the policymaking process, working in multi-agent teams and doing things together? 

These issues come to my mind when I think about the Leading Economic Growth (LEG) course from Harvard Kennedy School. However, those questions were presented not to show an absolute answer, but to teach us a way of thinking about them, a method to identify the important problems for our societies and to empower us to find and implement solutions that fix them. 

Despite not providing definitive answers, the course touched upon some clues. Firstly, it seems that economic development is related to technology, which can be divided in three parts: 1) embodied knowledge (machines); 2) codified knowledge (books and manuals); 3) tacit knowledge (knowhow in people’s brains). While the first two are relatively easy to diffuse and absorb, the latest is not. 

The way countries use technology to foster development is strongly related to complexity. The more diverse and less ubiquitous the set of goods and services a country produce and trade, the more complex and developed its economy is. In turn, diversity and ubiquity are conditioned by the amount of different knowhow a country can absorb and amass. Although each individual might know less, the society, as whole, knows more. The image of the scrabble game is quite interesting to exemplify this idea. A word to be written needs letters. The more letters one have, the more different and complex words one can write. 

In this sense, growth is associated with the country’s ability to ‘jump’ to nearby activities, whose knowhow is similar to the ones already developed. On the other hand, it might be related to its ability to ‘jump’ to faraway activities, whose knowhow is quite different from the ones already learnt, but through strategic policies can be acquired. Notwithstanding, the ‘growth problem’ is not only connected to these issues. It also depends on the removal of the binding constraints that hinder progress and the policies countries develop to deal with them. It leads us to another way of thinking complexity. 

Complexity can also be seen as problems with multiple moving parts and interdependent players, in which relationships, their properties of self-organisation and interconnections defines their trajectories. From the standpoint of public policy, identifying and finding solutions to complex problems requires a Problem-Driven Iterative Adaptation’ (PDIA) approach, instead of a ‘Solution-and Leader-Driven Change’ (SLDC), in which one can construct and deconstruct problems. From the perspective of economics, it requires a Growth Diagnostic approach, whose main objective is to find the binding constraint to economic growth. Based on the idea of  complementarity between inputs, as well as between institutions, this methodology is able to avoid or at least minimize the second-best interactions problem. 

The idea that development is related to complex problems and that complementarity is the rule, rather than the exception, leads us to the issue of the role of governments and how they deal with these problems in order to fix them. To identify problems, find and implement solutions, as well as to lead economic growth, countries need multi-agents teams and leadership. Indeed, that is why leadership cannot be associated with the appearance of one person, with singular capabilities, as if she/he was a hero. 

In fact, in the world of complementarity, government can be seen as the agent that provides the public goods necessary to produce private goods. In the scrabble game, it is as if public goods were the vowels while the private ones would be the consonants. 

The relationship between growth or development and complexity has another important consequence: it leads us to resignify the idea of inequality and to set different roles for policies of redistribution and inclusion. 

Redistribution seems to have just a weak relationship with capabilities and knowhow and, for that reason, can be seen as a short-term strategy. In turn, inclusion seems to be related to the idea of bringing people into modern production networks through the enhancement of their capabilities, so they can profit from technological progress, as well as improve the complexity of the economy. For that reason, it can be regarded as a long-term strategy. 

However, long-term strategies depend on more than building capabilities, adding new knowhow, producing and trading complex products. They also depend on the possibility of bringing people together, making them part of the same community, building a ‘sense of us’ in order to design and implement the policies needed to development. To use the scrabble image, the more different people a country has in its community, the more letters and words it will be able to write. 

As mentioned before, the LEG course seems to me more a method of thinking about complex problems, and finding them solutions, than recipes or formulas to economic growth. One of the most important results of all this analysis is that it empowers developing countries, by ‘freeing’ them to think and act by themselves in order to achieve development. 

As an economist, and after doing a PhD in economics, it is difficult to find new forms of improving my education that, at the same time, are compatible with my professional duties and offer a deep and broad knowledge. LEG is the kind of course that delivers it. 

Doing this course, I could learn new interesting things about structural change and economic growth, as well as about the public policies my country could design and implement to foster development. It was really useful to work on the Atlas of Economic Complexity, through which I could learn how much the Brazilian economy regressed and missed opportunities in recent years. It was also valuable to create a growth diagnostic to Brazil, as well as to design a fishbone diagram to ‘my growth problem’. 

Through the fishbone diagram and the deep analysis of PDIA, I could refine my growth problem and focus on the issue of public investment, particularly the one related to port infrastructure. Then, it was possible to initiate a strategy to design and implement solutions to the problem identified, mainly through a multi-agent teamwork. The team encompassed the Ministry of Economy, the Ministry of Infrastructure, the Port Authority of Santos (the largest Latin American port), some regulatory agencies, as well as the financial providers, like the Brazilian Development Bank (BNDES). 

This framework to structure public policy is extremely valuable and I will definitely use the PDIA approach and instruments like fishbone diagrams, the triple-A factor, decision trees and growth diagnostic in my work from now on. Another outstanding feature of the course was its use of case studies. Through them, we could learn how growth and development strategies have been implemented in practice. 

Form the pedagogical point of view, the short online and deep dive classes, the assignments and the peer group sections seem to me the right way of teaching this sort of program. 

Despite all these virtues, there are some points that could be further developed in future editions of the course. One of them is the role played by global value chains in conditioning the complexity of the economy. It would be interesting, for instance, to evaluate to what extent the way in which international trade is structured matters to determine the possibilities to ‘jump’ into products that are more sophisticated. Another issue is related to the political economy of public policy. Albeit it was touched upon in the last section of the course, it could be more developed. The way groups within countries organize themselves politically to foster or block development seems to be something of major concern. Are PDIA and Information-Motivation-Finance approaches powerful enough to understand these political movements and their implications to public policy or do we need something else? Finally, the course could explore more deeply the effects of complementarity in economic growth. Just to give some examples, if inputs are complementary and the production function has fixed coefficients, income distribution is no more related to marginal productivity of factors of production. What are the implications for the redistribution-inclusion debate? Furthermore, in this case, aggregate demand can play a role even in the long-term. What does it mean to capital accumulation and the possibility of getting knowhow through economies of scale and developing a more complex economy? 

Leading Economic Growth course was a great opportunity to think about development and to learn new abilities and professional values with extremely capable professors and its extraordinary team. However, it was more than that, it was an opportunity to know what makes Harvard Kennedy School courses, more than good executive education, a positive life experience! 

This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. Participants successfully completed this 10-week online course in July 2020. These are their learning journey stories.

To learn more about Leading Economic Growth (LEG) watch the faculty video, and visit the course website.

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