LEG2020 – Building State Capability

4 Ways to Rethink Economic Growth During COVID-19

Guest blog written by Manuela Fulga

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.

The pandemic threatens to erase years of progress made by developing and emerging economies towards sustainable development. The World Bank estimates that between 71 and 100 million people could be pushed into extreme poverty in 2020, increasing the global extreme poverty rate for the first time in more than 40 years.

This realization convinced me to apply to the “Leading Economic Growth” course at Harvard Kennedy School. My objective was to explore and learn practical strategies that countries can adopt in the current context, particularly with limited resources and tight fiscal spaces, in order to protect their population without forgetting the important investments necessary to achieve the Sustainable Development Goals (SDGs) by 2030.

The 10-week online course allowed me to take the key concepts from the lectures and readings and apply them to a specific country, developing a plan for the recovery. It truly felt like a journey, and more specifically like a climbing expedition: professors Hausmann and Andrews were the expert guides, leading the way and setting the trail for us; the video lectures and readings were the manuals we read before starting to climb; the weekly assignments – deep-dives to help us develop our own country strategy – represented key milestones, or the most difficult trails where we had to reflect on the learnings and apply them to our strategy; the feedback of the teaching assistants was our anchor and rope, setting us on the right path to success.

This course opened my eyes to new ways of thinking about economic growth and particularly to innovative approaches that can support governments in identifying game-changing policies. These are the four key takeaways that have forever changed my view on development and economics, and that have the potential to help countries build back better from COVID-19 towards a more resilient future.

Focusing on problems rather than solutions

The dominant theory of change in development is that great governments emerge when a savvy leader takes the opportunity of a crisis to implement the right policies and holds power long enough to drive implementation. In reality, the story is far from simple: it is not about one solution applicable for all, forced down the system by a powerful individual. Development is a complex matter, where many social and economic factors are correlated and interact with each other, causing at times unexpected consequences, and requiring multiple iterations to achieve true impact.

This is why “problem-driven iterative adaptation” (PDIA) is a more hopeful concept than “solution- and leader-driven change” (SLDC): countries do not have to wait for a brilliant leader to change their faith, but can adopt a new approach by engaging distributed groups of agents in a gradual and iterative search for the best policy to drive economic growth. PDIA materializes when governmental agents interact and exchange information in new ways, yielding locally determined responses to economic challenges by constructing and deconstructing bottlenecks preventing growth. This enables governments to transform tangled and complex problems into manageable issues, by revealing the root causes and addressing them step by step, identifying quick wins.

LA FÁBRICA, a strategy for the economic transformation and social inclusion of Renca, a commune in Chile

Guest blog written by Gabriela Elgueta P

Photograph: Cerro de Renca, Matias Peralta @matias.fpl

In the midst of the pandemic, I began this course when Chile had 300 deaths and 27,219 infections. Today, at the end of this process, I have to regret a total of 7,186 deaths and a total of 321,205 infections, mostly affecting the most vulnerable population, amplifying the effects of the social inequality in which most Chileans live.

For 10 weeks I have been inserted in a process of combined learning between the conceptualization of economic growth and global trends with the contrasting reality of a vulnerable commune in the metropolitan area of Santiago that was experiencing a triple social crisis: health, social and economic.

As a reflection of Chile, the metropolitan area of Santiago (RM) is a highly segregated city, both socially and economically, generating a deep inequality in access to public goods and services for the poorest segments of the population, compared to the higher income groups located in the East of the city.

The commune of Renca, with 147,151 inhabitants, is located in the pericentral area of the city, with a multidimensional poverty of 28% widely exceeding the regional average (14.9%), has a population of low socio-economic level, is part of that city that experiences social exclusion and the consequences of the undesirable outcome, of fragmented planning and unequal public investment, carried out by the State itself, affecting the daily life of its neighbors, in the quality of its infrastructure and its equipment, both public and private.

At the same time, at the beginning of the course, I was commissioned by the Mayor of Renca to develop a proposal for an economic development strategy for the commune that would consider a short-term reactivation plan and enabling actions for the medium term. In this way, one of the greatest lessons learned from the course has been the possibility of reflecting on and establishing a different way of developing this strategy.

Often, political times and the daily contingency to which local governments are exposed, demand to be in “mode” of the solutions, however, it is fundamental to understand the complexity of the growth challenges, investing time in better understanding the problem, deconstructing it and identifying the binding constraints. Undoubtedly, the fishbone tool allowed me to visualize a broader framework of the problem and to open multiple conversations with key actors, and it also showed us the enormous gaps in information and robust data for the decision-making process.

Learning about Economic Growth in the Middle of a Pandemic

Guest blog written by Beenish Amjad

I was afraid that the onslaught of the pandemic would have devastating impact on a developing country like Pakistan which has a strong history of sluggish economic growth and long-standing need-base relationship with the IMF. The economy in 2019 was weakening and poverty (headcount poverty ratio 24.3) and inequality (Gini coefficient of 33.5) was rising. COVID-19 has not only pushed more people to the below-poverty line but also strained the Federal budget due to the substantial allocation to the Conditional Cash Transfer Program (Benazir Income Support Program now Ehsaas).

In the midst of the all this, I decided to take the Program of Leading Economic Growth, with Professor Ricardo Haussmann and Matt Andrews, to evaluate the barriers to the economic growth of Pakistan and learn about the strategies of overcoming them. In my opinion and as Professor Matt said, “we should focus on growth as means and not end”. The past 10 weeks journey, though strenuous, provided the learning experience of years. Throughout the program, wide and diverse range of topics were covered without compromising on the depths of the contents. These topics helped a great deal to understand those issues which have become the binding constraints to the economic growth. Several tools were taught to synthesize and breakdown these binding constraints to reach at the key issue hindering the growth. Some of the most useful tools included economic complexity index, fishbone diagram, PDIA and diagnostic tree. One tool which influenced me a great deal is “the Atlas of Economic Complexity”. Despite my previous education in Economics, I didn’t come across any tool which as user-friendly and so enormously comprehensive. It enabled me to witness the trajectory of the developments in the Exports and Imports of Pakistan and also to compare it with other countries. The snapshots of the export’s basket import basket and economic complexity ranking (along with the rational as explained by Professor Haussmann) was a thorough learning experience for me.

Obviously, it is very difficult to highlight one issue which we consider as binding constraints to the growth. With the help of above tools, principles of binding constraint and case studies, I identified sluggish economic growth due to persistent current account deficit as economic challenge of Pakistan. With the help of further techniques, the problem was narrowed down to sluggish or no growth in exports.

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

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.