LEG2020 – Building State Capability

Lack of diversity in Mongolian exports: Effects on employment & productivity

Guest blog by Suzanna Sumkhuu

This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. 65 Participants successfully completed this 10-week online course in May 2021. These are their learning journey stories.

Over the past 4 years, I have been working at the country’s development policy planning reform, streamlining legislative, institutional and policy mechanisms. On this journey, I have encountered two contrasting views: necessity for strong central planning systems vs abolish the government and leave everything to the market economy. Because Mongolia has such a strong history of central planning under Socialist rule, the public view is also differing. I knew from the get-go that neither absolute form of these contrasting options could deliver on today’s socio-economic and planetary needs. Hence, I have been searching like a nomad for answers that could trigger systemic change in ensuring more inclusive and sustainable development.

Against this backdrop, I came into the Leading Economic Growth program with a growth challenge that I have been exploring for some time now and something that I was planning on making the central line of inquiry for the formulation of the country’s Annual Development Plan for 2022 and conceptualization of the next ten-year development strategy, which I was tasked to lead. My growth challenge was Mongolia’s lack of sufficient non-mineral export products and job creating exports, which mattered because it leads to low levels of employment and productivity.

Developing Economic Complexity in Western Australia’s remote, sparsely populated regional centres

Guest blog by Giles Tuffin

1. Some of the key insights I have learnt include:

Just because your region produces raw goods (like iron ore) doesn’t mean that you should be making downstream goods from it (like steel). The raw goods are available on the open market, and can be easily shipped to your nearest port. On the other hand, cost of transporting manufactured goods is far higher. So you must have a very strong competitive advantage to make it worth producing downstream goods from your raw products.

PDIA is an excellent approach to solving complex problems. Some key insights are: stay focused on the problem, and use it to keep others focused; break down bigger problems into smaller, solvable problems; and start addressing these problems to gain momentum and create authority.

Binding constraints act as a handbrake to development in your region. They should be identified (particularly by looking for the high prices and workarounds they create) and addressed as directly as possible (including via the PDIA approach).

Understanding a region’s ‘sense of us’ is hugely importance to creating buy‑in for policy you create. Without this understanding, you will end up pushing against a people’s culture and get nowhere.

2. Some of the key insights about my growth challenge included:

I initially was targeting creating EC in the regions. As the course progressed, I realized this was not feasible, and focused on creating EC in regional centres (ie. towns with populations over 10,000 people).

Some of the binding constraints I considered included: limited access to export markets; high overheads; limited government support to help businesses become globally competitive; limited ecosystems; and difficulty accessing export markets.

Confirmation that my preferences for doing things informally and quickly, at the middle‑management level, can yield good results (noting that you do need to get proper authority at some point).

3. One of the key things I will use from this course is the creation of Black Belt Teams and high‑bandwidth organisations. Too many bureaucrats in WA only talk to other bureaucrats. Getting out into the field and talking directly with industry is crucial. While we have Regional Development Commissions who do this (particularly with existing industry), there is a lack of focus on engaging with emerging industry.

4. I have a suggestion rather than a question.

PDIA is an excellent approach that can be used in both developed and developing countries. However, I feel that much of the approaches of EC and binding constraints are less useful in developed countries that already have more ‘letters’ and well developed institutions for things like credit, education, public transport etc. This may be because the majority of case studies and deep dives are focused on developing countries (which in fairness is where the majority of the Growth Lab’s work has taken place).

With this in mind, I’d suggest some materials that specifically cover developed countries, including:

How the product space and employment space are likely to look very different for developed countries, because of the higher proportion of people in the services sector (including professional workers) – see diagrams below.
How best to use the product and employment space to look not just for new ‘letters’, but for new innovations that aren’t yet listed in both spaces.
What sort of binding constraints are most likely to apply to developed countries (noting that the approach to finding them remains the same as for developing countries).
Other approaches for fostering global competitiveness.
Any insights from the Growth Lab team that came to WA regarding the differences between developed and developing countries.

5. Thank you for a wonderful course! I’ve learned lots – now to apply it!

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

Tackling limited diversification and decreasing exports in Ethiopia

Guest blog by Yilma Nati Tefsu

I want to start my answer to the final week of this amazing course by saying something different, something that has nothing to do with the question above but a reflection of the many positives I have gotten from this course and the great people I have met along the way. This course has not only taught me the means and tools to tackle my growth challenge but also has introduced me to as a set of like-minded and brilliant people who are seeking change and growth in their own little worlds, whatever shape that may take. Now that we have gotten that out of the way, let me dive into the questions.

Week 1 and Week 2 were a time for me where I struggled with what I know to be key challenges in my country and what the complex and critical challenges are in terms of knowhow/technology and approaches needed to solve the problem. Using this mindset, I narrowed down on were three issues I felt needed to be addressed. These challenges were limited export diversification, constrained Institutional capacity for implementation, and emerging macroeconomic imbalances.

While all three challenges were critical in both the context and how they can be solved using the PDIA approach as a way forward, I also felt that looking at the rock song chart of Professor Ricardo and the Atlas of Economic Complexity Outlook for my country, that limited diversification and decreasing exports (need to identify new sources of growth) was the growth challenge that I needed to focus on.

Panama Embassy official writes about promoting US-Panama trade ties

Guest blog by Franklin Morales, Head of Commercial and Economic Affairs at the Embassy of Panama in the United States.

A few years ago, I became a diplomat of my country in the United States. Over time, I gained more responsibility until I became the Head of the Commercial and Economic Section. I am responsible for investment promotion and building partnerships with the American private sector. Although I had previous experience in partnership building, I realized I needed additional tools to tackle some of the policy challenges I was facing. I wanted to affect change and create public value, but I was uncertain about how to proceed.

Over the last 20 years, Panama has been a success story in terms of economic growth. The country attracted over 150 multinational headquarters, and its income per capita almost tripled in the same period. Although Panama made significant progress in reducing inequality while growing, distribution of income and opportunities remains a challenge in the eyes of most of its citizens and leaders. Furthermore, growth in the last few years has stagnated, bringing a heightened risk of social dissatisfaction. The same risk that has affected other countries in the region. That is why Panama’s leaders want to promote growth through different avenues. Two of those strategies include the Digital Hub Strategy and the Advanced Manufacturing Strategy. Both seek to diversify Panama’s exports to advanced sectors. Although these are not the only efforts in place, they are the ones that relate most to my job.

Recovering better after COVID: Lao PDR

Guest blog by Felipe Morgado

Enrolling in the Leading Economic Growth executive programme at Harvard Kennedy School has been a tremendously enriching experience. I am impressed with the number of key ideas and learnings covered over the past ten weeks across both the theory of economic growth and the practice of leadership in public policy. They will certainly have an impact as I continue to build my career at the United Nations.

As an economist by training, I joined the course already with a solid background in development economics. However, I was eager to learn more about Prof. Hausmann’s work on complexity, product space, knowhow and growth diagnostics. They gave me a fresh perspective on investment, trade and industrial policy – reflecting on past mistakes, and articulating ways to promote sustainable growth as the world seeks to recover from COVID-19.

How Benin can lead post-COVID economic recovery

Guest blog by Thierno Olory-Togbe

As a Principal Legal Counsel at the African Legal Support Facility, I have the opportunity to advise African governments facing inadequate capacities in strategic sectors such as sovereign debt, infrastructure and natural resources. Despite the increased efforts of African governments in improving public sector efficiency, the optimization of benefits from the exploitation of natural resources and economic diversification remain critical to reduce poverty on the continent.

The current COVID-19 pandemic and the resultant global economic and financial crisis have led to major disruptions for African governments in the achievement of their development objectives. This challenge requires practical problem-solving approaches. Hence, my participation to Harvard Kennedy School’s executive course on “Leading Economic growth” was an opportunity to better understand how this could be done from a very practical perspective. It was an opportunity to learn how to use appropriate diagnosis, decision-making and implementation tools.

Building the foundation for economic growth in Burkina Faso

Guest blog by Gillesamadou Ouedraogo

“We do not inherit the land from our ancestors, we borrow it from our children”.

A saying that paints well what I’ve gleaned from this insightful journey. This class has helped me come to the realization that growth stems from a meticulous, intentional, minute, and coordinated ensemble of efforts deployed to a very specifically determined end, it will never occur accidentally. If planned growth efforts often fail it’s because it is a process, iterative in nature, that is disruption averse and responds well to consistent application of policy translated into action. It requires a concerted coordination of efforts from government, civil society, private sector, investors, banks, industries, and a slew of different stakeholders, to grow the pie. But one must know the recipe. And depending on where you are, the ingredients, and ultimately, the flavor might be different. That is why it important to ensure a future for tomorrow. Alas, the future in my society is a very volatile and neglected concept. The future has never been a priority for us, as the now has always been enough of an enigma that we live for today and hope for tomorrow. But slowly, we are getting into a mindset where we understand that planning for tomorrow has its advantages. That is why it is crucial for us to invest in our children being left with more than what we found when we came into this world. Otherwise, we risk leaving nothing to our descendants in the next generations.

Youth Unemployment in Kenya: My Journey as a Leading Economic Growth Student

Guest blog by Albert Waudo

What can I say? This has been one of most interesting trainings I have attended in a while. Right from the first class where we were asked to think about crossing a country in 2015 with a well-drawn map versus crossing the same country in 1804 when there was no map in existence. This class sort of felt like the 1804 case. I came into the class with a preconceived notion on economic growth and a set of ideas of how my growth challenge should be tackled by my organization and government, but I as the class progressed, kept leaning something new at the end of each class and adjusting my thinking as we went along. This was PDIA in practice (Problem Driven Iterative Adaptation) a step-by-step approach which helps you break down your problems into its root causes, identify entry points, search for possible solutions, take action, reflect upon what you have learned, adapt and then act again.

The course was broken down into 4 components, reading and watching the weekly materials provided by the faculty, working on a weekly assignment, participating in a small group discussion and a live question and answer session with the faculty every Tuesday. There were optional sessions with TA every Friday.

Can PDIA approaches help to enhance the development of Institutional Strategies in Multilateral Organizations

Guest blog written by Francisco Castro-y-Ortíz

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.

I work for a multilateral development organization—the Inter-American Development Bank—and am a citizen from a Latin-American Middle-Income Country (MIC). Because of this background, the main economic problem I am most concerned about relates to my own country—Mexico—and the Latin-American and Caribbean region (LAC) as a whole. It is about low average growth rates—for more than two decades already. Low growth matters in LAC because it increases the risks of regression, particularly to poverty and other human-development and sustainability metrics. Such an outcome may erase the hard-earned development gains of the last two decades. Furthermore, the problem of low growth is today being amplified significantly because of the COVID-19 pandemic which, if not addressed, may have devastating economic consequences on both growth and sustainable human development.

The problem of low growth and its consequences lies at the heart of multilateral organizations’ Institutional Strategies (IS) working in the LAC region. Some of them will be considering updating them because of high-level managerial changes (tenure periods are expiring), or because of the adverse exogenous shock and economic consequences of the pandemic, or both. As I learned in the 2020 Leading Economic Growth course, following the steps of a Problem Driven Iterative Adaptation (PDIA) approach may decisively help to enhance the formulation and update of the IS of multilateral organizations.

For instance, let us begin with the first steps, constructing and deconstructing the problem to develop a clear problem narrative and “provoke reflection, mobilize attention and promote targeted and context-sensitive engagement”. In the case of LAC, the region has experienced low growth rates since the 1980s consistently. Despite being acknowledged as a “middle income region”, LAC has been stuck in that stage for decades. In addition, if the numerous exogenous and internal shocks that the region has experienced, are factored in, the low growth problem becomes critical because the region does not have enough fiscal space to confront the crises adequately. Consequently, living standards recede, per-capita income decreases, infrastructure and productivity get eroded.

Leading Economic Growth in Kazakhstan

Guest blog written by Baur Bektemirov

There is an old cliché that crisis is an opportunity. In my case, the Great Lockdown has certainly become an opportunity to learn and even re-think my work as the Chief Economist for a government organization, which just recently was tasked with an expanded role to help the government to attract more investment and contribute to the economic growth.

The Leading Economic Growth program has helped me to assess, once again, the main problems and obstacles for the economic development of Kazakhstan, look for the real roots of these problems (the binding constraints), analyze possible solutions to these barriers, and even formulate a draft for solving some of them.

It does not, however, gives you a ready recipe to address current problems, instead, the program teaches and provides methodology: how to assess the problem, look for solutions, take a problem-driven iterative approach, build authority, ability, and acceptance to solve the problem in the existing political circumstances.

For example, Kazakhstan is showing all the symptoms of classical Dutch decease problem. The pro-growth policies adopted in late ‘90s—early 2000s, have led to rapid growth of the GDP at the expense of economic diversity (economic complexity). This has led to all the standard problems: strengthening of the national currency, growth of mining and non-tradable sectors of the economy with little productivity growth at the expense of other tradable goods and services. As the result, the economic growth has been stagnating for about 6-7 years now, while investment into economy has contracted, mostly due to the stagnation of banking lending.

The current pandemic does not help solving this problem either. But now, in addition to the short-term economic stimulus, central authorities must decide on economic policies, which will ensure long-term sustainable development. It is imperative to review the current model based on old pro-growth policies, which do not yield the same results as they used to 10—15 years ago.