Secrets of Economic Growth | Ricardo Hausmann

Summary

This talk delves into the mysteries of economic growth, highlighting the stark disparity between the world's richest and poorest nations. It emphasizes that growth is a recent phenomenon, with a significant explosion of incomes in the last 200 years. The speaker argues that the key to growth is not just the accumulation of capital or resources, but a rise in productivity, driven by technological advancements and the diffusion of know-how. The concept of 'productive capabilities' is introduced as a measure of a country's economic complexity, which correlates with its wealth. The talk concludes with a discussion on the importance of diversification and the role of inclusive growth, offering tools like the 'atlas of economic complexity' to guide countries in their development.

Takeaways

• 🌟 The secret to economic growth lies in the differences in productivity per worker, not just in the accumulation of assets like land, labor, and capital.
• 📈 The gap in wealth between the richest and poorest countries has significantly widened over time, with the richest now being about 250 times richer than the poorest.
• 🚀 Economic growth is a recent phenomenon, with most of the explosion in incomes per capita happening in the last 200 years.
• 🛠️ Technology, while important, is not the sole driver of economic growth. The ability to implement technology effectively requires know-how, which is not easily transferred.
• 🧠 The diffusion of know-how is a critical, yet slow and complex process, that underpins the development of productivity and economic growth.
• 🌐 The process of economic development involves countries moving from producing simpler to more complex products, which is akin to moving from making shorter to longer words in a language.
• 🌳 The 'product space' is a metaphorical forest where each product is a tree, and the distance between trees represents the similarity in the know-how required to produce them.
• 🐵 Countries are collections of 'monkeys' (firms) living in 'trees' (industries), and economic development is about these monkeys moving to trees that offer more and diverse know-how.
• 📊 Economic complexity, measured by the diversity and sophistication of products a country makes, is strongly correlated with its wealth.
• 🛣️ Diversification, not specialization, is the key to growth. Countries evolve by adding new capabilities and becoming good at making a wider array of products.

Q & A

What is the main question that Adam Smith started economics with?

Adam Smith started economics with the question of why some countries are rich and others are poor, which is related to the origin of The Wealth of Nations.

How has the wealth disparity between the richest and the poorest countries changed from the time of Adam Smith to today?

The disparity has increased significantly. While the richest country during Adam Smith's time was about four times richer than the poorest, today's richest countries are approximately 250 times richer than the poorest.

What does the speaker identify as the real puzzle behind economic growth?

The real puzzle behind economic growth is not the accumulation of assets but the increase in productivity per worker, which is driven by the ability to produce different kinds of goods with new techniques.

Why does the speaker argue that technology alone cannot explain the differences in productivity?

The speaker argues that technology alone cannot explain productivity differences because technology can be easily shared and transferred, yet there is a lack of knowhow, which is the crucial ingredient in implementing technology and takes time to train and diffuse.

What is the 'game of Scrabble' analogy used to illustrate in the script?

The 'game of Scrabble' analogy is used to illustrate the process of economic development, where 'letters' represent bits of knowhow, and 'words' represent products or services. The more diverse and complex the knowhow, the more and more complex products a country can produce.

What does the speaker suggest as the secret to economic growth?

The secret to economic growth, according to the speaker, is to accumulate more 'letters' (bits of knowhow) and to express them in more and longer 'words' (products and services), leading to increased productivity and economic complexity.

How does the speaker describe the process of a country's economic development in terms of 'monkeys' and 'trees'?

The speaker describes a country's economic development as a collection of 'monkeys' (firms) living in 'trees' (products) within a 'forest' (product space). The monkeys (firms) move from tree to tree (product to product), populating the forest by utilizing and accumulating knowhow.

What is the significance of the 'product space' concept in understanding economic complexity?

The 'product space' concept is significant because it maps the cognitive proximity of products based on the similarity of the skills or capabilities required to produce them. This helps in understanding how countries can transition from producing simpler to more complex products.

What does the speaker propose as a tool to help countries navigate their economic development?

The speaker proposes the 'atlas of economic complexity' as a tool to help countries navigate their economic development by providing a visual representation of the product space and the capabilities required for different products, thus aiding in strategic planning for economic growth.

How does the speaker relate a country's economic complexity to its wealth?

The speaker relates a country's economic complexity to its wealth by suggesting that countries with more diverse and complex productive capabilities, as measured by the number of 'letters' or bits of knowhow they possess, tend to be wealthier.