In Conversation: Stefan Dercon

In the latest episode of the GDI podcast, Professor Stefan Dercon talks to Dr Sophie van Huellen.

They discuss Stefan's new book, "Gambling on Development: why some countries win and others lose", his recent departure from the Foreign, Commonwealth and Development Office, and his advice to academics wanting to work with civil servants and policymakers.

Stefan Dercon is Professor of Economic Policy at Oxford University. Between 2011 and 2017, he was Chief Economist of the Department of International Development (DFID), and from 20200- 2022, he was the Development Policy Advisor to successive Foreign Secretaries at the UK’s Foreign, Commonwealth and Development Office.

Sophie van Huellen is a Lecturer in Development Economics at the Global Development Institute.

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Thank you very much for joining us today. My name is Sophie Fan Hayden. I'm a lecturer at the Global Development Institute and it is my great pleasure to welcome Professor Stefan Declan today. Stefan is a professor of economic policy at the Blavatnik School of Government at Oxford and also director of the Centre for the Study of African Economies. Stefan, you very well versed in both the world of politics as well as economics. You were chief economist of DFID, now FCDO between 2011 and 2017 and as in that role in charge of UK's aid policy and spending. So quite an important role. And since 2020 you have rejoined part of that, that activity and now work as a development policy advisor for now FCO. So former DFID. Although I resigned two weeks ago. You did? Okay, that might be an interesting question to start. Why is that? It's... Look, I joined for a year. I was asked to join as a policy advisor. So it's not as a political adviser but as a policy advisor by Dominic Raab just before the merger. And I just felt having worked for such a long time at DFID, I do value what the UK was doing in development. And so I, I did join. I feel like I have to justify why I joined in the first instance. But you know we, we are now not least since Foreign Secretary Liz Truss came, you know, in a different world, not because necessarily because of her, but where geopolitics and everything else is changing. And while I had a close relationship with Dominic Raab and, you know, a productive relationship, let's call it like that, it's less clear in this very current set up that I have that much to say. So it's not like resigning in a huff. It's actually been the slowest resignation in history that actually over the last few months, it became clear that that probably my value added was quite, quite limited. And it seems better to to do what the Prime Minister clearly wants us to do is to reduce the number of civil servants. So that's one less. Yeah, surely that's true. Let's move from you already mentioned how global politics has changed and you recently published your book very recently, Gambling on Development Why Some Countries Win and Others Lose. And today, of course, I wanted to talk to you about this book a fair bit. You start that book in your preamble with an anecdote of how you visited China a good decade ago and how that was a bit of a light bulb moment for you. So my first question is first, how has that visit changed your view of development? And also how has changed China or the entrance of China or the emergence of China has changed the development discourse more broadly or maybe hasn't changed enough? So at the time that was my first long visit to China and it gave me a chance to travel around, talk to government officials and actually begin to learn much more about how China had developed. Until then, I have been aware, of course, of the stories that were taught about China, I'd worked a lot in Africa. And you would hear a lot of countries saying, you know, can't we do like China? This idea of what China did was, you know, state-leddevelopment, lots of infrastructure, special economic zones. Maybe that's the way we should be developing as well in other parts of the world. And I was, to say the least, intrigued, and I could confirm when I was there that clearly the way China had done it was in a very unorthodox way. This is not in the way our textbooks would say you probably should be doing it. And the more you looked into the detail, there was an awful lot of all kinds of very peculiar policies that were going on. The way they were dealing with land and urbanisation and so on. It was all very unorthodox and very specific. But at the same time what I learnt is that, it was actually quite irrelevant for most of the rest of the world because China is such a specific country with such a long history of a centralised state with 2000 years of actually a quite a meritocratic bureaucracy with central taxation and so on. There is just no country in the world where that kind of model could actually really succeed in the same way. And it led me to start thinking over what is it that actually we can learn from China and what is it that we can start learning from successful countries, maybe in East Asia, but in other parts of the world? And that led me to start thinking about it's not about what they exactly did, because what they did was very context specific. And the success and failure had a lot to do with what was possible in the particular context. But more to do with the underlying commitment by the Communist Party of China after 1979 and and beyond, to actually really wanted to make a success of it and being willing to, to, to learn while they were doing and to, to adapt. So for me, it changed my view a bit of what is actually fundamentally the precondition. It's not so much about the list of policies you should implement, but actually the real precondition is the underlying commitment of those in power to actually wanting to do growth and development and willing to learn and adjust while they're doing it. Add to that willingness of an elite to commit to development or to lift their citizens out of poverty as a lead bargain, in your book, which is the theoretical approach that you lay out there. How does that theoretical approach compare and contrast from, let's say, other approaches such as political settlement or maybe other political economy approaches more broadly? There there are close links. Maybe I should explain first, you know, how I kind of think about it. You know, I think when I look around the world and that means not just developing countries or emerging economies, but all across the world. States, I tend to look at them as fundamentally the result of of of of an elite bargain. Where I mean by the elite, not just the political leadership, but actually senior leaders in business, senior leaders in the civil service, maybe in civil society, in academia and so on. So basically this broad layers of society that actually has power or influence, you know, they may be in power or they may not be itself, but they would still be influential in the direction that that the country goes. Now, just looking as any state, as a kind of an elite bargin, has strong historical roots as well, or at least in the thinking about economic history as well. So for example, Douglas North, the economic historian, which would look at basically the emergence of states being fundamentally this kind of elite bargain between elite groups where basically, you know, roving bandits decide it seems to be better for us to become stationary bandits and basically divide the rents, control the access to the resources, control who can do what kind of activities. And I think so it leads me to kind of think about every society, as, as that kind of elite bargain even today. And it usually has elements of a political deal, you know, who who has power, who makes decisions. You know, it could be through democracies, but in all kinds of ways, because, you know, certain democracies, money plays a bigger role than in other places. You could have autocracies where there's still checks and balances within the system. Think of China. Within the Communist Party, there are certain checks and balances. So so how the political deal is shaped is one part, but it usually also implies an economic deal and a basically the way groups can access to the state or to the resources of the country at a distribution. And of course, you could have a lot of different forms that this political economic deal takes. And, you know, we have names often for it. For it. You know, we could we could talk about capitalist societies where essentially there is limited balance on on once you have capital, you can keep on accumulating it, which means in our societies, even the 13th century, my ancestors happened to be a knights that was good friends with the king. I probably am still rich today and I have inheritance laws that protect that accumulation of wealth in that capitalist society. You could imagine a capitalist society where you didn't have inheritance laws and so on that. We look very differently. Of course, you can also have kleptocracy where the whole state is focussed on stealing from everyone around it and stashing the money away to serve a very small number of people. Or you could have more clientelist societies, where the state fundamentally becomes a job creating scheme and a rent sharing scheme for those who help you in power and keep your power. So you could have a whole range of societies. And I think actually, you know, I come from Belgium. I think all these features apply to, to, to, to society. I've worked long enough in Whitehall to realise, you know, there are elements of it, there's no purity to this. There is somewhere or another a complexity. Sorry. There is a, there's a complexity to these deals, but there's actually features of imperfection that every of these political economic deals have. Now, how does it relate with other approaches? Of course. It has lots of lots of links to it. You know, the study of elite bargains probably predates works on some of the political settlements. I refer in the book to political settlements, there's sometimes that I worry a bit about the term because it highlights too much the politics and even though it's not meant to be but for people who are not political scientists say, oh, it's all about the political settlement. Well, actually, I want to say it's much broader in terms of the elite bargain. I know a lot of the work in political settlements brings the economic and politics closely together. There's also something about settlement that I worry about, which is a bit like for me, the political scientist not wants to use equilibrium, which is what the economist I would use, but actually settlements makes it sound that's all quite settled. And as I say, it is something that there is also sometimes and I'm not saying always, but some of the some of the usage so occasionally alludes to it as if there is only one settlement at any moment in time. And actually, when it comes to a bargain, there's a lot of bargains to be struck. You know, and if you go to basic game theory, that's usually multiple equilibriums that could come about some more stable than others. And by using that bargain language, I probably want to allude a bit more to this potential instability than needs to rekeep on recreating it. It's not settled. It needs to be recreated it all the time and it shifts all the time a little bit, not least when it comes down to probably what is the core thesis of my book is say, you know, we need a particular type of elite bargaining to get development, which is actually one that really values as a key feature of the elite bargin, growth and development. And now I call that view gambling on development because any elite that settles on that, that is clearly quite a gamble because it will unleash political dynamics where new elites will emerge, existing elites fear the threats and so it requires this kind of dynamic view of it that actually, wow, the country is and succeeds in keeping that together and succeeding in it. I actually have quite a lot of admiration for, because for most elites, the status quo is probably the safest place to be. And so this is a bit where where I want to get that again, the political settlements approach, while descriptively I have few objections to it or analytically a few objections to it, I think it alludes to something that probably doesn't want to be. So that's why I use also the terminology in a slightly different. Excellent. And moving on from the elite bargain to, so a lot of the discussion is within countries, within economies or nation states. Now, you alluded to successful bargains, but also these can fail. So we can have powerful interests that go into bargain but the outcome of that bargain might either not exist or it might fail or it might lead to something that isn't attuned to development. Now, looking at the global challenges that we face, such as climate change. How do we think of a political or political bargain or any elite bargain that would help us address global challenges such as this? So so I'm I'm probably slightly pessimistic about this, in this respect. And, you know, however much admiration I have of countries that settle in an elite bargain for growth and development. And they are I mean, the good news here is that the more and more countries doing this and quite unlikely countries, you know, I in the book, I talk quite I have a chapter on Bangladesh which I find such a great example because my very first essay in Development Economics had a title, and this would be talking about the early 1980s. I had to write about 'Is East Bangladesh, a basket case?', which was what actually Henry Kissinger, or at least one of his aides have called it. And of course, I answered, Yes, it is. Nothing will ever come from Bangladesh. Now, of course, it proves us totally wrong. And actually, you know, it's not a rich country, by no means, but it's come a long way from this image of like a real basket case of development in the world to something else. So so that's quite hopeful. And I think more and more countries try this out. They gamble on it. You know, can Bangladesh renew its elite bargaining is another issue. It's clearly needs to do some new things. I'm actually travelling to Bangladesh next week to actually also talk to people around that and so on. And yeah, but that gives me optimism for places like that. There's also gambles that can go wrong. You refer to it. You know, I in the book, I talk about the gamble in Ethiopia probably arguably starting in the early 1990s, but probably mainly after 2005, where a regime with probably limited, with a very fragile political deal, a fragmented elite that had at that moment still some kind of deal on the politics, and of course, there's lots of the different nationalities Tigrayans, Amharas, Oromos that played all a bigger, big role. But actually the political deal is very fragile for all kinds of reasons, including, you know, losing support in the urban areas on a political level. They gamble on development very much so. They go for growth and development in a very big way. But actually, the political deal, the underlying political deal proves to be too fragile. And if we think of the conflicts since 2020, you know, these were people that were definitely in an elite bargain in 2005. In fact, there were all the different opposing parties in the conflict essentially were in the same government running the country together as a coalition of power. So it can go wrong now. Now we go to global parts. So so where I get pessimistic is that, you know, if if you have governments and I name a few that are not impressing me, let me put it mildly. Whether it's the DRC or Malawi or the political and economic deals in Malawi or Sierra Leone, they're not quite or they were not impressing me. Maybe things may change every day, but they're we're not depressingly the past, you know, when we need to now global agreements, you know, if they can't even do it themselves for development, why would they pay any attention to global global issues? But of course, I talk about the poorest countries here. The ones that we really need for these global deals are probably the emerging economies, which already have a much higher carbon footprint trajectories and so on. There are probably have a certain optimism in it because, you know, at some point it becomes part of their international relations, their their ability to project themselves in the world and I'm thinking of India and China, but actually, you know, they will get into some kind of a deal or two to work on it. Now, it will be slow and it will be too slow. That's where my pessimism come. And the one thing it will definitely be simply by referring to all. But they all signed up to the SDGs and everything is fine because the problem with these kind of declarations, they are not a global elite bargain. They're not a global shared commitment, despite the fact that all these leaders sign up to it. For those for or for those who have signed up to it, and they really want development in their countries. While you probably don't need the U.N. to make them sign it up for them, for those who actually are absolutely not interested to even in their own countries for growth and development, you know, why would they care about anything global? You know, that's not the game they're playing. And so that's not a kind of process. But, you know, I'm quite hopeful in at one level that more and more countries will be part of that global, that global deal formation, partly because they are themselves on development trajectories. But look, the way rich countries have played this game is quite awful. You know, they've they've created so much obscurity and ambiguity around what the relevant footprint is that we should be looking at. We got ourselves in Paris agreements that are focussed on flows, while actually it's stocks of CO2 emissions that matter most, where we still bear most of the responsibility. So, you know, if we have not play totally fairly, how can we expect emerging economies and developing countries to really, totally embrace it? So there's a lot of work to be done, and I'm not the most optimistic person on that. But it will have to happen. But it will be, unfortunately, later than It should happen. Going back to maybe a more positive note, which is the success stories that you talk about in your book. And a lot of focus is on the experimental side so that no one has the blueprint. So there's a lot of experimenting but a lot of goodwill. So once that bargain is in place, there's goodwill and there's experimentation going on and adjustments are being made. Now, that contrast quite a bit with the aid regime that we currently have and not only aid, also lending conndition and so forth, which are usually tied to what you referred to as the list of silver bullets, which of course, no solution fits, fits all. So that's problematic. And these countries that you referred to as success stories that all have a gradual experimental approach. How did the two go together? What needs to change in aid and also properly international borrowing to support such approaches? So, yeah. When a country general is trying to embark on on development. And, you know, we shouldn't just take it for granted that it's loose words, but if we do observe them, as you're suggesting, you know, they're trying they're really focussed on on on on development and on growing their economies. When they make errors, they're willing to adjust and so on. You know, we should learn to trust them that they want to do this. I mean, we can help them as well. You know, there's some great examples in Indonesia throughout, actually, but definitely the 1980s and beyond. That international agencies played a very useful role when the local political economy couldn't quite do the adjustments in the macro economy, to actually, let's bring in the IMF and actually played this kind of hard line role that politically was all, you know, lots of objections to it, but actually was a clever use of the IMF to to bring in external mechanism if you're internal mechanisms of correction don't don't work. So I think Indonesia played that game game very well. So you so you shouldn't just imagine this kind of really good bureaucracy in political economy like we imagine sometimes of China that they can do it internally, their systems. you know, you you need to use all your ways of doing it. We know, of course, in in if if democracy is the way to bring stability in your in your context like it's happened in Ghana. There are repeated elections, presidential elections have allowed us to also have some of these corrections, where I think definitely the previous government was essentially after also mismanagement of the economy also kicked out and it provides another way of correction. So the learning and correction can come in all kinds of ways. It's really important. But once we know that the countries are doing this, we should be willing to support it and we should actually providing substantial finance to it. Now there's the other side to it. If countries don't really show any signs of wanting to do development and growth. My view is that actually aids can at best just be not doing much development, it could be a bit of humanitarian do good stuff, but at worst is actually embedding the elites in their own positions. I don't like the fact that either, you know, the concessional finance of the World Bank in the periods of a few years before call for it. I think the top three countries that got IDA loans in terms of volume was Pakistan, the DRC and Nigeria, three countries that actually were really trying to grow their economies and where really needs of international finance. Countries like Ethiopia, Rwanda, I think Senegal and Cote d'Ivoire, as far as I remember, I hope you remember as well. But all four of them had to go to international capital markets to raise more capital. So we ended up spending a lot of our concessional finances in countries that argue we're not going to use it very well. Pakistan, I think by then was in its 18th IMF programme. I think all 18 failed. The while that countries that actually were trying to do something, they couldn't get any access to finance. So that's definitely something that should change, is actually be willing to be more selective and actually getting money, money in a very trust trusting way to, to follow countries that actually are trying to do something with much less restrictions. And so. Countries where there is no development bargain, where the elites are clearly not interested in growth and development, there's no amount of conditionality or rules or whatever that can do it. And then people saying, Oh, but at least we are now spending it, as you were referring to, as some silver bullets. We got to spend all we only spend it on on education or we going to do results based finders and so on. You know, this is okay, but we should just have no illusions that it's not more than, you know, doing something good at work and that it may actually actually make things potentially even a little bit worse because it and that's elites. My example is always health spending in Nigeria. You know, the government spends very little on health. In fact, I think it may still be the case, but definitely when I last looked at the numbers as a share of government expenditure, Nigeria spends the lowest share of its budgets on health than any other country, I think in the world, actually. Doesn't mean that we should be spending on health in Nigeria. You know, it's not a wealthy country, but it has oil that it uses in all kinds of ways. Is that the way to do it? And so that's that's my concern. So where we need to change is that, you know, there's no amount of targeted health spending that doesn't give some excuse in Nigeria not to spend in health. Now, there's ways of doing it, and people have been thinking more and more subtly about it. But we definitely need to start from the principle. You know, if they do if they're if they have really committed to growth and development, just trust them more, do more and do far fewer conditions. But if it is really a sense that they're not interested at all in it, just be so much more careful and probably reduce the volumes and be much more careful. That sounds great. I think we're almost out of time. But I wanted to finish with maybe a reflection on your own career because you have seen both worlds, right? The academic world in which of course, you very well settled as a professor at Oxford. But then of course, also the world of policymaking, as a civil servant. And you've worked in that role very successfully as well, for a considerable amount of time. So what do you think academia can bring to the table? So what's the role academics play and what's the role civil servants play? And where where do the two sides come together? Well, I mean, look, I think I've just been been lucky that in 2011 that's some people in DFID decided to take a bet on me somehow. I was definitely an unknown quantity for them. But, you know, just as many other academics in this preceding two decades, I was always very concerned, trying to think through, you know, how can I make my research at least to talk to real problems and possibly relevant and useful? I think the one thing I definitely learnt being a civil servant is that academics don't understand very well how decision making takes place. And, you know, we we get so obsessed sometimes as academics which have topic we work on and the importance of it. And, and we, we don't quite understand how difficult sometimes decision making can be, but also how few entry points there are. And I'm at least in an environment where, you know, people say study political economy or politics. I'm always quite struck by how poor the understanding of the politics of civil service, of governments, actually is by some of the people who study it and want to influence, for example, an FCDO or a DFID without actually understanding the political economy of these organisations. So my minimal advice would always be is that academics should try to understand much more how that world of decision making works and not just imagine that what they do is something really important and they should at all costs make sure that they listen to it. The the other path as a civil servant is. You know, I think there are more there should be more academics that actually are inside the civil service. One thing I learnt almost from the one in the Civil Service that as long as I was outside, fundamentally they didn't really trust me and once I'm inside, they totally trusted me. And there is something there that's that that that's I hope that I and some other people also in DFID at the time and now in FCDO played that role of connecting a bit more that worlds, you know, and just actually find an entry point because it is the case in this kind of cutthroat decision making process, very much hierarchical up to ministers and whatever the here and now matter so much and academics are not usually that helpful because they usually want to make things more complex. They they they they they don't have enough of an appreciation of, of, of that decision making process. Having said that, having people insights that bring a bit of a longer term perspective, a bit of a broader perspective around knowledge about what's going on in places. It's actually really helpful for the civil servants to make sure that their narrow thing that they are pushed to do that they keep it a bit better in the context of the longer term. And that's the the main thing that is always hard for civil servants is keep a bit of that long term vision, but also longer term understanding, historical understanding, long term trajectories understanding you. And so yeah, my minimum, my, my, my main point is that, you know, should get some more academics inside the civil servants that actually bring a bit more of that because we need more people there that can help broker that link because these are surprisingly separate ones. I like that answer. Thank you so much,Stefan. That has been a fascinating conversation. Thanks so much for joining me today.