Interview, Podcast
Using institutional economics to predict effective government reforms | Mushtaq Khan (2021)
- The 80,000 Hours podcast plans to discuss global health and development topics more frequently over the coming year.
- Mushtaq Khan anticipates that organizational capability development is a slow process taking decades and is unlikely to be solved by markets or private investors due to large productivity gaps and high private risks.
- Rule of law is predicted to emerge gradually as a byproduct of a broad distribution of power and organizational capabilities, where even the powerful follow rules due to horizontal pressure from other powerful actors.
- In developing countries with narrow power distributions or low capabilities (specifically under $8,000–$10,000 per capita without oil), powerful groups are expected to collude to impose rules on others while violating them themselves, preventing equal punishment regardless of status.
- Policies that cannot be implemented due to social forces, lack of organizational capability, or misalignment with existing interests are expected to be thwarted, leading to failure, policy capture, or corruption.
- Major anti-corruption strategies based solely on transparency, accountability, or punishment are predicted to fail to deliver sustainable results, often reverting after a few months if horizontal checks or capability gaps are not addressed.
- Top-down industrial policies may succeed in hothousing capability development in countries with low business capabilities if the ruling coalition can override lower-level networks, whereas such policies are unlikely to work where dense horizontal networks between politics and business exist.
- Subsidies and industrial support are predicted to be captured by connected networks for short-term gain unless the state can credibly threaten to withdraw them or if the policy design aligns with the interests and capabilities of the players involved.
- Markets will not solve capability development for late developers, and relying on foreign direct investment without technology transfer or conditional market access (e.g., domestic content targets) will not enable locals to copy advanced practices.
- Infrastructure and climate projects that lack immediate benefits for local communities are expected to result in high corruption, whereas those with dual-use benefits or direct community gains will encourage local monitoring and reduce corrupt practices.
- Vertical enforcement strategies will fail or worsen outcomes if horizontal checks are absent; in contrast, peer monitoring and horizontal pressure can drive compliance when players have the power to check each other.
- Advanced countries that liberalize without re-energizing capabilities in left-behind areas are predicted to face growth in populist and fascist movements, as the rich may become unwilling to fund welfare states if they no longer need the poor for production.
- China is expected to face horizontal pressure from powerful organizations like Huawei to move toward a rule of law, while India's Maruti Suzuki deal required a Prime Minister with sufficient discretion to override auto producers.
- Historical colonial legacies influence industrial policy feasibility, with British colonialism creating dense horizontal networks that hinder such policy, while Japanese colonialism breaking these networks may facilitate state-enforced discipline.
- If a country's organizations cannot organize production, buying machines or training people will not solve competitiveness; instead, training must be combined with commercial loans or market access to create incentives for firms to monitor trainers and reduce fraud.
- Development strategies relying on parallel employment opportunities or alternative energy sources are predicted to decrease dependence on entrenched network corruption over time, whereas a lack of alternatives will sustain artisanal activities despite environmental damage.
- Policies that ignore the history of a country, the political settlement, or the distribution of power are expected to be blocked by non-violent opposition, rule violations, or the capture of resources by players who do not follow rules in their own interest.
- Moving from a "rule by law" to a "rule of law" is expected to be incremental, occurring only as organizations gain the capability and demand it, whereas a society with 70-80% informal activity will lack a general rule of law where rules do not apply to the powerful.
- If a policy is feasible and aligns with player interests, actors are predicted to follow rules, monitor each other, support enforcement, report violations, and use resources for intended purposes, leading to development and competitiveness.
- If a policy is not feasible due to capability gaps or interest misalignment, actors are predicted to violate rules, capture resources, fail to improve capabilities, and not increase productivity or exports.
- Mushtaq Khan predicts that replacing corrupt leaders in low-capability informal systems will not result in better governance, as the next leader will likely be just as corrupt, and rent-seeking will occur if the system lacks rules or if the gap is ignored.