The “Decade of Building State Capability” podcast series features interviews with practitioners who reflect on their experience using the PDIA approach and their engagement with Building State Capability over the past 10 years. On today's episode, BSC Director Salimah Samji interviews Ricardo Hausmann. Ricardo is the founder and Director of Harvard’s Growth Lab and the Rafik Hariri Professor of the Practice of International Political Economy at Harvard Kennedy School. Under his leadership, the Growth Lab has grown into one of the most well-regarded and influential hubs for research on economic growth and development around the world. His scholarly contributions have had a significant impact on the study and practice of development. These include the development of the Growth Diagnostics and Economic Complexity methodologies, as well as several widely used economic concepts, such as Dark Matter, Original Sin, and Self-discovery. His work has been published in some of the top journals in the world, including Science, Journal of Development Economics, Journal of International Economics, Proceedings of the National Academy of Sciences, Journal of International Money and Finance, Economic Policy, and the Journal of Economic Growth, among many others. These publications have been cited more than 47,000 times, and their main findings have been highlighted in mass media outlets such as The New York Times, The Financial Times, The Economist, The Wall Street Journal, and The Washington Post. Since launching the Growth Lab in 2006, Hausmann has served as principal investigator for more than 50 research initiatives in nearly 30 countries, including the US, informing development policy, growth strategies, and diversification agendas at the national, regional, and city levels. Before joining Harvard University, he served as the first Chief Economist of the Inter-American Development Bank (1994-2000), where he created the Research Department. He has served as Minister of Planning of Venezuela (1992-1993) and as a member of the Board of the Central Bank of Venezuela. He also served as Chair of the IMF-World Bank Development Committee. He was Professor of Economics at the Instituto de Estudios Superiores de Administracion (IESA) (1985-1991) in Caracas, where he founded the Center for Public Policy. He holds a Ph.D. in economics from Cornell University.
To learn more about Building State Capability (BSC), visit the website, access the PDIA toolkit, read BSC blog posts, and listen to the podcasts.
To learn more about what's discussed in this podcast, visit Leading Economic Growth's webpage, read about our work in Sri Lanka and Albania, and visit the HKS Growth Lab website.
Salimah Samji Welcome to the Reflecting on a Decade of Building State Capability Podcast series. On today's podcast, I have with me Ricardo Hausmann. Welcome, Ricardo.
Ricardo Hausmann Thank you for having me. It's a pleasure and an honor.
Salimah Samji I think it's for both of us, a pleasure and honor. So, Ricardo, our story actually starts in 2009, where you were the Faculty Director of the Center for International Development and Lant and I had come to your office to talk about creating this new entity called Building State Capability. And it wasn't until 2012 when we actually found funding to be able to create this new entity that we created it. But I remember that conversation very well because you were very excited about starting a new program within the Center on this really important topic of building state capability.
Ricardo Hausmann Absolutely. And I remember it well. By the way, I dearly miss Lant. You know, when I joined the school, we more or less joined the same year Lant, Andres Velasco and myself. And the years in which we were all here were very important for my thinking and my evolution. And then when Matt joined also was an important partner. Let me say that even before 2009, I did a trip with Matt Andrews to Liberia. And I have vivid memories of that trip to Liberia because I had never been in a country as poor and in some sense as dysfunctional as Liberia. It was just coming out of the civil war. And it was it kind of like obvious that the problem was lack of capacity and not lack of individual capacity, but lack of organizational capacity to do basic things like just collect the garbage, have a water system in a city. How can you have a city without water and water system? And they had no crushed stones to build roads. And you would say, well, you know what's simpler than crushed stones? And I remember visiting the country with Matt. And I think that after such an experience, building a theory on the idea that what matters for development is some kind of capability and that, you know, fish don't know they're in water. So if you're not capable of space in capable country in a capable city in a capable environment, the capabilities are invisible to you. And they become super visible when you have these kinds of experiences. So actually, I would say that that experience made me develop a whole theory of development based on capability accumulation. And so I think I was probably very influenced by my joint experiences with Matt.
Salimah Samji And then we actually started to work together with the Growth Lab for the first time in Albania. You had already been in Albania. You were working with the government, and then you brought Matt in. And we also worked together in Sri Lanka in 2016. And in this podcast series, you know, we've been exploring how people have used the approach that we teach. But I think in your case, we've worked together with the Growth Lab now for many years, and are planning to do something again next year in Wyoming. How has working with us influenced your work and what have you taken away from the engagement with working with Building State Capability?
Ricardo Hausmann So let me say that I've been influenced not only by working with you, but also by co teaching with you and Matt Andrews on our Leading Economic Growth course. I think that what I really appreciated by working with you guys is first of all, the idea of involving local players in problem identification, in the elaboration of solutions, the way you bring them together with your Fishbone diagram, the way you split down tasks. So we had said, you know, the problem in Albania is that we need to do a fiscal adjustment, but we don't want the economy to go into a recession. If we want to achieve that, it means that we're going to be cutting domestic spending. We need to be able to increase foreign spending. That is, we need to increase exports. What does the country export? Well, they export garments, they export tourism, they export oil. They have a problem with electricity, whatever. So let's work on each one of them. And what does it mean to work on each one of them? Well, you have to somehow work with the people there, figure out what they are capable to do. Agriculture also I remember we worked on. And I found it fascinating the way your system of working with these we called them in those days black belt teams, which is a terminology that comes from Toyota. And you know, we found out things like, you know, there was a lot of capability in the Ministry of Economy to do things on the garment sector, what they call it over there, the fason sector. And it was relatively, in some sense easy to come up with an agenda of things to do because we had the leadership, we have the authorization, we have things. But then in the Ministry of Agriculture, in the secretary general of the ministry decided that he would fire the people that were working in the black belt team. So actually, I would not have known anything about the man. I would have thought, no, this is the policy that we want and so on. We eventually did great things in agriculture. We changed their whole subsidy policy away from subsidizing inputs into subsidizing public goods for the agricultural sector. And we did achieve some very interesting things in agriculture, thanks to your work. And the same thing with tourism. We did not have a very capable industry. We also managed kind of like to transfer those responsibilities to the Ministry of Economy and to do things that, by the way, I just noticed today that Albania is by far the country in the world that has had the fastest tourism growth since the pandemic, since before the pandemic. So it's not just recovery from the pandemic. It's really amazing long run growth. So I think we did a lot of good and I learned a lot how to work in governments, how to identify who to work with, how to involve more people in the process, and even how to, because in this case, it was not just that we were looking for partners, but sometimes we had partners who had lousy bosses and we help, you know, so that they could be more, more effective. We also did great work together in Sri Lanka. In Sri Lanka, it was a little bit a similar story that we knew from the beginning that there had been very little export dynamism and that there has been particularly very little transformation of the export basket. They were kind of like cotton, traditional things like garments, cinnamon, coconut, tea and that if they wanted to transform themselves, they had to bring in knowhow. So they needed to attract investment and they had a Bureau of Investment and we wanted to know why weren't they getting more investment. So you guys started to work with the Bureau of Investment and with the Export Development Board and with the Tourism Development Board. And it's very interesting. You know, I wouldn't have known much about the Bureau of Investments, but very quickly, you guys found out that the Bureau of Investment was not really in the business of promoting investment. It was in the business of kind of like authorizing investments. So they felt that they had the ability to bestow blessings on the investment process. And they were asking themselves whether investors were worthy of their blessing. And that's kind of like the opposite attitude of an investment promotion process. So we were able to you guys were able to identify a bunch of things. You know, that there was a shortage of land. I mean, these guys, they had a monopoly on industrial zones that were run by the Bureau of Investment. They had run out of space in the industrial zones, and it hadn't occurred to them just to expand the space of the industrial zone. So you guys created a land team to search for places where they could build more industrial zones. In that process, we found out that then they were not getting any investments in pharmaceuticals because the environmental laws said that chemical companies could not throw their water into rivers or in the island. They had to throw them directly into the sea and there were no industrial zones that have refused go to sea. So they had de facto prohibited investments in medicine and drug manufacturing without noticing. And, you know, thanks to your process, we identified those obstacles. And actually in that process, you guys ended up really liking your team members in these blackbelt teams to empower them more. So I think we ended up doing a lot of good and we ended, I hope, really having transformed those organizations significantly. You guys trained a bunch of people in the process. You empowered a lot of people in the process. And I think, you know, you should be very proud of the things you were able to do in Sri Lanka.
Salimah Samji Thanks, Ricardo. Yeah, it really has been a process of discovery oriented industrial policy that we were really practicing in those places. And this idea that you describe, you know, then we created a land team. A lot of this comes through the process where ideas emerge. And when you start to do, which is what we do in the PDIA teams, they start taking action, they start hitting either their authorizing environment and understand there's no flexibility there or their context, which really helps them learn what's missing, what the gaps are, and start to think about what they can do in those spaces. So, Ricardo, you mentioned that you've been teaching Leading Economic Growth with us. And, you know, this used to be, as you mentioned earlier, you used to teach it with Lant Pritchett. This used to be a five day program that was run on campus, an executive program. And then the pandemic happened. And we were put in this opportunity of it was supposed to be in May, and we had the opportunity of either not offering the course because we were shut down or pivoting to an online program, and we chose to pivot and instead create a brand new ten week from five days to a brand new ten week program that we created, all the content, shot all the videos, and were building the plane as it was flying, as we were offering this ten week program. What the experience from this and it's now been three years, but we have taught eight classes of this ten week program. What are some reflections that you can share on that experience?
Ricardo Hausmann Well, I must say I credit Matt for having come up with this idea of ten weeks. It would not have occurred to me, but I think it's brilliant. Because actually I think that five days must be really, really tough on participants because it's a lot of stuff to digest. But in ten weeks you kind of like have the tempo to digest. And then we can do things that were unthinkable in executive education that like have assignments. And those assignments allow people to think more deeply about their issues in light of the concepts of the course. And then we have these live sessions where it's all anchored on participation. So we get to have a lot of discussions. And typically the questions from the participants are all, tell me what's the difference between this tool that you used, like, for example, decision trees versus the fishbone? Tell me, what's the difference between you finding the binding constraint and we finding thousand entry points on a problem? So I have come to better understand the framework that you guys have developed by seeing our participants think through both of our frameworks and to find out complementarities, differences, subtleties and so on. So I think that I have very much internalized in my mind your approach to things in ways that I know I'm probably not even conscious of. So, you know, it's just as it's in the water, right? So I am probably not fully conscious of all the ways in which working with you guys have changed the way I think and I approach issues.
Salimah Samji Yeah, I still recall after we did the first version of this, the ten week course and you said we taught these people in an executive program more than I teach people in the degree program. Which was a real shock, right? With the amount of material that you can do with the self-paced and I think the assignments, we had learned that earlier when we launched our Implementing Public Policy Executive program, that you can have assignments in executive programs and participants will do them if they find value and see how it actually helps further their own learning towards working on something practical and concrete, whether it's implementing their policy or in Leading Economic Growth, working on their growth challenge.
Ricardo Hausmann And I find that, you know, when students when participants, we call them participants in executive education, when they are asked at the end of a course, what did you take out? They always integrate in their minds, both through like a more diagnostic approach or a different understanding of how development happens, this accumulation of capabilities, how you go about it, how you think of possibilities, etc. with how do you think of action, how do you think of who you are going to involve in the process, how you're going to get your authorization and how you're going to get your legitimacy? What are you going to do next week? How can you slice the problem so that you can make continuous progress and be revising all the time what you plan to do given the feedback that we were getting? And so I think that teaching together has kind of forced us to meld and merge our approaches. And I see it in some of the things that Matt writes. He takes a concept from our end and passes it through his liver and it comes out in it with new and different insight. So it's been I mean, I think we have been very serious and real partners in this endeavor.
Salimah Samji Yeah, I would agree. And I think what I would say is we've both learned from each other and that's made each of us stronger without having to fit everything nicely. And I think one participant in the current program that we're running in Leading Economic Growth sent me a message and actually commended us for being able to be so open to share very different tools together without saying this is the way you want to do it, without being so prescriptive. No, you have to use only a diagnostic tree, or you only have to use a fishbone. It's very much, here's the best of all that we have to offer, and it's for you to decide which in this menu of things you would like to use and when you want to use them.
Ricardo Hausmann Exactly. So let me say, now that you mentioned this meeting in 2009, that I think it's probably I should be super proud of having helped you guys be born. And I'm super proud. I hadn't counted it as one of my proud moments in life, but now I will. That having played a small role in the creation of this fantastic initiative is something I feel very good about.
Salimah Samji You absolutely should, because we needed authorization to be born, right and to be born within your center. And you were very welcoming and said, absolutely. Why don't we have this already? And you can definitely count that as something that you can be proud of as well. I want to end with any words of wisdom you would like to share with our listeners who generally tend to work in development or in implementing public policies around the world.
Ricardo Hausmann Well, I find that, you know, one of the first things that Matt teaches is the difference between solution based approaches and problem based approaches. And I have not noticed really until he put it in those terms, that so much of development work is solutions based when the problem is unspecified and so on. It's sort of like saying, don't tell me what you have, take vitamin C. And there are very few things that get solved with vitamin C. And so if you want to really I think it's such a fundamental approach to life of how you want to think of action, how you want to think of a theory of change, of how you're going to make the world better. That, you know, starting with problems is such better frame than starting by presuming that you know the answers. And that so much of the process is this discovery process of the space of opportunities, of the space of obstacles, of the space of solutions. And it's really this discovery process. And what we're trying to do is to develop frameworks in which people can discover and can move the ball forward. So that's in my mind if you're on the highest level, that's the fundamental message.
Salimah Samji Wonderful. Thank you so much, Ricardo. This has been a delight.
Ricardo Hausmann It's been a pleasure. And congratulations again on your ten years. Fantastic.
Salimah Samji Thank you.
Kathryn Lang Thank you for listening to our podcast today. If you liked it, please check out our website bsc.hks.harvard.edu or follow us on social media @HarvardBSC. You can also find links and other information under the description of this podcast.