Ep 3: The Path to Global Prosperity

Eric Schmidt
September 16, 2020
41
 MIN
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September 8, 2020
41
 MIN

Ep 3: The Path to Global Prosperity

How can we help the developing world weather the pandemic and keep the global economy afloat? Nobel Prize-winning economist, Esther Duflo, and former Finance Minister of Chile, Andrés Velasco, share their experiences.

How can we help the developing world weather the pandemic and keep the global economy afloat? Nobel Prize-winning economist, Esther Duflo, and former Finance Minister of Chile, Andrés Velasco, share their experiences studying and fighting poverty and explain how bold leadership at this moment of economic crisis can improve life for billions of people around the world.


Episode Transcript

Andrés Velasco:

Maybe what the world needs is another big moment in which we sit down and we think, "Okay, we want to [inaudible 00:00:10], we want to defend markets, but we want to tweak the system here and there to make sure that the outcomes are not only fair, they also have to be perceived to be fair." And I think it can be done.

Eric Schmidt:

The coronavirus pandemic is a global tragedy. But it's also an opportunity to rethink the world, to make it better faster for more people than ever before. I'm Eric Schmidt, former CEO of Google and now co founder Schmidt Futures, and this is Reimagine, a podcast where trailblazing leaders imagine how we can build back better.

Eric Schmidt:

The coronavirus has dealt a traumatic blow here in the United States and in many other developed countries, but the crisis is even worse in the developing world. On this episode of Reimagine, we'll take a look at reimagining global prosperity because no country should face this pandemic alone. For everyone to thrive, we must discover how we can help the poorest parts of the world weather this virus and view prosperity through a new lens. Our guests today are Andrés Velasco and Esther Duflo. They're here to help us understand the unique challenges developing economies face with the coronavirus, and how certain decisions we make could be an economic trap door that we must anticipate and avoid. The stakes are simply too high.

Eric Schmidt:

More importantly, they'll help us understand how the world can reimagine what international collaboration looks like if we want the global economy to survive this crisis and come out even stronger. First up is Andrés Velasco, the former minister of finance of Chile. He created the rainy day fund that enabled Chile to survive the 2008 financial crisis, which was horrific there. Now he's out of politics and serves as the Dean of the School of Public Policy at the London School of Economics and Political Science. Thanks, Andrés, for being here with me.

Andrés Velasco:

Thank you, Eric, for inviting me to have this conversation with you and thanks for that very kind and generous introduction.

Eric Schmidt:

So let's get right down to it. Chile, the country that you love, is suffering terribly through the pandemic. Let's start with what's going on in Chile. Why is it so difficult there?

Andrés Velasco:

Well, Chile is among the least poor of developing countries, but it shares some of the difficulties all developing countries face in dealing with the pandemic. The first one is that it is much harder to do social distancing, lockdowns, et cetera, when a lot of people live under one roof and particularly when different generations live under one roof. So the young man goes out to work and gets infected and then comes home and infects granny who lives in the room next door. That's one big issue.

Andrés Velasco:

Another big issue of course is that if you live hand to mouth, you don't go out and work, you don't eat. Your family doesn't eat. So the degree of adherence to lockdown is much lower in developing countries than it is in rich countries. And last but not least, Chile has pretty good infrastructure when it comes to hospitals and clinics. Certainly by developing country standards, it's probably one of the leaders worldwide. But it's never enough. If hospitals and clinics are congested in the UK and the US, you would expect them to be in the same position in a developing country. And that's exactly what's happened.

Eric Schmidt:

In the 10 years, I've been visiting Chile, I was always impressed by how modern and how sophisticated the country was. And when you were finance minister, you faced a really difficult courage problem. What you had to do is you had to, rather than giving money that was in surplus at the time over copper, you tried very hard and were successful in keeping it as a rainy day fund. And this is, I think, one of the better examples of political courage in South America. Why is there not more courage in Chile today? Why is there not more courage in leadership in general? What was the secret that you had that the current leadership that's facing a terrible fight doesn't have?

Andrés Velasco:

When I became finance minister and the price of copper skyrocketed, so suddenly the country had more cash than we had anticipated, a very senior and experienced politician took me aside and said, "Young man." I was much younger back then. "Being a finance minister with no money is really hard. Being a finance minister with a lot of money is much harder, so get ready." And it was indeed. The reason why we did what we did I think is twofold. It had part to do with understanding and background and part to do with political will. I had spent much of my life before becoming a minister as an academic economist and I studied at Yale under Latin America's great economic historian who taught me that booms in Latin America, whether a copper boom or an oil boom or a corn boom, always end in disaster.

Andrés Velasco:

So when I became minister and we entered a boom, I said I'm going to make sure that we don't end in the same kind of disaster. But I was only the finest minister. The person who really called the shots was my boss, the president. And she had a lot of political courage. She was a woman with a special history, the first woman to be president of Chile. She had lived in exile. Her father had died at the hands of dictatorship. So an unbelievably strong women. She understood early on that you can be a person of the left, and she was and is a member of the Socialist Party of Chile, but that it is the poor that really suffer when things go belly up. When the government spends too much, there's too much debt and you end up in a financial crisis.

Andrés Velasco:

So she always backed me and we were able to do what we did, which meant that when the financial crisis hit in 2008, we were sitting on a pile of cash. We could use that cash to insulate the economy against those shocks. The crisis in Chile lasted for six months. In a country like Spain, it lasted for six years. That's much harder to do today because there's an element of political leadership that's hard to reproduce, right? It's kind of a random draw. You get the leaders that you get.

Andrés Velasco:

But in addition to that, Chile, like US or like the UK or like so many countries, is in a situation in which people don't trust politicians, don't trust political parties, don't trust Congress, don't trust judges. They don't trust anybody. The degree of satisfaction with democracy worldwide is rock bottom. And therefore politicians are a lot more scared. Social networks of course and Twitter doesn't really help because you get instant reactions to anything you say or don't say. And as a result, the kind of bold courage that my boss displayed, we did something very unpopular for three years and we persevered, is very rare today.

Eric Schmidt:

I'm very worried about the situation in Brazil and in Peru. As you know, Brazil has the fastest growing parts of the pandemic now in the world. And Peru is in such bad shape that people are fleeing the cities. Each of these is a result of a combination of bad leadership, Bolsonaro in particular, but it's also a reflection of the fact that global trade has almost stopped in many of these places. If you were in charge of those countries, even with smart leadership, how would you deal with the fact that global trade has now dropped by a third, that people are hungry, but the entire basis by which your economy is operating in a globalized economy has collapsed at the moment?

Andrés Velasco:

You're absolutely right, Eric. For rich countries, it's one hit. It's called the virus. For the Brazils and Perus of the world, it's really five shots at once because you get hit by the virus, then you get hit by the collapse of global trade that you just mentioned. And you're absolutely right. It is huge. Then you get hit by the collapse in commodity prices. Brazil is a big sugar producer. The biggest in the world. Peru is the second largest producer of copper in the world and so on and so forth. Then for many countries, you lose tourism and remittances, which is absolutely key, of course [inaudible 00:08:40] and Caribbean and starvation. And last but not least, you got the biggest capital outflow that has ever been recorded. The money coming out of countries like Brazil in March and the first half of April was bigger than ever before.

Andrés Velasco:

So in these circumstances, it's just five problems hitting you in the back of the head at once. And Brazil is also in a very difficult situation because Brazil has too much debt to begin with, was in a [inaudible 00:09:05] fiscal crisis before coronavirus hit, and therefore they have no room to borrow. They've been doing some borrowing, but nobody knows exactly how much longer they can stay in that. And once you stop being able to borrow, the only thing you can do is print currency. And we know where that ends. It ends in hyperinflation as it has so many times in Latin America.

Andrés Velasco:

Peru is in an entirely different position because Peru is a country that has much less debt. And therefore, along with Chile, it is the other country that can actually go knock on the doors of Wall Street and say, "Hey, my debt is not too high. I'm a good credit. Let me borrow." And that's what Peru has been doing. The difficulty in Peru, and this takes us back to the beginning of our chat, is that how do you help people who are informal workers? And how does the state get to them? So you asked me what I would do. I think if you have the room, like Peru and Chile do, this is the time to spend your savings. I mean, when countries save to use those savings in a crisis, and this was the mother of all crisis, so that's the time to do it. And Chile and Peru are doing this. And that's why I think that there are a couple of very tough months ahead, but the prospects in those countries are much, much better than a country like Brazil.

Eric Schmidt:

There's no single bullet. There's no single solution. It's more complicated than that. But we do know the steps that need to be taken. Many people I know are touting universal basic income. And no one knows if it's going to work at a country level, but we do know that it would help for the most poor. These people's days are so tough, just getting through the day and getting to food and shelter, that they need our help and they need it across the globe. We should not operate with some kind of doctrine or some kind of agenda, but rather we should figure out a way to measure these outcomes and then incrementally make it better.

Eric Schmidt:

Capitalists tend to view capitalism as the solution to everything, and unfettered capitalism has produced-

Eric Schmidt:

As the solution to everything. And unfettered capitalism has produced enormous wealth and has, in fact, lifted people from rock bottom poverty to, shall we say, lower middle class. But it has created many other tensions in the society, not just a tension between the very wealthy and the newly lower middle class, but also a sense of entitlement and a sense of difference between countries and their treatments.

Eric Schmidt:

We need a new paradigm, a new way of people speaking to each other and communicating and negotiating these deals, which reflects the fact that you can't ultimately bankrupt a country. You can't ultimately disadvantage one group over another en masse.

Eric Schmidt:

One of the things that countries are doing is they're doing debt repayment delays, which strikes me, on surface, to be a good idea. But debt repayments also have a moral hazard problem because once you start doing debt repayments, nobody will lend to anybody. And there's plenty of people who can repay their debts. How does the global financial system deal with this? Are you in favor of these various delays of debts that people are doing? Or, are you more conservative in that the rules need to be applied universally uniformly?

Andrés Velasco:

Yeah. I don't think that when people are dying and people are going hungry, as you pointed out, countries or governments or companies, for that matter, are always compelled to service their debts. Law has plenty of situations in which you sit down with your credits and the mechanisms who say, "Let's write down my debt." So I don't boil it down to a moral problem. I boil it down to a practical problem. And I have two concerns with debt suspensions as the only way for dealing with this issue.

Andrés Velasco:

First of all, that many of them, and it's a technical point, but it's not irrelevant, many of these proposals out there propose that you freeze interest payments, but are not clear what you do with amortization. So if you owe a 100 bucks and the interest rate is 5%, you don't pay interest, you save five bucks, but you still have to pay the 100. Or you have to roll it over. And in situations like this one, rolling over that loan is practically impossible.

Andrés Velasco:

The other problem is that, even if you did all of that, you're basically helping a country deal with old debt when the big issue today is how you get new money. And think about it this way, Eric. We know governments all around the world are going to be running deficits, right? And this is a reasonable time for them to run deficits because their revenues are down and they want to stimulate the economy. At the same time, firms will run deficits because their revenue has gone down, but we want them to keep some of the employees in place. And we want them to remain current under an interest payment. And then we want them to pay suppliers. So the firms are going to be running debts.

Andrés Velasco:

Well, if the firms are running debts, and the government is running debts, unless the households are saving a boatload, the country as a whole, is going to be running at a deficit. And the question is, well, who's going to finance that deficit? For some countries, maybe Peru, maybe Chile, the international capital market will. But for Brazil or Argentina or most other developing countries, the world capital market will not.

Andrés Velasco:

And that's where you go back to issues like should the International Monetary Fund? Should the World Bank? Should all the regional development banks be doing more? And I think the answer is yes. If we don't have more money coming the way of the reasonably well-run emerging markets, then we could be in for a mega, mega recession that does not go away in six months. It could be around for six years. And in the end we all lose.

Eric Schmidt:

It makes perfect sense to me that if you can get somebody to stay in their home for a couple of months without paying it, and then after a few months, they can start paying their mortgage off, that's better for everyone. It's better for the bank. It's better for the house. It's better for the mortgage holder. The same principle applies, I think everywhere. Have we and when will we hit the worst part of the globalized part of the pandemic? I'm not talking about the specific countries. I'm talking about the sum total negative effect of global shutdowns. Are we there yet?

Andrés Velasco:

I don't think we are. The pandemic started in China, then moved to Europe, next to the US. It came later to South Asia, to Africa and to Latin America. If we make it through the end of the year without any major upheaval, I think we should count ourselves lucky. But that's a pretty low standard because from the point of view of economic activity, these economies are going to be flat between now and the end of the year and with lots of question marks as to whether they can really begin opening up and going back to normal early next year, or very late this year.

Eric Schmidt:

Is there something that we should collectively be doing right now to improve the other side of that bottom to make the bottom less bad and to make the recovery not as bad as you're describing?

Andrés Velasco:

I think there are two or three things we could do. The first one, we should end the absolutely crazy fight over medical equipment. Secondly, I think the easy steps that could be taken, the US government could stop vetoing the creation of the world's money, something called special drawing rights at the International Monetary Fund. Just as central banks create money just by stroke of a pen, the world can create money at the stroke of a pen at the IMF. But that needs the agreement of the US. There was a broad consensus to do it back in April. The French were going to do it. The Japanese, the Germans, and the US blocked it. And that is absolutely insane. It doesn't even require a congressional approval in Washington. And that would create at least $600 billion of hard currency that developing countries and emerging countries could use to import respirators, to beef up hospitals, to provide sustenance to poor families, to make cash transfers to people who have lost their jobs. It could be done tomorrow. And if it isn't being done, it's purely because of politics.

Eric Schmidt:

When you think about when we get out of this, hopefully later this year, one of the criticisms is that capitalism and democracies together produced enormous inequalities, that globalization, which benefited some, hurt many others, that the tension between the Chinese model, more authoritarian model and the democratic model, the Chinese model, more authoritarian, is winning at the moment. Can you imagine a way of stitching the world together after this that's a bit more fair, a bit more stable, a bit more even, a bit more morally consistent?

Andrés Velasco:

I think that's a big challenge, and you're right to put it that way. But I am less pessimistic about the combination of markets and democracy than some people out there happen to be nowadays. Having said that, it is true that both markets and democracy have been sputtering in many leading countries, including the United States, including many developing countries like Brazil. And I think there are two families of reforms that have become imperative. One family of reforms has to do with democracy. Democracy has to be got down and back to the level of people. Many people just view democracy as some weird exercise that some people called politicians engage in and which has very little bearing on their daily lives. And, as somebody who has run for office, I can tell you more about it. I've seen that. And I felt that very directly.

Andrés Velasco:

The other thing is, is that you can have a market system and have more pre-distribution and more redistribution. By that I mean, provide more opportunities for wages before taxation to be more evenly distributed, and also do more redistribution through taxation. The big, steep increase in inequality over the last 15 or 20 years happened in the North Atlantic countries. It happened so much in Scandinavia. It didn't happen in Germany. It didn't happen in Austria. So, it goes to show that you can have a vibrant market economy and still have a bit more redistribution. And I think that's an issue that we will have to revisit once this crisis is over. Parenthetically, World War II gave us the modern welfare state and it began at the LSE where I work nowadays with the famous Beveridge Report.

Andrés Velasco:

Maybe what the world needs is another big moment in which we sit down and we think we want to defend democracy. We want to defend markets, but we want to tweak the system here and there to make sure that the outcomes are not only fair, they also have to be perceived to be fair. And I think it can be done. And if we do that, I think the Western formula will beat the Chinese hands down. The Western formula, as it is today, is treading water and one can not be surprised if some countries in Africa, some countries in the developing world begin to say, "The Chinese model doesn't look so bad." I think that can be avoided, but it's going to take a lot of reform.

Eric Schmidt:

Well, perhaps there'll be a Velasco report that will change the world in this extraordinarily optimistic way.

Andrés Velasco:

Thank you very much, Eric.

Eric Schmidt:

One of the questions I've asked for years is, we've lifted so many people out of extreme poverty and globalization has benefited us in so many ways. Why does the kind of poverty that we still have that covers roughly one eighth of the globe, why does it persist? Our next guest, Esther Duflo is one of the most brilliant economists in the world and an expert on poverty alleviation in development economics. She's a professor at MIT as well as the co-founder and co-director of the MIT Poverty Action Lab known as the J-PAL.

Eric Schmidt:

Last year, Professor Duflo was awarded the Nobel Prize in economics, along with two others. She has spent her career transforming development economics through the use of randomized control trials, which enable researchers to quiet the noise and examine cause and effect. This is an invaluable tool as we search for real world solutions to help mobilize people out of poverty.

Eric Schmidt:

Professor Duflo, thank you very much for joining me today.

Esther Duflo:

Thank you so much for having me.

Eric Schmidt:

Let's jump right into the crisis we have right now. You've been studying from Massachusetts, the situation in the developing world. I'm extremely worried about the next phase of the virus. Seems to me that we started in China. We went through Europe and the United States. Of course, it's still ongoing. There is now this huge outbreak in South America. In the case of India, Modi actually shut down for roughly 20 days, the entire country, which I viewed at the time, an extraordinary act of clarity and courage compared to the West. And then under enormous pressure, he's been forced to open it up. Do you think that India should have remained-

Eric Schmidt:

... pressure he's been forced to open it up. Do you think that India should have remained shut down?

Andrés Velasco:

I think shutting down very early was probably the best that he could do at the time. Several African countries did as well and that bought them some time. Unfortunately, that time was not put to the best of uses. That bought them some time, which was very critical because at the beginning of the pandemic they were trying to pilot this whole thing with a blindfold on and they could have used the time to put in place even symptom recording. You don't even need to get into contact tracing, but just some system to have local worker reporting the symptoms regularly, in particular [inaudible 00:22:50] which is frequent enough with Covid an infrequent enough in general, that it would have been a good tracker, but as I can see in India, there is none of that in place. When they were forced to reopen, I think you're absolutely right that they were forced because people just couldn't go on anymore. They reopened without being much more ready than they were when they closed down. Not on the health front, not on the economic front, because they don't fully have in place their income support system as yet.

Andrés Velasco:

One thing that is very striking is the condition of the migrant population. Most of the economy and that's true in India and that's true in other developing countries as well, it's more general than that. Most of the economy picks on the work of the migrants, of the temporary migrants, most because the money that they earn feeds people at home and because they are the one who are building the buildings and cleaning up the shops and serving people in restaurants and so on and so forth, but these migraines have two issues. One is that they have no access to any form of social protection because the social protection is that it's just up to their religious origin. Often they don't even have a place to live. They live in their work site. One thing that can be done and I think it would have a huge, huge effect on the health aspect, is to do something for the migrants. Make sure that there is housing for them and make sure that you use technology and India has a unique identification number that could be used for that, such that your social support system is not tied to your village of origin.

Andrés Velasco:

If you have these two elements in place, like you have a place to be, even if your work site is shut down and you can receive the minimum income support that everybody gets, if they're going to get shutdown, then you wouldn't have the type of massive return of the migrants to their villages that we saw during the lockdown, which of course has the making of the complete spreading of an epidemic. If there is an epidemic in Mumbai and everybody shuts down in Mumbai, but then the migrants leave and bring it to their villages all over India, then you have an epidemic all over India. Something that can be done very simply is to address these two issues. Make the social welfare individual dependent, not location dependent, that's technology. Making sure that people have individual bank account, mostly they do, tied to their phone and make sure the money gets there and the other is creating shelter for the migrant in place and not forcing them to move. Those are two things that can be done today or even last week, that would make a material difference to people welfare all over and not just the migrant.

Eric Schmidt:

How would they in practice do this? Is this a political problem or a structural problem?

Andrés Velasco:

I don't think it's a huge structural problem. If we take the two issues separately, the tying up of the age to individual, it's in a sense neither a political and not a structural problem, it's probably just a decision. It has to be decided upon. India is very close to have a system in place. They are almost [inaudible 00:26:21] that would make this possible, but unfortunately in normal time, the social protection systems are mostly designed to exclude as many people as possible, to make sure that no one who does not deserve the aid gets it and what you need in Covid time is a complete change in mindset and treat the issue as an inclusion problem. Make sure that nobody who needs the aid is excluded and it's not political in the sense that it neither left nor right, but it's going against your normal way of doing business. It's a disruption in the way that we think about protection because typically the social welfare system are all designed to exclude people and here we need to think about including them. If we think about it the right way, I think it can be done and it can be done quickly.

Eric Schmidt:

Let's look a little bit more broadly. You won the John Bates Clark Medal, which is the field metal of economics for your incredible work in random control trials and economics. I have a really broad question, which is why does poverty at the level we're describing persist? In my entire life globalization has lifted some people, some estimates are between one and 2 billion, people out of destitute poverty into the lower middle class, as we would say, but there is that core part of literally billions of people who seem stuck. What's the reason?

Andrés Velasco:

I think the first observation that is good to start with is that it persists, but it is getting better. At least it was getting better pre-Covid. If you look at the last 30 years since 1990, the number of people living in extreme poverty has been divided by about half. The number of people who died, a fraction of mother who died giving birth has also been halved. The infant mortality has also being halved. Almost every child now is in school, at least at the primary level. By and large, not only income poverty, but this other dimension of poverty has been improving and it's good to keep that in mind to think that it's not something that's completely hopeless and difficult to deal with.

Andrés Velasco:

Now why is anybody who is poor and why has the progress being slow? There are two reasons. One is that there are things like poverty trap, which is there something [inaudible 00:28:54], if you're poor it's difficult to get the opportunities that make you become less poor. For example, the starkest example is if you don't eat enough, you are not strong enough to earn a good wage for the whole day, even if you could find a job and therefore you would be more likely to do very little and live at a very reduced level, maybe from people giving you money. You're stuck in this poverty trap because you're so weak that you wouldn't really be able to be productive in a physical job. These type of extreme extreme starvation poverty, it's mostly gone now. This is mostly gone from our world, except in extreme circumstances during war and things like that and maybe Covid will bring it back to some extent, but there are other more subtle poverty trap that does this. For example, when they are very poor, they are very concerned about making sure there is money on the table for everyone in the family and if they have something that sort of works they are very reluctant to take the risk for doing something that would be, perhaps if they are lucky, would make them have a much better life, but if they are not lucky would send them back a lot.

Andrés Velasco:

People would be very reluctant to start an entrepreneurial project. They are even reluctant to start new seeds or new way of producing if they have a farm or if they have a small business, they're more likely to start a shop that looks exactly like the shop next door, than to do something new, not because they are less creative or entrepreneurial than the next person... I was going to say you and I, but you're surely more entrepreneurial than I am, but just because they can't afford the risk because they can't afford to fall back. Lots [inaudible 00:30:57] is particularly looming very, very large if you are close to what you perceive to be starvation or a decent life. The closer you are from that line, which I think is a real line, where you are pretty convinced that you could put three square meals on the table for you and your kids, the more loss adverse you are because you feel well, I was doing fine and now I did this one thing and because of me, it all crumbled and that will lead to persistence of poverty as people kind of recoil from doing anything too dangerous.

Andrés Velasco:

If by some stroke of luck they become better off or if the government is in a position to assure them that they will never starve, then suddenly that opens up this mental space to take risks and then you can see people really going there with a lot of enthusiasm and capabilities.

Eric Schmidt:

You would say that the government should provide a very, very basic floor of enough money to eat and sleep somewhere and without that it's very hard to get things started?

Andrés Velasco:

Precisely. In our present book with [inaudible 00:32:20] hard times, which came out before the current hard time we are living, that's the recommendation we are making for the very poor countries is to ask something called ultra basic income. Ultra basic income is a floor, a place to live and enough to make sure that you will not starve and your family will not starve. Maybe it doesn't come automatically in your bank account. Maybe you have to go to an ATM and collect it a month where you need it to know it's there and therefore you have much more freedom and mental space. The thinking about money...

Andrés Velasco:

Basically the thinking about money literally occupies so much of people's mind that it also makes it difficult for them to think about other issues like the health of their kids, or the education of their kids, or starting a new job or a new activity. So creating that flaw would create the mental space for all these things to happen. And we really help people kind of take care of themselves and go out in the world.

Eric Schmidt:

When I was young, we switched from the old math to the new math. And I remember it because I liked the new math. I found out later that no one had ever bothered to test whether the new math was better than the old path. People just made the decision. And these are mathematics people who should be able to do A-B testing. We know the science says that we can test things. It can be tested relatively quickly. You can do many different experiments. In the technology world now they do A-B experiments all day. We try this, try that because we don't know. We think we know, but we can now measure it and prove it, that computer systems allow us to do this and we can answer these questions.

Eric Schmidt:

What's the best way to get educated? What's the best way to solve poverty? What's the best way to build a middle-class?

Eric Schmidt:

20 years ago, there was a great deal of focus on sort of these millennial challenge grants and a whole doctrine around certain countries and what to do. Do you have a 2020 doctrine of how to address some of these countries? Sounds like the number one thing you would do is have some kind of ultra minimum basic income to provide a floor. I presume that you would want these things distributed electronically through some sort of mobile phone mechanism, et cetera, because they're now largely available. What are your other key ideas?

Andrés Velasco:

So I'm not a 2020 doctrine person because in the same way that poverty is many things. It's not just income poverty. There is really no silver bullet. It's better to think about it as a silver pellet. So there's many, many things one can do to address the different issues that people face. So even the very basic income that we were just discussing, I don't think it's going to solve all the problems in the world, but I think it would be a good start. And there is actually evidence for it that's coming from [inaudible 00:35:25] control trial, that when people get some income, they tend to work more, not less and they are more productive on it. They are getting assets for the house and they don't waste any of it. So it is well documented to be effective, which brings me to, if you want, the key point of my doctrine, as you called it, is that it's better not to have a doctrine, but to be very open-minded and ready to innovate and ready to recognize the power of other people's innovation.

Andrés Velasco:

There are many problems from vaccinations to education today, the height behavior in the world of COVID, for which we just don't have very good solutions, but for which one can try things out. And that's the whole idea of randomized control trials is okay, you have an idea. Don't just take it at face value, but try it out, do an experiment, see how it goes. And if it goes well, well number one, you found something useful. Number two, it can be useful for other countries as well. And if it doesn't go well, well, it's good to know you haven't wasted your time and maybe other people also will not waste that time.

Eric Schmidt:

Well, thank you very much, Professor Duflo. Your work is, in my view, heroic.

Andrés Velasco:

Thank you very much. And thank you very much for giving you a chance to share it to your listener and [inaudible 00:36:51] off your work. And it was a pleasure.

Eric Schmidt:

So where are we now? The pandemic is hitting many developing countries with five shots at once. Governments that support the lives of billions of people don't have the technology nor the information nor the resources to disperse basic aid to large segments of their populations. And in our globalized world, failing to protect the most vulnerable could lead to a mega recession that could last at least six years. The world has been able to accommodate huge structural differences, huge indebtedness between the countries for decades. The difference now is the effect of the pandemic. Economic effect of the pandemic could set these countries back a decade because instead of working on their balance of payments, improving their productivity, they're dealing with the terrible tragedy of deaths, loss of education, kids not in school, increases in violence, even riots.

Eric Schmidt:

What's needed is a much stronger response and that stronger response needs to come, not just with cash, but also with constraints. In these political systems, we need better cooperation around dealing with the sick countries, the tough countries. We need to understand that they need a helping hand, but the way that helping hand works is it comes with essentially cash and investments, but also reform. What's the best way to deal with the excesses, if you will, of capitalism and globalism? It's important not to blame the messenger. It is just reality that the very deeply poor people are struggling every day for food. They're afraid to take risks.

Eric Schmidt:

We shouldn't blame them. Instead, what we should do is figure out a way to get a system where they can just get a little bit better every day. And in one generation, we can really affect the improvement of quality of their life. We cannot afford to see the world as anything but deeply interconnected. The economy will suffer if developing countries suffer. International cooperation is in everyone's interest, in countries who consistently learn to help one another.

Eric Schmidt:

It seems obvious doesn't it? It's also interesting to me that lifting up the neediest brings exponential return. Meeting people's basic needs frees up so much of their mental space to exercise and develop their talents and build economies and help us all out. I'm convinced that re-imagining global prosperity will require many different solutions. There's no one magic bullet, as much as I'd love to see it.

Eric Schmidt:

We shouldn't take any particular idea at face value. We should measure it using random control trials and other kinds of experiments. Leadership across all of these problems requires courage, healthy governments, and cooperation. Sometimes leaders have to make short term decisions that are unpopular, but the test of leadership is their ability to do something in the short term that creates a great success in the longterm. Whenever I look outside my window, all I see is a networked and deeply interconnected world. The global economy is going to suffer if we do not address the problems of poverty and in particular, the effects of the pandemic on the poor. We now know from science that helping the neediest really does bring exponential returns. In addition to being the right moral thing to do, it's more importantly the right economic, and in fact, it's in your self interest to do so.

Eric Schmidt:

Next week, we'll speak to two cutting edge scientists, Aviv Regev and Jim Collins, about the research and technology's redefining the future of biology and health.

Aviv Regev:

We want to be able to reach a point where by looking at our genome and knowing the genes that are there and looking at our environment and knowing the factors that are there, we're able to say, this is how a cell responds to it and not just the chain of events, but to be able to say, and we can predict what the cell will say next, we understand what the cell is talking about by metaphor.