Empirics and Psychology: Eight of the World’s Top Young Economists Discuss Where Their Field Is Going | Power Games | Big Think

Empirics and Psychology: Eight of the World’s Top Young Economists Discuss Where Their Field Is Going | Power Games | Big Think

Why are developing countries poor?  In terms of impact on mankind globally, this strikes me as probably the biggest and most important current economic question.  I think the answer is complex and linked to a combination of factors around history, geography, luck, etc.  I am personally working on management practices: people in developing countries are poor because wages are low, and wages are low because firms are very unproductive, and firms seem to be unproductive in large part because of bad management.  An Indian worker makes in one week what an average U.S. worker makes in a half a day.  One big factor seems to be that factories in India are frankly very badly managed: equipment is not looked after, materials are wasted, theft is common because inventory is not monitored, defects keep occurring, etc.  In a recent project with the World Bank, we found in randomized experiments that giving simple management advice to Indian factories increased productivity by 20%, and I suspect that a number like 200% would be possible in the longer run. 

A global iv-B economy is highly competitive, if some companies and countries fall behind then they can fall to a floor of near bankruptcy while others rise to a ceiling of extreme wealth. This happens in other competitive fields, for example champion artists and sportsmen might get much more money for only small differences in performance. Products only a few percent higher in price for the same quality might crash, in a V-Bi economy products might normalize with few differences in quality and share the wealth more equally but creating more stagnation.