Hausmann on Exports
Professor Ricardo Hausmann of Harvard University — one of the leading thinkers on economic development — has agreat essay in Project Syndicate. He noted that the success of AI chatbots like the famous ChatGPT may have important lessons for development policies. By abandoning the ‘’supervised learning’’ approach where you try to feed AI models with all labelled data imaginable, developers took a different approach that was less tedious and unlocked new capabilities. Here is Hausmann;
‘’The problem with the supervised approach is that it requires humans to go through the tedious process of manually labelling every picture. By contrast, unsupervised learning does not rely on labelled data. But the absence of labels raises the question of what the algorithm is supposed to learn. To address this, ChatGPT trains the algorithm simply to predict the next word of the text that is used to train it.’’
Focusing on prediction compelled the algorithm to learn and understand many complicated things — this then unlocks new capabilities. Hausmann argues that the previous and current approach to development policy is a lot like the old tedious supervised learning models of AI — policymakers should have simple goals that can unlock new complex capabilities in the process.
‘’The lesson for economic development is that policymakers should focus on a task that may seem mundane, provided that to excel at it, they will indirectly be forced to learn much more intricate development challenges.
By contrast, the prevailing approach in the field of development economics has been to distinguish between proximate causes and deeper determinants of growth and to focus on the latter. This approach is analogous to saying, “Instead of trying to predict the next word, understand the context and meaning of the entire book.”
What would Professor Hausmann advise policymakers to focus on? After laying out how some theories of development never did pan out in reality — he asserts that exporting more is a winning strategy.
‘’….it is useful to note that the few countries that did manage to catch up share two distinctive features: their exports grew much faster than their GDP, and they diversified their exports by shifting toward more complex goods.
To achieve this feat, these successful countries must have adopted and adapted better technologies, adjusted the provision of public goods and their institutions to support emerging industries, and reduced inefficiencies and costs by increasing productivity and training workers. In that process, they may have fixed a bunch of other problems.’’
He concludes that rather than get ‘’distracted’’ by ‘’convoluted theories’’ of development, which then leads to long lists of ‘’objectives’’ like the UN SDG — policymakers can keep things simple by trying to facilitate the next export.
I have written that Nigeria needs to export more. But Hausmann’s argument is a useful intuition pump. Low-income countries are never short of development plans and industrial policies — and most of them fail because they try to do too much at the same time that they end up doing nothing significant. Rather than having national plans for sugar, automotive, fertiliser, etc. — we can replace this with a commitment to increase exports.
As simple as this sounds, a knowledge-driven export policy will bring together trade, finance, infrastructure, and generally coordinated policymaking. Exporting more will also shift our scarcity mindset. There is general optimism and vibrancy in a country that wants to sell to the world than one that wants to stop buying from the world.