Ricardo Hausmann: Why economic development is like a game of "Erudite"

One of the mysteries of the world economy is that the rich countries grew faster than the poor for two hundred years, as a result of which the gap between the rich and the poor increases (a sort of divergence, gradual discrepancy). In the past few decades, this trend, however, has changed: while some countries continued to increase the gap (the Netherlands - Kenya, the Netherlands - Nicaragua), part of it was reduced (the Netherlands against China and India). What can explain the overall divergence at one time and selective convergence to another? If less developed countries can go forward more accelerated pace, borrowing other people's technologies, then why haven't they grown for so long? Former Minister of the Venezuela government, Professor of Harvard University, Ricardo Hausmann, offers his explanation. “If it turns out to be correct, it will be able to seriously affect today's development strategies,” the economist writes in a column on Project Syndicate.

The author compares the process of economic development in the last two centuries with a game of Erudite: they say, the more the country had production capabilities (initial resources, technologies), the better it managed to produce goods and services, just as the player has the more ability to make more long words. From here comes a “trap of immobility”, as it called Hausmann itself, which suggests that countries with richer possibilities have more incentives to increase them, and vice versa. This, the Columnist writes, explains the distance of economies from each other.

But in the modern world, globalization breaks the chains of creating value and “allows trade to move from words to syllables”: less developed countries should not produce goods from beginning to end, but can participate in any separate stage of production with those resources that are suitable for this. Here convergence begins, a reduction in the gap between the economies. Example: IBM ThinkPad, bought by Lenovo. Once the American company asked the Chinese to collect their laptops, issuing components and instructions to them, and send it back to the United States. After a couple of years, Lenovo offered to take responsibility for the purchase of details, then she began to distribute, and soon it was no longer clear what value IBM adds.

Obtaining knowledge on how to master the new technology is the basis of growth. Some countries try to master technologies, going into import substitution and erecting trading barriers, because they believe that if there is a more advanced competitor nearby, then they themselves will not learn anything.

But there is a better strategy, Hausmann proves: this is participation in the global chains of creating a value that allows us to “enter business” by those whose resources are not enough to produce something from beginning to end. This method requires, on the contrary, an open trade policy stimulates development in different fields-in education, research, infrastructure, and so on. Some reject this strategy, saying that the country just serves as a collector for others, but, as one famous astronomer said, if you want to bake the pie from scratch, you will have to invent the universe.