Professor Kremer was awarded the 2019 Nobel Prize in Economic Sciences for an experimental approach to alleviating global poverty.
The following is the full interview:
Q. During the 1990s, the Korean economy experienced growth rates of 7-8%. However, since then, Korea’s growth rate has gradually declined by 2% every decade, resulting in a recent low growth rate of 2%. Korea faces several challenges, including a declining working-age population due to low birth rates and population aging, as well as weakening growth potential due to economic maturity. Given that the Korean economy has reached the levels of a developed country, what areas should the country focus on to take the next step forward?
A. Low birth rates lead to a larger dependency ratio, with more retired people for each working age person. Korea has the lowest birth rate in the world.
While Korea may be able to take steps to increase the birth rate, this has proved difficult in other countries. The way that most developed countries with low birth rates maintain their working age population is through migration.
Allowing migration to developed countries could create large fiscal and welfare benefits. While I think allowing more general migrations would be economically beneficial, there may be political obstacles, even in this case. However, it may be possible to design politically feasible and economically beneficial programs. For example, Hong Kong and Singapore both implemented large-scale special visa programs for foreign private household workers. Such programs are less likely to raise concerns about crime or cultured change than other types of migration. They can bring in tax revenues, allow more domestic women to enter the labor market, and increase wages for low-skilled native workers by stimulating labor supply of highly skilled domestic women who might otherwise be out of the labor force, from taking care of children or the elderly. In addition, they benefit migrants, allowing them to earn more than they otherwise would have.
Q. There is a growing interest in artificial intelligence (AI), including ChatGPT, given AI’s potential to drive innovation across various industries. In fact, McKinsey (2018) predicted that the introduction of AI could boost productivity by up to 40% and by 2030 approximately one-third of current jobs may be replaced by AI technology.
You have conducted extensive research on the factors that drive innovation within companies and industries, as well as how firms develop and utilize their innovation capabilities to gain a competitive edge. What is your perspective on how AI will impact innovation and employment in businesses, and what role can governments play in this context?
A. AI may well cause disruption. However, AI has tremendous potential to improve standards of living by expanding the productive capacity of society as a whole.
The full productivity dividend of AI will probably not materialize immediately; rather, businesses will take time to figure out how AI can best be applied to their sectors and their circumstances, complementary technologies will be needed, and firms may wind up needing to adjust broader aspects of their strategies to take full advantage of AI. There might need to be social assistance programs to help address some of the consequences for workers who can’t shift sectors easily. In the long run, however, other jobs will open and, because the productive capacity of society will have increased, standards of living will rise.
Q. There are concerns that the income gap and digital divide between developed and developing countries may widen further in the post-pandemic world. The World Bank had previously predicted that the pace of the recovery from the COVID-19 pandemic is expected to widen the gap between advanced economies and developing countries (World Bank, 2022) and has recently announced that the global economic downturn is expected to have a more severe impact on developing countries (World Bank, 2023). In this context, what role can Korea play in the Asia-Pacific region?
A. Lower income countries can often benefit from new technologies developed in higher income countries.
Digital technologies are a case in point. Mobile phones, as well as services like Google, WhatsApp, etc. were developed in higher income countries but have benefits in lower income countries.
In some cases, lower income countries can “leapfrog,” jumping straight to digital technologies like mobile phones, without the need to install older technologies like phone lines, which often require more expensive infrastructure. For example, many people lower income countries, even in remote areas, can now access banking services via mobile phones.
However, there are cases where commercial incentives to develop products to serve people in low- and middle-income countries fall far short of their social value. In these cases, governments can play an important role in helping finance the development of needed technology or by offering to purchase technology, thus stimulating the private sector to invest.
One example is educational technology which can be integrated with public schools. There is reason to believe that educational technology has great potential to increase learning. For example, an educational-technology program in India increased test scores in math by 38%. However, a combination of technology and systems change will be necessary to make this work in public schools.
Another example is digital agriculture. Many of the world’s poorest people work in agriculture and their livelihoods are threatened by climate change, which will require changes to farming techniques, adoption of new crops, and new strategies for pest control. Mobile phones allow timely, customized advice to be delivered at low cost. This could be combined with better weather forecasts to help provide farmers with targeted agricultural advice.
Because Korea is a leader in digital technology innovation and has developed so rapidly, it might be very well placed to help lead efforts in this area.
Q. The private sector is increasingly at the forefront of promoting technological innovation, with governments worldwide supporting this drive through policies. To effectively navigate through the complex global crisis, fostering collaboration not only between governments but also between the public and private sectors, as well as between private sector entities, is crucial. What steps should governments take to facilitate such collaboration in the private sector?
A. One way to harness the creativity of the private sector to meet social goals is through Advance Market Commitments (AMCs). By making a binding commitment to purchase a specific technology if it is developed, governments can encourage innovation.
In 2009, an AMC $1.2bn was launched for a vaccine against Pneumococcus, a major cause of child mortality in low and middle-income countries. Soon afterwards, two pneumococcal vaccines were approved. They have reached hundreds of millions of people and have saved an estimated 700,000 lives.
Although first developed to accelerate vaccine development, AMCs could be applied to many other technologies where there is great social need but limited commercial incentives for innovation, such as climate technologies.
There may also be useful ways to use regulation to promote technological change. For example, governments could use their powers as buyers of cement, steel, and other inputs, to help promote technological innovation in these sectors.
Q. Your research has focused on developing countries and their access to essential medicines, vaccines, and healthcare services. Recent global events such as the pandemic and the Russian invasion of Ukraine have exposed vulnerabilities in global trade and supply chains, particularly for critical medical supplies. In light of this, what actions can be taken to promote sustainable and resilient trade in these essential sectors?
A. Advance investments can reduce the risk of disruption to trade during a crisis. For example, during COVID-19 we saw vaccines produced at an unprecedented speed, but there was still a global shortage of vaccines. This created incentives for governments to impose export bans. The way to reduce the risk of this happening again is to invest now to expand vaccine production capacity as well as of inputs into vaccine production. Maintaining surge capacity and inventories of inputs creates some costs, but it is a valuable investment. Not doing this to save money is as foolish as buying a car without a seatbelt. If there is enough capacity to serve everyone rapidly, incentives to raise trade barriers would be much weaker.
Similarly, investing to expand agricultural productivity could reduce the likelihood and severity of food shortages. Investing in innovation now can also help. For example, drought and flood resistant crops could help reduce the risk of climate-induced food shocks.
Q. I assume you have explored the potential of digital technologies and infrastructure to enhance public service delivery, bridge the digital divide, and foster social resilience. Could you comment on the key priorities that must be considered when expanding digital infrastructure and promoting e-learning and education in developing countries and countries with geographical limitations?
A. One area of service delivery where I’ve worked on digitization is education. We evaluated an approach to primary education in which highly detailed digital lesson guides are delivered to teachers using tablet computers, and digital tools are used to check teacher attendance, keep track of progress through the lesson guide, guide sessions in which school heads visit classes and provide feedback, and handle financial transactions. We found that enrolling at one of these schools for two years increased learning levels by 0.89 additional equivalent years of schooling. Thus, students learned almost three years’ worth of material in only two years with this approach. The program also reduced dispersion in test scores and grade repetition.
Q. Developed and developing countries are pursuing divergent digital transformation policies depending on their economic status. The Digital Economy Report (2021) published by the United Nations Conference on Trade and Development (UNCTAD) highlights the enormous digital divide between developed and developing countries and predicts that this gap may result in divides and disparities in international cooperation in the digital economy. Consequently, developing countries are calling for cooperation and support to address challenges such as the digital divide and job displacement. Given this context, what kind of digital cooperation should Korea and other advanced countries pursue to support developing countries?
A. As I discussed previously, Korea could serve an important role in supporting countries in areas ranging from educational technology to digital agriculture, digital health, and e-government. These are all areas where private sector investment alone may be inadequate, and Korean expertise may be useful. It will be important to recognize, however, that in all these areas, it will be important to integrate digital elements with human elements. Digital tools won’t make any difference if teachers don’t use them in practice, or if they don’t convey crop information to farmers in a comprehensible way.
Q. Currently, Asian developed countries are facing low birth rates and population aging, which may lead to a financial burden from continuously increasing expenditures on the elderly, such as public pensions. In contrast, developing countries in Asia face a more pressing need for financial support for the poor than addressing the issues of low birth rates and aging populations. Many of the challenges of an aging society relate to healthcare provision and to costs of long-term care. There’s a lot that needs to be learned about the best ways to structure long-term care and to structure health systems to help older people live better lives, to help manage the burden on caregivers, and to manage public costs. There may be ways to deliver healthcare and long-term care that improve lives to the elderly, reduce the burden on caregivers, and actually bring down costs for the government. We’ll need to explore alternatives; test them out and rigorously measure their impact on a variety of objectives to help develop these approaches and guide our choices about when to adopt them. Governments should support trials of new ideas.
However, a significant portion of the elderly population in developed countries in the Asian region has not accumulated sufficient assets and requires public transfer income to support their livelihoods. In this context, what policy instruments do you believe would be the most efficient and effective for developed Asian governments to ensure fiscal sustainability while maintaining public transfer income for the elderly?
A. As I mentioned earlier, migration may be one way to address this issue. Migrants can also help to look after elderly people directly, – including doctors, nurses, and other care workers.
Q. However, many developing countries in Asia face challenges in generating sufficient fiscal revenue, which makes achieving fiscal sustainability a crucial concern. In light of this context, what are the most efficient and effective policy tools to provide support for the elderly and low-income households in these countries?
A. Given fiscal constraints, it’s important to identify interventions which maximize the social benefits of programs and minimize the costs. One way of doing this is through by creating evidence-based social innovation funds.
These identify promising innovative new social policies, and rigorously test them, and help scale up the most successful ones. One example is Development Innovation Ventures at USAID, which I co-founded and where I serve as Scientific Director. We evaluated the impact of its investments and found that for each dollar invested it created 17 dollars in social value.
It would be beneficial for the Asian Development Bank to establish programs akin to the World Bank’s Strategic Impact Evaluation Fund, USAID’s Development Innovation Ventures or France’s Fund for Innovation in Development, all of which have done important work in piloting, helping, and transitioning the most successful innovations to scale in rigorous testing.
Innovation initiatives provide the global public good of helping develop and rigorously test innovative ideas so governments and other policymakers globally can learn about their impact and ultimately make more informed decisions about how to guide their policies going forward.
Source: Ministry of Economy & Finance, Republic of Korea (Source)
Photo Attribution: Harvard University, CC BY-SA 4.0, via Wikimedia Commons (Background extended)