1. Why is the world such that my snow blower is so cool? Lant Pritchett 3 rd Migration and Development Conference Sept. 11, 2010

2. What is wrong with this picture? (multiple answers permitted)

3. My neighbor and his (even cooler) snow blower

4. My other neighbor: commercial service—even more capital intensive Truck with blade

5. My snow blower is cool Can shovel snow up to 10 inches deep Self-propelled Compared to the “low-tech” alternative—a snow shovel—is amazingly productive, reduces task from hours to half an hour. My wife, normally averse to both cold and machinery, will shovel the walks

6. Other cool stuff: Lawn care (in the USA) Cool Super cool

7. Market transaction Home produced Labor intensiveWorker (casual or otherwise) with a snow shovel Me with a snow shovel Capital intensive Commercial service with a truck/snow blower Me with a snow blower

8. Market transaction Home produced Labor intensiveWorker with a snow shovel Me with a snow shovel Capital intensive Commercial service with a truck/snow blower Me with a snow blower Labor Market Distortions (Quotas, Taxes) Induced Innovation Labor Market Distortions (Quotas, Taxes) Induced innovation

9. Three issues “Wasted” induced innovation due to distortions— innovations that are profitable, conditional on distortions, but not otherwise Changes in returns within rich countries as commercial services become capital intensive “Blow-back”—once invented, technology choices come back into poorer countries for which relative prices never would have allowed

10. Other examples: Food consumption--Chad

11. Food consumption: Ulan Bator

12. Food Consumption: Cairo

13. Food Consumption: Germany

14. Food Consumption: USA (North Carolina)

15. High levels of capital intensive (packaged) food preparation (facilitated by storage, refrigeration)

16. How “specialized” are people (men and women) in rich economies relative to facing world prices? How many people have a driver? (capital intensive own production of transportation services) Household cleaning? (dishwashers, vacuum cleaners, washing machines) Food preparation? (market purchase of value added—made possible by refrigeration, size of pantry, food storage stability) Home repair?

17. Purchasing power parity wages from various potential suppliers of semi-skilled labor In USIn Home Nigeria $8.71$0.59 Haiti$8.25$0.80 India$10.90$1.74 Philippines$8.73$2.28 Brazil$11.23$2.98 Mexico$8.36$3.30 Dominican Rep.$8.47$4.25 Source: Clemens, Montenegro, and Pritchett, 2008, “The Place Premium”

18. Distortion induced R&D Labor market distortions: –Taxation of labor—means “marketed” transactions are doubly disadvantaged (e.g. generating income and supplier) –Border based quantitative restrictions on labor mobility induce price differentials across equivalent productivity labor Generates patterns of relative prices and demand for goods Application of R&D based on relative profits of innovations (depends on purchasing power) Long-run equilibrium, inclusive of induced R&D, may be very different from short-run impact

19. Incredible concentration of highly skilled labor in rich countries Table 2: Estimates of numbers of a cohort above absolute performance thresholds for mathematics using TIMSS data Number above threshold on TIMSS (in ‘000), rounded to nearest thousand CountryAbove 550Above 625 Top Three in Number above 625 Japan753291 USA1069258 Korea452226 Selected Developing Countries Egypt7813 Philippines370 Iran320 South Africa120 Chile70 Morocco20 Tunisia10 Ghana00 Source: Adapted from Das and Zajonc (2009), table 4.

20. Nearly all high quality universities are in rich countries US/UKAnglo Cont Europe Rich Asia Total of rich Sum of top 1004964201498 Sum of top 200 821075223182

21. Magnitude of Distortion Induced R&D People talk about “biased” R&D in the health sector (e.g. Viagra versus tropical diseases) In Agriculture (e.g. drought resistant crops) In Energy (e.g. too little (?) carbon saving due to the climate change externality) But all commercially motivated R&D is potentially biased by massive (order of magnitude) distortions in rich country relative prices—the world’s greatest talent pool devoted to reducing demand for a world abundant factor (labor)

22. Changes in structure of demand (within commercial) Especially in US massive long-run shifts in relative wages of unskilled versus skilled labor—at every level of “skill” Small absolute rise in wages of low skill workers over very extended periods in USA (but rises in labor compensation) Substitution of capital for labor in variety of unskilled occupations—imposing costs on consumers (de-specialization)

23. Self-checkout, for example Hugely sophisticated technology embedded in “capital” Me

24. Are the nurses of the future Robots or Rosalie?

25. “Hard core non-tradables” (non-outsourceable services) are the major labor growth of the future who will do these jobs? With a declining labor force what is the face of the future labor force?

26. Market transaction Home produced Labor intensiveWorker with a snow shovel Me with a snow shovel Capital intensive Commercial service with a truck/snow blower Me with a snow blower Labor Market Distortions (Quotas, Taxes) Induced Innovation Labor Market Distortions (Quotas, Taxes)

27. Blow-back on other countries Wheels on your luggage ATMs in India Adoption of consumer durables embedding relative prices (e.g. dishwashers, washing machines)

28. Blow-back in poor countries is potentially pernicious Income equality increases in poor countries (shock) Availability of labor reducing technologies means labor intensity of marginal propensity to spend of rich is lower More income inequality (higher returns to capital and skilled labor).

29. Why “blow-back”? Moves the marginal poor country rich consumer towards home production through increased productivity –Especially with driving down the cost curve so that poor country are cheap Organizational linkages, practices (e.g. my World Bank story)