For an economy to flourish, a nation's institutions must provide basic security : The Indicator from Planet Money Mellisa Dell, this year's John Bates Clark Medal winner, explains the relationship between security, prosperity and the rule of law.
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Melissa Dell On Security And Prosperity

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Melissa Dell On Security And Prosperity

Melissa Dell On Security And Prosperity

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UNIDENTIFIED PERSON, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

CARDIFF GARCIA, HOST:

Hey, everyone. Stacey and Cardiff here. This is THE INDICATOR FROM PLANET MONEY. Economist Melissa Dell was recently named this year's winner of the John Bates Clark Medal, which goes to the best economist under 40 who is working in the U.S. Winning that medal is right up there with winning the Nobel Prize in economics. It's just a massive deal.

STACEY VANEK SMITH, HOST:

Last week, we featured one of Melissa's most famous papers, which explained how decisions made by the Spanish government almost 450 years ago led to increased poverty today in parts of Peru. The lasting effect of bad institutions is a really big theme in Melissa's work.

MELISSA DELL: I think that the main questions that motivate me are thinking about why poverty and insecurity persist and what society needs to do if they want to promote economic growth, if they want to promote security.

GARCIA: And to be clear, by security, Melissa means actual physical security, safety.

DELL: I think that the thing that ties sort of essentially those things together, poverty and security, is that we can't have economic prosperity if there's not underlying security, if people don't feel safe, if there aren't government structures in place that allow people to get out, interact in markets, pursue economic activity.

VANEK SMITH: Melissa's papers have these really interesting lessons and cover a really wide range of topics. And today, we're going to feature two more of them, and both of them have to do with this relationship between security and economic prosperity.

GARCIA: Yeah. The first paper explains how China's increasing participation in global trade for the last couple of decades led to more violent crime in Mexico. And the second paper offers lessons about trust from the U.S. bombing campaign in the Vietnam War. Those are coming up right after the break.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

VANEK SMITH: For the past few decades, China has increasingly become a bigger part of the global trading system. Goods that were once made in the U.S. or in other countries could be made more cheaply in China and then imported into the U.S.

GARCIA: And if you are a person who buys those goods, it's been great. You've got cheaper TV's, cheaper computers, cheaper toys for your kids, which meant you had more money left over for other things. But if you were a manufacturing worker in the U.S., someone who once made those goods that are now made in China, you might have found yourself out of a job.

VANEK SMITH: And this is the case not just for manufacturing workers in the U.S. but also for workers in Mexico. Some goods that were once made in Mexico and imported to the U.S. are now made in China, says Melissa Dell. In a paper, Melissa wanted to study the effect of that change on the places in Mexico, the municipalities in Mexico where those goods were once made, where Mexican factory workers had lost their jobs.

DELL: And so, initially, that would have been things like textiles. As China gets more and more advanced, it becomes municipalities that, like, produce things like computers, electronics, right? So there's kind of a whole range of municipalities across Mexico that were really hard hit by China being able to produce the same things cheaper. And so what we find is that in those places, you see increases in crime. And in particular, you see increases in drug trade-related violence.

VANEK SMITH: An increase in drug trade-related violence. So here's how Melissa explains what happened. When young male manufacturing workers in certain parts of Mexico lost their jobs because of competition with China, they needed to find work somewhere else, and they still had to feed their families. And without better alternatives, some of these workers turned to the big international drug trafficking organizations that exist in parts of Mexico.

DELL: You have these preexisting kind of drug gangs that are there transporting drugs into the - overwhelmingly into the U.S. and they're an alternative economic opportunity. And they actually pay pretty well by sort of Mexican standards. And so when you have this economic shock, you can't get employment in, you know, a factory and a legitimate job. That makes being employed for a drug gang more attractive, and then that tends to be associated with increases in violence. It becomes more lucrative for the drug gang to operate in that location because it can access workers more easily, and that leads to conflict related to the drug trade.

GARCIA: Melissa says you don't see a similar response from workers who lose their jobs in the U.S. or in countries in Europe. And one reason could be that the safety net, the benefits that unemployed workers can fall back on, is just more generous in those countries. So workers are less desperate, less tempted to join a violent or in illegal industry because those richer countries can just afford to provide a better alternative.

VANEK SMITH: But the other reason is that these big drug trafficking organizations simply don't operate in those countries the way they do in Mexico. Those organizations have a lot of power and money to fight off law enforcement in Mexico where the economic institutions and the rule of law are weaker. And Melissa says that really matters.

DELL: So it kind of combines these old ideas that there is an economic incentive to crime with the idea that, you know, the institutions matter. The rule of law matters, whether or not you're going to actually see that connection materialize.

GARCIA: So that paper shows how economic hardships can lead to more violence if a country's institutions don't stop it. But we promised two Melissa Dell papers, and the second paper is very different, though it also is about violence.

VANEK SMITH: In this paper, Melissa studied how the U.S. bombing campaign in Vietnam affected the attitudes of the people there toward the U.S. government during the Vietnam War.

GARCIA: And what Melissa did was to start by looking at neighborhoods or hamlets in Vietnam that were really similar to each other in a bunch of ways during the Vietnam War. So these hamlets were similar in terms of their local economies, similar in the politics of their local governments, similar in how safe they were and similar in a bunch of other ways.

VANEK SMITH: Melissa then compared the hamlets that were bombed by the U.S. with very similar hamlets that did not get bombed by the U.S. Melissa could then see how the bombing campaign affected the attitudes of the people in the hamlets that were bombed.

DELL: I think that the view that very much predominated in the U.S. and was behind this policy is we'll be really aggressive. And then people in Vietnam are going to understand they better get on board with the non-communist state. It's going to be very costly if they don't and we'll prevail.

VANEK SMITH: That is not what happened at all. The bombing made people in those neighborhoods very much more likely to support the Vietcong. It made them feel less safe, and it made them less likely to participate in the society that the U.S. was trying to establish in the country.

DELL: And so essentially in every way we can measure, we find that this backfired in terms of achieving the U.S.' objectives.

VANEK SMITH: But that is not all that Melissa found in her paper.

DELL: We look at another source of variation where in some places the Marines built schools and provided health clinics and tried to build support for the U.S. from the bottom up. And we find that relative to the, you know, top-down aggressive approach that that was actually more effective. People were less likely to attack U.S. troops. It was more effective in building support. And so sort of the broader argument in that paper is that it's very difficult to create a state by just sheerly imposing it from the top down, that giving people incentives to actually support and trust in the state is a much more effective way to create that stability that you in turn need to have economic activity and economic prosperity.

GARCIA: And that right there is also a nice summary of one of the lessons in Melissa's work, that to gain trust, to generate economic prosperity and just to be effective, governments and institutions should consider ideas that work from the bottom up, not the top down - carrots, not sticks.

If you want to see more of Melissa's work, we will post her papers at npr.org/money. This episode of THE INDICATOR was produced by Camille Petersen and fact-checked by Brittany Cronin. THE INDICATOR is edited by Paddy Hirsch, and it is a production of NPR.

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