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Ricardo Hausmann

Ricardo Hausmann

Articles by Ricardo Hausmann

Why Governments Should Not Wait for Godot

25 days ago

For foreign investment, governments need organizational capabilities that go beyond Adam Smith’s maxim that they must do no more than ensure “peace, easy taxes, and a tolerable administration of justice.” They need to do at least three additional things.

CAMBRIDGE – The scenario is all too familiar. A reformist government wants to boost economic growth and employment by implementing market-friendly reforms designed to make the country more attractive to (often foreign) investors. Policymakers understand that these investors possess the technological prowess, organizational capability, and market reach that the country desperately needs. Committees are created to improve the country’s performance in the World Bank’s Doing

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Why Countries Should Tax Global Income

December 4, 2019

More inclusive global growth in a world with free capital mobility does not require a “global” government that taxes and redistributes, but it does require global taxation and tax cooperation. Countries should be free to set their own taxes, but they should be required to share tax-relevant information.

CAMBRIDGE – If you are a citizen of a country, should you pay taxes on the income you earn only within that country’s geographical limits, or on all the money you earn, independently of where? The United States, Mexico, India, China, and Chile tax global income. Western Europe, Japan, Canada, Peru and Colombia tax territorial income. If the world moved toward global taxation and enhanced some incipient

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When Markets and Mobility Collide

November 12, 2019

Many people, including economists, wonder why a scheduled 3% fare increase on the Santiago metro triggered mass protests that paralyzed the entire country. In fact, the popular response should come as no surprise, and understanding it is crucial to devising better policy solutions.

WINDHOEK – Gasoline is supposed to be combustible. But why has it also become politically explosive, as the eruption of massive protests in Ecuador and Chile suggests?
Is Economic Winter Coming?

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The End of Neoliberalism and the Rebirth of History

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Should Profane Contracts Be Sanctified?

September 20, 2019

Contracts are protected and sanctified by the courts, but they can be written in order to violate the law – and to shield the crime itself from the law. Such profanity does not deserve, and should not receive, the legal blessing its authors seek.

CAMBRIDGE – Is there such a thing as too much sanctity? After all, even the word sanctimonious indicates an excessive show of devotion. The fervor for sanctification may hide darker motives, and attaining it may be deeply counterproductive. The sanctity of contracts, especially those involving the public sector, is a case in point.
The Meritocracy Muddle

PS OnPoint


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Don’t Blame Economics, Blame Public Policy

September 1, 2019

Engineering and medicine have in many respects become separate from their respective underlying sciences of physics and biology. Public-policy schools, which typically have a strong economics focus, must now rethink the way they teach students – and medical schools could offer a model to follow.

AMMAN – It is now customary to blame economics or economists for many of the world’s ills. Critics hold economic theories responsible for rising inequality, a dearth of good jobs, financial fragility, and low growth, among other things. But although criticism may spur economists to greater efforts, the concentrated onslaught against the profession has unintentionally diverted attention from a discipline that

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How Not to Think About Job Creation

July 31, 2019

Governments are right to focus on creating more good jobs, because work is the source of most people’s livelihood in every society. But in the majority of cases, the solution lies in policy areas that are not amenable to tools wielded by ministers of labor or education.

CAMBRIDGE – Just because a tire is flat at the bottom does not mean that the hole is there. The same can be said about labor markets. Concern about the scarcity of good jobs is fueling interest in labor-market interventions such as job centers that match workers with vacancies, training services to improve the skills of the unemployed, temporary wage subsidies, and more. Because getting more workers more quickly to good jobs is such an

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How to Address Venezuela’s Crushing Debt Burden

July 10, 2019

The legacy of Chávismo includes a mountain of foreign-currency-denominated claims against the Venezuelan public sector, totaling $150 billion, almost all of which is now in default. When Nicolás Maduro finally leaves power, how can these claims be settled while meeting the country’s desperate need for humanitarian relief and economic recovery?

CAMBRIDGE – When he finally leaves the political stage in Venezuela, Nicolás Maduro will leave behind a grim legacy of oppression, suffering, and economic devastation. He will also leave a mountain of foreign-currency-denominated claims against the Venezuelan public sector – almost all of which is now in default – totaling over $150 billion. It will fall to

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How the Failure of “Prestige Markets” Fuels Populism

May 9, 2019

Given the requirements of today’s technology, dismissing expertise as privilege is dangerous. That’s why a well-functioning prestige market is essential to reconciling technological progress and the maintenance of a healthy polity.

CAMBRIDGE – One of the slogans of the Harvard Union of Clerical and Technical Workers is, “We can’t eat prestige.” In other words, the university should not get away with paying low wages just because it is prestigious to work there.
The Economy We Need

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Brexit Fever is Breaking

Artur Widak/NurPhoto via Getty Images

Capitalism’s Great Reckoning

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Humanitarian Markets

March 25, 2019

The role of humanitarian assistance is like that of a car battery: it gets the cylinders moving until the sequence of internal explosions in the engine recharges the battery and makes the process self-sustaining. That task is made easier by using, rather than replacing, markets.

CAMBRIDGE – According to the Oxford Dictionary, humanitarian crises involve widespread human suffering and require large-scale provision of aid. In a humanitarian crisis, normal life ceases to be possible.

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Under normal conditions, one person’s needs become another person’s

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China’s Malign Secrecy

January 2, 2019

In principle, China’s massive savings, infrastructure know-how, and willingness to lend could be great for developing economies. Alas, as many countries have learned the hard way, Chinese development finance often delivers a corruption-filled sugar high to the economy, followed by a nasty financial (and sometimes political) hangover.

CAMBRIDGE – Secrets may be among the most valuable assets that governments have: the Trojan Horse, the Enigma code, the Manhattan Project, and surprise attacks such as Pearl Harbor, the Six-Day War, and the Yom Kippur War are just a few of the best-known examples. But in some cases, governments’ desire for secrecy is hard to square with the national interest – and may even be among the most

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How to End Venezuela’s Nightmare

December 3, 2018

Venezuela’s problems will not be solved without regime change. And that could – and should – happen after January 10, when the international community will no longer recognize the legitimacy of Nicolás Maduro’s presidency.

CAMBRIDGE – Wishing a problem away is seldom an effective strategy. While the international community has had its attention focused on other issues, the Venezuelan catastrophe has deepened. If current trends continue, it will only get worse. 

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A day’s work at the median wage now buys 1.7 eggs or a kilogram of yuca, the cheapest available calorie. A kilogram of local cheese costs 18 days of

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How Not to Fight Income Inequality

November 14, 2018

Trying to combat income inequality through mandated wage compression is not just an odd preference. It is a mistake, as Mexico’s president-elect, Andrés Manuel López Obrador, will find out in a few years, after much damage has been done.

CAMBRIDGE – Suppose two people hold different opinions about a policy issue. Is it possible to say that one is right and the other wrong, or do they just have different preferences? After all, what is the difference between an odd preference and a mistake?

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A preference influences a choice that is expected to deliver the goal the chooser wants to achieve. A mistake is a choice based on a

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The Albanian Miracle

September 27, 2018

Once the "North Korea of Europe," Albania now boasts an income level that is 25% that of Germany, double-digit export growth, and a strengthening currency. This suggests that the economists and multilateral institutions now being blamed for all sorts of disappointing outcomes may not be entirely useless after all.

TIRANA – Five years ago, Albania faced a truly ominous situation. With Greece and Italy reeling from the euro crisis, remittances and capital inflows were falling and the economy suffered a severe slowdown. The fiscal deficit ballooned to over 7% of GDP, financed to a large extent by arrears, as access to external financial markets had collapsed and domestic interest rates were sky high.

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The Slavery Incentive

August 31, 2018

By restricting the workers’ outside options, employers may get them to accept terms that freer individuals would reject. That may be a reason why there is so little urgency in solving the problem of undocumented immigrants in the US, and why many countries protect citizens differently than foreigners.

CAMBRIDGE – Have you ever wondered why business schools do not teach the proper way to whip a worker to obtain maximum effort without damaging the asset? Had business schools existed before the American Civil War, one can conceive of at least a lecture, if not a full course, on the subject. Instead, business schools teach about corporate culture and values, on the assumption that maximum effort can be obtained from workers if they identify

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The Venality of Evil

July 31, 2018

The Oxford English Dictionary defines “evil” as “doing or intending to do harm.” Ultimately, given that Venezuelan President Nicolás Maduro easily could have prevented the economic catastrophe that has befallen his country, there is no other plausible explanation for the suffering and devastation experienced by millions of people.

CAMBRIDGE – On July 23, Alejandro Werner, the Director of the International Monetary Fund’s Western Hemisphere Department, announced that the Fund was expecting inflation in Venezuela to reach 1,000,000% by year’s end. In April, the IMF announced that Venezuela’s GDP was expected to be 45% below its 2013 level by the same time. These are mindboggling numbers. How and why could such a thing happen?

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Does the West Want What Technology Wants?

June 27, 2018

In a world where technological progress promises large benefits, the capacity to supply the necessary conditions may determine which economies are positioned for success, and which are bound to go the way of the Spanish, Portuguese, or Ottoman Empires. That should worry today’s West more than it worries China.

CAMBRIDGE – In many dimensions, today’s West is not at its best. Many people are challenging the values of liberal democracy (individual rights and majority rule) and even those of the Enlightenment (reason, science, and truth). Populist parties are channeling such sentiments with considerable electoral success, capitalizing on economic malaise, widening inequality, and rising immigration.

Brais G. Rouco/SOPA

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Venezuelans Deserve Refugee Status

May 30, 2018

With 280,000 Venezuelan children expected to die of starvation this year, it is little wonder that the country’s people are stampeding for the exits at a rate that is unprecedented in the Americas. In this context, the United Nations is right to urge countries to grant Venezuelans refugee status.

CAMBRIDGE – Venezuela is in the news again. Through unprecedented treachery, President Nicolás Maduro awarded himself victory in the presidential election on May 20. Given that the blatantly pro-government electoral council had delisted the three main opposition parties and disqualified two major political leaders, much of the opposition boycotted the process. The two other candidates who participated did not recognize the result,

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The PPP Concerto

April 30, 2018

There are good reasons why privately financed infrastructure projects become significantly more expensive – and slower to complete – than planners anticipate. One solution is to bring in private financing only after a project is completed.
CAMBRIDGE – As an old tale has it, there once was a competition between two pianists. After listening to the first pianist, the jury awarded the prize to the second. There was no need to listen further, because who could possibly be worse?

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The same logic may seem to apply to public-private partnerships (PPPs) to provide infrastructure such as roads, power,

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The Dark Matter of Trade

March 28, 2018

Donald Trump has argued that trade wars are easily won by the country with the deficit, because the other party has more to lose. But just as trade has moved from goods to services and on to knowledge, so may trade wars, with a tariff on steel answered by a tax on Amazon or Google.
CAMBRIDGE – If you are flying a plane, it is useful to know how to keep it level. To do so, you must be able to read the instruments. If the plane is flying level, but you think it is heading down, you may pull back on the yoke and put the plane into a stall. This is what may be happening today with US trade policy.

The Year Ahead 2018

The world’s leading thinkers and policymakers examine what’s come apart in the past year, and

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How Democracies Are (re)Born

March 7, 2018

There can be no stable democracy if it must co-exist with a large, competitive political party devoted to destroying it. That is the lesson of Venezuela today, just as it was the lesson of post-war West Germany.
CAMBRIDGE – Much in life looks obvious after the fact. The challenge is to understand events and trends earlier, which is especially important when the issue is the demise of democracy.

The Year Ahead 2018

The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.

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In their excellent new book How Democracies Die, Harvard professors Steven Levitsky

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Justice Without Borders for Venezuela

February 7, 2018

TIRANA – As Venezuela’s humanitarian catastrophe worsens by the day, governments in the region and beyond ponder how to respond. It may be time for civil society to invent new ways of taking action.

The Year Ahead 2018

The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.

Order now

According to estimates from MIT’s Billion Prices Project, month-on-month food inflation in Venezuela reached 117.6% in January, or the equivalent of 1,130,000% a year. At the same time, the exchange rate depreciated at an annual rate of more than 700,000%, while the real purchasing power of wages –

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D-Day Venezuela

January 24, 2018

The Venezuelan crisis is moving relentlessly from catastrophic to unimaginable. Harvard University Professor Ricardo Hausmann proposes an audacious solution to end the suffering: impeach President Nicolás Maduro and, with the support of a regional military force, install a new government.

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D-Day Venezuela

January 2, 2018

As conditions in Venezuela worsen, the solutions that must now be considered include what was once inconceivable. A negotiated political transition remains the preferred option, but military intervention by a coalition of regional forces may be the only way to end a man-made famine threatening millions of lives.
CAMBRIDGE – The Venezuelan crisis is moving relentlessly from catastrophic to unimaginable. The level of misery, human suffering, and destruction has reached a point where the international community must rethink how it can help.Two years ago, I warned of a coming famine in Venezuela, akin to Ukraine’s 1932-1933 Holomodor. On December 17, The New York Times published front-page photographs of this man-made disaster.

The Year

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How Best to Promote Research and Development

November 24, 2017

Clearly, there is something appealing about a start-up-based innovation strategy: it feels democratic, accessible, and so California. But it is definitely not the only way to boost research and development, or even the main way, and it is certainly not the way most major innovations in the US came about during the twentieth century.
CAMBRIDGE – Start-ups, incubators, accelerators, angel capital, venture capital, mergers and acquisitions, initial public offerings, a liquid stock market, techno-parks, a major university or two, and a group of specialized law firms. Many believe that once you have built up this ecosystem, à la Silicon Valley, you can become the next Route 128 in Massachusetts, the next Research Triangle in North Carolina, or the next Start-Up Israel.

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The Moral Identity of Homo Economicus

November 7, 2017

Two recent books indicate that a quiet revolution is challenging the foundations of the dismal science, promising radical changes in how we view many aspects of organizations, public policy, and even social life. As with the rise of behavioral economics, this revolution emanates from psychology.
CAMBRIDGE – Why do people vote, if doing so is costly and highly unlikely to affect the outcome? Why do people go above and beyond the call of duty at their jobs?

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Two recent books – Identity Economics by Nobel laureate George Akerlof and Rachel Kranton and The Moral Economy by Sam Bowles – indicate that a

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Making the Future Work for Us

September 29, 2017

CAMBRIDGE – What does the future of work hold in store, and how should we prepare for it? The debate so far has focused on developed countries, but it is a question that will affect the entire world.

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To pessimists, the introduction of these so-called general-purpose technologies – including 3-D printing, artificial intelligence, and the Internet of Things – threatens the demand for labor; without new forms of social solidarity, such as a universal basic income, the future will be one of widespread destitution. To optimists, the latest technological developments, like others that have propelled humanity

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Venezuela’s Unprecedented Collapse

July 31, 2017

CAMBRIDGE – In a hastily organized plebiscite on July 16, held under the auspices of the opposition-controlled National Assembly to reject President Nicolás Maduro’s call for a National Constituent Assembly, more than 720,000 Venezuelans voted abroad. In the 2013 presidential election, only 62,311 did. Four days before the referendum, 2,117 aspirants took Chile’s medical licensing exam, of which almost 800 were Venezuelans. And on July 22, when the border with Colombia was reopened, 35,000 Venezuelans crossed the narrow bridge between the two countries to buy food and medicines.

Venezuelans clearly want out – and it’s not hard to see why. Media worldwide have been reporting on Venezuela, documenting truly horrible situations, with images of starvation, hopelessness, and

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Who Does Business Represent?

June 28, 2017

CAMBRIDGE – On whose behalf do business associations speak? Well, business. But who is “business”?

It’s an increasingly urgent question, because while firms have radically changed how they think about themselves, business associations have yet to catch up. And the resulting lag is making capitalism less legitimate in many countries.

The traditional view of the firm – shared by both Karl Marx and Milton Friedman – is that it is an organization owned by capitalists (shareholders), on whose behalf it is run. It hires workers and buys other inputs to maximize returns for those who put up the money. According to Friedman, the social responsibility of the firm is to increase profits. Any goal that does not directly benefit shareholders is just another distortionary tax.


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The Hunger Bonds

May 26, 2017

CAMBRIDGE – Investing often creates moral dilemmas over goals: Should we aim to do well or to do good? Is it appropriate to invest in tobacco companies? Or in companies that sell guns to drug gangs?

The recent popularity of so-called impact investment funds, which promise to deliver decent returns while advancing social or environmental goals, is based on this unease. Foundations often find that these investment vehicles help them to do good both with the money that they spend on philanthropy and with the endowment assets that yield the returns on which their philanthropy depends.

Nowadays, it is emerging markets as an asset class that should make people morally queasy. Should decent people put their money in emerging-market bond funds?

The returns of the JP Morgan

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Where to Build Trump’s Wall?

April 27, 2017

CAMBRIDGE – What do Huntsville (Alabama), Princeton (Indiana), Georgetown (Kentucky), Blue Springs (Mississippi), San Antonio (Texas), Buffalo (West Virginia), and Greer (South Carolina) have in common? They are the locations where Toyota and BMW built their manufacturing plants in the United States. None is in the US Rust Belt – the tract of industrial towns stretching from Michigan to eastern Pennsylvania – where much of the car industry and its suppliers were traditionally located.

Evidently, the US Rust Belt’s decline was not the exclusive doing of China and Mexico. It was also caused by the auto industry’s geographic spread into other regions of the US, out of the clusters in which it had originally been concentrated. And this shift resulted not so much because GM moved its plants, but because it lost market share to Toyota, Nissan, Honda, Hyundai, BMW, and Mercedes-Benz.

Of course, pointing this out does not reduce the pain for those affected. But it does change the policy implications – and the lessons from the US example are relevant worldwide.

Two approaches have been pursued so far to help communities affected by this phenomenon.

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