Episode 4: Piero Ghezzi on public-private collaboration and economic development in Peru

Note: This transcript was automatically generated and contains errors.

Rohan: Piero, welcome to the podcast.

Piero Ghezzi: Thanks very much, Rohan.

Rohan: So Piero, let's start about a decade ago while you were transitioning from your role at Barclays to the Ministry of Production in Peru. Between those two roles, I understand you took some time off to write a book about Peru's economic development challenges. Tell me a little bit about that time and about the vision you articulated for Peru.

Piero Ghezzi: Actually it started before, because at the end of 2009, I moved my family to Peru, but I kept my job at Barclays. So for three years I was committing back and forth between Lehman London, Lehman New York, Lehman Singapore or Hong Kong, once a quarter. So in 2011 there were presidential elections in Peru. And a "surprise" took place. The winner was Ollanta Humala, a leftist President, who actually wanted to change, or adjust at least, the economic model where Peru was supposedly a star. A macroeconomic star in Latin America with very high growth, low inflation, low debt to GDP ratio. So there was a clear disconnect between the perception that international investors had when they came to Lima and they went to a nice restaurant and to the Central bank, and what the ordinary citizens were feeling. So I started with a friend, José Gallardo, writing a text about what could explain the difference between the perceptions that investors have of Peru and many people in Lima have of Peru, and what actually is taking place? Because how come you have candidate who is asking to change the model winning the presidency? We wrote a text that became a book a couple of years later, and what we basically said was exactly this. That whereas macroeconomic fundamentals were very strong and there were good macroeconomic policies, at the more micro productivity level, it wasn't the case. So Peruvians, the citizens, were facing the lack of good services in education, in health, in a lack of good jobs despite very high level of growth for many years. Almost by then it was pretty much 20 years of high growth. Still informality was very high. And there was a lack of good jobs.

So that's when we wrote this book. And it wasn't well received in Lima, because many didn't want to hear. It was well received in, essentially, we sold pretty a lot for proving standards, but it wasn't well received by the establishment because people didn't want to hear that things were not going really well, that Peru was not going to be able to sustain economic growth in the foreseeable future because the fundamentals in terms of institutions, human capital were not there. So we could grow for a few more years, but we are not going in the path towards development. No.

Rohan: Yeah, that's interesting because it's also an interesting time you choose to write this book, given that between about 2002 and 2012, Peru is growing at an average GDP growth rate of 6.4%. There's also an increase in labor productivity. So it's an interesting time to write this book, but I think the point you make about the headlines - the headlines versus the experience of day-to-day Peruvians - is a very important one and one that'll keep coming up in subsequent questions in this conversation as well. But beyond Peru, you've also done some work and written about the challenges today's developing countries face with respect to productive development policies. Help me understand what you mean by productive development policies first, and then help us help paint a picture about what these challenges today's developing countries face are.

Piero Ghezzi: I don't think I can claim to be an expert in developing countries. I could talk about Latin America. Actually productive development is a name that the IDB used to talk about industrial policy in Latin America. Industrial policy had a bad name in Latin America because of that experience of the sixties, seventies, and early eighties. So we want to use that, I mean the famous Brazilian finance minister, Pedro Malan, said, "The best industrial policy is no industrial policy", you know? But what we mean is that in the end.

The problem in Latin American in particular is we have this dualism where you have a right, a small group of large medium science firms - modern, high technology, high productivity, inserted in the global value chains, et cetera. And then you have a large number of SMEs with low productivity, informal. And not a lot in between. And so this dualism is problematic because the large terms cannot generate sufficient jobs. And we need policies for basically two things - help the growth of large firms to absorb more, generate more employment, and second, to help the small firms to reach the standards required to participate in value chains. And to achieve that, we need to solve coordination failures within the government, between different entities, between the government and the public sector, et cetera. Those sorts of policies needed to solve these coordination failures and increase productivity and employment are the productive development policies.

Rohan: So you said that the book wasn't particularly well received in Lima or among the headline writers, but then you embark upon a tenure to lead the Ministry of Production. Tell me how that came about, and what your initial goals were when you started there?

Piero Ghezzi: Interestingly, what we said in 2011 and in the book is that growth was not sustainable, at some point it was going to stop. And that actually happened when I joined government, the slowdown of growth started. Coming in, I would say there were some traditional views about development, like we should not be exporting raw materials, we should process or industrialize our raw materials. My predecessor in the Ministry had this Industrialization Plan. My first impression is that we should not reduce our opportunities to just industrialization. So I changed the plan, or let's say the strategy because it wasn't a real plan, but towards productive diversification.

So what I said is, we should not limit our possibilities to industrialization. And we should think about modern farms. Modern farms are like factories. So Peru had experienced a boom in agriculture. And whereas we used to think about agriculture's traditionally low productivity, when you see large farms in the coast that produce mangoes, grapes, blueberries, et cetera, they work like factories. They're big factories. Instead of producing iPhones, they produce foods and vegetables. So we need to think not so much about what we produce, but how we produce them. In terms of the methods of production, the right continuous improvements, short learning cycles to reach the quality standards. So we designed this strategy towards productive diversification. And we of course realized that main problem is that government works in water-tight compartments. So to really generate more engines to growth in terms of more sectors, we need to go against that. The way government is structured in Latin America, in many countries where every entity, even within my Ministry, one vice ministry and the other didn't talk to each other. So different entities don't really coordinate.

Rohan: Absolutely. You mentioned that it's when you took office that the economic productivity declines began. Normally people would see that as a bad thing, but if anyone has been in government, they know that crises are often great opportunities to recalibrate how government works to begin to generate enthusiasm. So and you, you just talked about it, it's not about just what but also about how we do things.

Piero Ghezzi: Right.

Rohan: And unsurprisingly one of your most important legacies is not just articulating a policy for Peru, but also implementing a very new mechanism to do that. A mechanism called Mesas Ejecutivas. I'd love to hear a little more about this. Tell me what the origin story is. I know very often origin stories or such things in government are more organic and not necessarily strategic, but I'd love to hear your perceptions and insights about how you started.

Piero Ghezzi: I One thing was, of course we had this strategy for economic development for practice diversification, now we needed to implement. So, we received many consultants, Big international organizations. Consultants who wanted to generate a document on how to implement proactive development policies. So they were going to conduct interviews with the players, et cetera. And I realized, look, I have two years. Right. Two more years in government because the president was going to leave in July 2016 and, it was July 2014. And I have two options. Wait for them to do all these interviews, et cetera, or I directly start to interact with the participants. Did it make any sense to wait one more year have this nice PowerPoint by say McKinsey, to put it I'm not talking about anybody in particular, but you know what I mean.

And then so we started to convince the main actors in a few sectors that were obvious because our neighbors, Chile in particular, was having success in those sectors. And normally what works for Chile normally works reasonably well for Peru. And so instead of a waiting for a PowerPoint or PDF that was going to be, probably was going to remain a pdf, we started to convene the main stakeholders, public and private, of a couple of sectors.

And that's how we started. We call it a Mesa because that's the way things are called in Peru but is really evolved into something very unique. And private sector participants said, look we are doing a lot of stuff here, they have become very Ejecutivas, you execute stuff. So the last name, Ejecutivas, was provided by the participants of the private sector in particular.

Rohan: Right. So just to restate, it's not just a stakeholder meeting, it's a stakeholder meeting that leads to executive action. And which is why this is a very unique framework.

You said how whatever works in Chile is often exported to Peru, but recently we've seen the Mesa approach being exported to Chile. So that's a good, that's a good reversal of how it traditionally works.

Piero Ghezzi: It almost never happens that institutional arrangements from Peru are utilizing Chile. It never happens. It goes the other way round. Actually, Chile is normally a country that’s a pioneer in public policies in Latin America at every level. But yeah.

Rohan: So let's make this Mesas Ejecutivas framework real. Let's try and understand how this actually happened. Let's pick a sector, perhaps agriculture. Walk us through how you got started with this approach. What was the prioritization logic with agriculture? I know the goal was to pick priority sectors and not just adopt this approach across all sectors of the economy. How did you prioritize the agriculture and who did you bring to the table?

Piero Ghezzi: Okay let me focus on aquaculture, fish farming instead.

Rohan: Sure.

Piero Ghezzi: Mutatis mutandis, in general they are very similar. And the reason, because we started with aquaculture. It was our second Mesa. One thing about the Mesa, and I think it makes sense to clarify, is that it's not just a meeting around a mesa or a table. A Mesa, more than an institution, is also technology, a methodology, a way of working.

So in addition to these biweekly meetings, we also used to have a lot of bilateral or intrasession meetings. So it's almost like a way of thinking about how to work with the public sector and the private sector. So again, we realized that our neighbors, in this case, Chile and Ecuador, were having significant success in agriculture. And Peru was a super strong in fish meal exports, not really that much on aquaculture fish farming. I started to convene the main actors in the public and the private sector. It helped that there was Minister of Production with two vice ministries. The vice ministry on Industry and the vice ministry of Fishing. So aquaculture was part of my direct right. I was a sectorial minister.

And so we convened the main actors and we realized that there were many problems. The first is that there wasn't a well-established sanitary authority. Because what happens in in international markets, right, are significant demands for get permit certifications. You need to reach standards that the international buyers require. So if you don't have a credible sanitary authority, you can export a little. So, in a funny way, you brought the agriculture sector in as well. So we had in around 2000, a promotion law for agriculture. So tax rate that was halved, labor flexibility, a group of incentives. We saw that agriculture actually skyrocketed, boomed, but aquaculture did not. And the main reason we realized that happened was that in aquaculture, there were no complimentary public goods that were put in place. Whereas in agriculture we had irrigation projects, we had SENASA that was the sanitary authority that was actually opening markets and working very well with private sector. Nothing similar happened with aquaculture. So we needed to provide the similar public goods for aquaculture.

So we created SANIPES, the sanitary authority for aquaculture. So the Mesa actually helped SANIPES to grow towards this public private collaboration. So , it wasn't that it hit around running, but it was a lot easier for SANIPES knowing what to do, how to do, because it had a Mesa next to it. There were other problems, for example, like laws or the norms were not differentiated between fishing and fish farming.

Rohan: How did the Mesa approach help you understand what the challenges of the bottlenecks were? The Mesa framework is very much an approach to learn. It's a process of discovery. So how did you begin to discover the challenges and the bottlenecks that were holding the aquaculture sector back?

Piero Ghezzi: Right. I think when you convene the main actors, you realize a few things. First, that there's a lot of things that the private sector knows that the public sector does not know. Because the private sectors are the players. They are facing significant challenges, answering to international demands that change continuously. The standards required by international buyers keep, increasing over time, their technological changes, et cetera. So the one thing that is obvious is that there's a mismatch in knowledge between the private sector and the public sector. Even those in the public sector that have the direct competencies on the aquaculture sector. In addition, a lot of the supervision and control is done on labor environment. Social issues are done by transversal entities that do not know the specifics of the sector. So SUNAFIL, that supervises and control labor standards, or the OEFA that supervises and control environmental standards, didn't have aquaculture-specific things. To put to you an example, SUNAFIL was asking steel-toed boots for agriculture guys. So they're very heavy boots. Of course, if you are maritime, in a sea platform with those boots, I mean that's what very not very safe for you, you know? Those sorts of things where standards were not tailor made for this sector. So the one thing we started to learn is that in convening the actors, there's a lot of learning that took place. I would say the public sector learned a lot about aquaculture.

And then the private sector started to learn also that the solution to their problems is not just to ask for a tax exemption. You know what I mean? Because a natural tendency of the private sector when they have a problem is, okay, compensate me and give me a subsidy, and there are things that subsidies cannot do.

Rohan: So let me pause there and take one step back. Actually. You talked about convening private sector players and talking to these actors about the challenges they face, but step one is even identifying which actors to bring to the table, how do you even identify which actors to bring to the table? Who are the participants that you bring to contribute to the Mesa approach?

Piero Ghezzi: Yeah, of course this has changed over time. But initially what we did is we asked the main business associations to try to identify the main companies, actors, stakeholders. We did not want to have just business representatives, meaning guys whose day to day job is to work in a business association, but guys who actually work right in aquaculture in their day to day activities. They have firsthand knowledge of the problems. So that was the original group of stakeholders in the private sector. Then we convened the different stakeholders from the public sector, the different entities. And we started like that.

Of course, Mesas have an open architecture. The idea is that over time many more actors were included, particularly a small representative of small producers, that were not in the initial calling. But one of the main characteristics of the mess is that we are not talking about a rigid set of participants, but it evolves right over time. Maybe you have, depending on the problems, new guys from the public sector or the private sector starting to join. It's not fixed.

Rohan: Yeah, this is something I want to explore deeper later in the conversation about how you can prevent these being only forums for insiders, but how you can democratize and allow more people to be a part of it. But let's go back to the point you raised in the previous answer about preventing the private sector from making everything about getting a tax break or getting a subsidy from the government.

What you interestingly did through this framework is that you began classifying bottlenecks into "my problems" and "your problems". Tell us a little bit about that.

Piero Ghezzi: I think the distinction between my problems or your problems is more for the outside audience. The Mesa coordinators or participants would not identify very much with that. But what we said was things like tax exemptions are off the table. We don't need a Mesa to discuss these things. Okay? We are going to discuss things that the public sector can do to make you more competitive. So what are the problems that the public sector needs to solve? Providing public goods and services, simplifying certain regulations, et, etcetera. And what are the things the private sector needs to do in order to be more competitive? If the only thing you need is to get a tax exemption is that we are not doing our job, correctly.

Actually to do a tax exemption is the easiest thing, not for a Finance Ministry maybe, but right? When you don't know what to do, what do you do? You reduce taxes. Right? Because in terms of the amount of work required to do that, it's the least amount of effort. But that doesn't help many sectors at least if you do not compliment them with other right actions.

Rohan: One of the things you mentioned earlier was there are some problems that a certain ministry can solve on its own, and there's some problems that are more transversal in this context, how do you address the public-public coordination failures that inevitably come up in such situations. What is the kind of relationships you create with other departments and other government ministries, and how do you take into account their own capacity constraint?

Piero Ghezzi: Yeah, I think that's a clear point. I led a sectorial Ministry. I was not in charge of the Finance Ministry. For the Mesas framework to work well, you really need to solve these coordination failures where government entities work as if other entities did not exist. And you need to induce collaboration and cooperation. And normally that requires certain incentives. The one advantage I had is that I was very close with the Minister of Finance. So we complemented the Mesas framework, supplied the Mesas with a budget, an implicit budget. In the sense that if I'm going to ask you to strengthen public entity or to generate new offices, et cetera we are going to make sure that you have the budget. If The Minister of Transportation needs to do some certain infrastructure, the budget will be allocated. So the cooperation was held by providing financing. That actually makes things easier because what we found is that at least 70% of the coordination problems are within public entities. Public-public coordination failures are more pervasive that public-private failures.

And you have to address it in a way. A sectoral minister normally has limited capabilities to induce cooperation from their peers. You need somebody, and who has the money is who actually knows the Minister of Finance, who is actually able to induce cooperation. Or the President.

Rohan: Absolutely. And so far, we are only talking about the public-public coordination failures at the federal level. This is obviously much more challenging when we also take into account a variety of local capacity issues. So, for instance, the World Bank finds that there are also a variety of regional imbalances within Peru, with the Costa region, for instance, having relatively poorer job opportunities compared to Sierra and Selva, and definitely Lima. So how do you also begin to address the local capacity challenges when all of these policies that you might be coming up with using the Mesa approach, have to be ultimately implemented at a much more local level.

Piero Ghezzi: That has been a very significant challenge. And the Mesas over time had to expand their roles. Of course, one thing happens, which is that a lot of the coordination failures are local. Because productive activities are taking place at the local level, they are not taking place in Lima. They are taking place in the regions, at territorial level. It was very natural to go deeper into the regions. The problem is that the state capabilities are weak the central level, and at the region and a local level they are a lot weaker. So what we have to do, what that Mesas team has continued to do is because the Mesas has survived me and still until now, they're working, which is a testament of how valuable they are supposed to be, or they are. So it is to go and work with public sector entities at the local and regional levels, dig deeper with them and provide them with budgets. Working with them, not just give them a talk. Here, you need to work with them. You need to work and help them solve problems and provide somebody as well.

Rohan: Were actors from local government, also participants in the Mesas?

Piero Ghezzi: Of course, of course.

Rohan: And what were the kind of challenges and bottlenecks that they pointed to?

Piero Ghezzi: For example, one clear case with forestry. You talk about the different regions of Peru, right. The jungle, with the border with Brazil and some parts of Colombia, it is very sunny and it's where the forestry sector is, where we have the Amazonian rain forest. And a lot of the forest sector plantations have huge potential. But the local governments didn't have entity to regulate forest plantations. And actually didn't make a difference between the rainforest and plantations. And so what the Mesa had to do is to change the organization, the original governments to create one division in charge of forestry. Because it was hidden within the organization. So stuff like that had to take place. And really start to work with international standards about what you are supposed to do with forest implantations. Things like that. They came all the time,

And we are not even talking about corruption here. Because the other challenge is, how do you deal with a corrupted government? Peru underwent a decentralization process starting 2003, to delegate a lot of capabilities and capacities, or the responsibilities at least to the local level. But there was a mismatch between the capabilities and the responsibilities. So the Mesas had to deal with that. So we had to deal with the government we have, with the state we have, with capabilities we have. .

Rohan: One of the things that I find interesting is, you started off with a lot of vertical sectors. You started off with sectorial Ministries around 2014. But by late 2015 you moved towards some horizontal issues as well. For instance, you created the Mesas Ejecutivas for logistics and high impact entrepreneurship. Tell me how these sectors, I don't want to call them sectors, or how these thematic areas were identified? And how did the implementation of the Mesas differ from the previous sectoral work to some of these more transversal issues?

Piero Ghezzi: It's funny because both Mesas, let's call them transversal Mesas or horizontal Mesas, implied a very different experience. The logistics Mesa was incredibly successful and the high impact entrepreneurship one was not. The main problem, and that's also why I don't like to distinguish too much between horizontal and vertical, because logistics is a sector in a way. An important characteristic of successful Mesas is that you have a very well defined set of problems that are actually common to the actors.

So that, that was an advantage of the logistics sector. They knew their problems. 80% plus, actually more than 90% of the export from pergo leave from the port of Callao. So we had to solve the problem of the port of Callao. The logistics Mesa was super successful because we were able to, in a few months, get a lot of things done.

Whereas in the high impact entrepreneurship, the set of factors were not there. The problems are not very common. So it was a lot more difficult to get it running at the end. So the difference really is that, if you have sector that is macroeconomically relevant on the one hand, but sufficiently common problems for the actors. It's a lot easier to get the things on. So I would say that the main characteristic for successful Mesas is to have private sector actors that actually are interested in common problems and know their problems.

Rohan: Got it. One of the other things that's very apparent in all your answers in the conversation we've had is that the Mesas Ejecutivas worked because they were very systemic, and they were system wide. They were not just about one set of people interacting, but a large range of people interacting, and corresponding action across different ministries and departments, involvement of local players and so on. When you started, were you always thinking about this systemically, or was there a more organic growth and learning that you had when this process was implemented?

Piero Ghezzi: In a way for Mesas, what I did not know was more important than what I knew. My background, as we started this conversation, was in microfinance. So a lot of the stuff that took place was actually work in practice. So we learn a lot in the process of executing. And I would say, we knew that a lot of the theory or the literature of a modern industrial productive development policies are actually after the fact. So what we saw was clear, we saw what we work in practice and then we realized that actually it was very similar to the stuff that people like Dani Rodrik or Chuck Sabel were writing. And again, my background was in macro finance, not in development. And that may have helped because I have so few fixed ideas of what to do. It's just listening the private sector, to the public sector, and having an open mind on how to solve problems is what helped us a lot. And having a very good team of public sector employees, right. Capable, with objective of actually improving things. Because the one main problem one has with the public sector is that there's a lot of inertia, fear. Guys who are not interested in making things happen.

So I was able to identify, and I don't think we have highlighted enough in this conversation, is that there are three types of stakeholders in the Mesas. Public sector, stakeholders, the private sector stakeholders, and then the dedicated team that actually knows the technology. That implements the Mesas. Of course their objective is to do the right thing, but they try to be neutral. You need them. They're experts not in the sector, but they are expert in administrative law. They are experts in public sector management. And the one counterintuitive thing about Mesas is that this dedicated team was very transversal. So you did not have, like, guys specialize in different Mesas, but the same team run the different Mesa. And that was a something that also we learned over time. The Mesas were not designed right from the very beginning and just implemented. We learned a lot in implementation.

Rohan: Let's dive a little deeper into some of the challenges, limitations and potential risks of this approach. One of the things you've alluded to, and you've written in the past about as well, is that the public sector can often get defensive or mistrust the private sector. How did you prevent this from happening?

Piero Ghezzi: I think this is not just a Peruvian problem.

Rohan: Absolutely, yeah.

Piero Ghezzi: Again, I think I have a lot more experience in Latin America, but I have talked about Mesas and visited many countries - Argentina, Brazil, Chile, Ecuador, Costa Rica, El Salvador, to talk about Mesas. And the problems are very similar. There's a mutual distrust between the public sector and the private sector. The private sector tends to see the public sector employees as lazy, who are not interested in improving things. And public sector tends to see the private sector as lobbyists, just interested in making more money but not interested in the country. So the best way to reduce this mission mistrust is to start working together, when people start to sit at the table and start to talk about their common problems and solutions, et cetera, those barriers are lowered. Second, and this is very important. You need to make sure that the dedicated team that runs the Mesas doesn't get all the limelight. The merits have to be shared by the public sector, in particular the public sector entities that are in charge of the sector. So if the just that dedicated team outshines some others, there will be more mistrust and more unwillingness to cooperate. So the guys who have to shine are the public sector employees. And that works a lot. Again, sitting on different meetings biweekly or sometimes within weeks, that helped a lot to reduce the mistrust.

Rohan: You also alluded to Chuck Sabel earlier. So Chuck Sabel and his co-authors who studied approaches like this one with public private partnership and learning across South America, they write: "at the heart of this information asymmetry, there's a classic principle agent problem where the challenge for the government test principle is to conduct this interaction in a manner that actually induces firms to provide information completely and truthfully, rather than manipulating it in order to bias the policy design in their favor."

How do you ensure that the private sector brings candor to the table and brings complete frankness and honesty to the table, and is not trying to mini use this forum to manipulate decision?

Piero Ghezzi: Right. I think the deeper you dig into the problems, the easier to overcome that potential risk. Because of course there's always this initial reaction where you are concerned about capture of the public sector, about the private sector not telling you the truth, et cetera. And what we found is that when you have, first, open, transparent meetings with many participants, and then when you really make the effort of not fall into generalities, but just dig deeper into a problem - what is your problem in particular? What are the bottlenecks? How is the public sector affecting the way you are operating. What can we do better? And that is an art in a way, to not just accept the initial answer, but really go deeper into the problems. That allows you actually to obtain truthful solutions. So concern was exactly what you mentioned at the beginning in the day to day operation of the Mesas. We have found that the private sector is very candid. And of course, again, the reaction is going to be ask for tax exemptions. But once you take that off the table and you begin really very meaningful discussions about the problems and potential solutions, you learn a lot.

The one thing that I may not have emphasized enough, the one thing that the private sector doesn't know is about public sector management and law. So they learn a lot about that because they come with the problems and they were very capable of explaining their problems, but they're terrible with the solutions. So it's something that they learn as well, with the Mesas system.

Rohan: You pointed to the importance of that Mesas team, as playing that interlocutor between the public and the private sector and having really strong understanding of governance issues. Just to dig a little deeper into that. How did you recruit and put together that team? Who were these people? Were these people in government? Did you get people from the outside? How did you create this?

Piero Ghezzi: They were in government. What happened is that I became Production Minister in February 2014. The Prime Minister - Peru has a President and then a Prime Minister that is the leader of the cabinet - left in July 2014. And he had a very strong team of very capable public sector employees. I mean, one of the advantages I had was, as I said, I didn't have a lot of expertise, neither in economic development nor in public policy. So when I came and I started to try to implement this productive diversification plan or strategy, I started to lean a lot on these public sector employees who work for the Prime Minister. Sadly the Prime Minister left because of a political scandal. And so I was able to recruit many of these guys right from the Prime Minister's office. So if you wish, the Mesas are the combination of some of my ideas, intuition, et cetera, and the many years of good experience of these public sector employees. And I emphasize the good experience because I realize that there are guys, who may be 20 years working for the public sector, but really, it's like a year of experience repeated 20 times. As opposed to guys who keep improving and learning and doing things better each time. What I did realize is there's a huge amount heterogeneity in the public sector employees and their capabilities.

And you pick the right guys, with this Asian way if you wish. It's a "how do I help you"? The majority of public sector employees don't have that idea of how can I help the private sector. So I identified those guys, and those guys were the ones leading the Mesas. And the idea is, how do we improve productivity and employment generation in these different sectors?

Rohan: And as an outsider into government, as you started beginning to understand the role of these different public sector experts and agents, did you also learn from some of the local experimentation that was happening around the country that may have been successful, that may have failed, but was there local experimentation that you learned from?

Piero Ghezzi: I had been visiting farms and aquaculture farms. I was a lot more familiar with what was happening in at the production level. And I was realizing that there was a very clear you know disconnect between how sectors were perceived what was going on in the real world. And that helped me a lot, I would say, to realize that if we did not include into the conversation a lot of the guys with the right local context and knowledge, we were not going be able to do successful policies.

I think at this point, policies designed without the participation in general of the private sector, are almost always deemed to fail in this area of productive development policies. Because the velocity, the knowledge, the learning, the standards keep changing over time. It is such that if you do not include them, you are going do something that works nicely in theory but not in practice. Looks elegant in theory, but probably is not going to capture what is needed. And it will be either useless, right, or actually counterproductive.

Rohan: Let's go back to one of the other concerns that we a sort of raised earlier, about the "insider" problem with Mesas as such, and how they can be captured by the powerful players in the room. And it's important to place this in context. Nearly four-fifths of Peru's employment at that point was in informal work in low productivity sectors. Farmers, the self-employed and informal wage workers each accounted for a fourth of total employment. In this context, how do you broaden participation in these Mesas to be about more than just the chambers of commerce and the big producers?

Piero Ghezzi: Yeah, that has to be a deliberate effort. As I said in the beginning, the idea was to really give it a very open architecture with new players and that has been happening over time. You started with the bigger firms and farms, et cetera. And then over time either because we have started to ask other guys to join the Mesas or even more often than that, if more producers ask to join the Mesas. What I really like about the Mesas is that there's a lot of demand from private sector participants to join. And the Mesa has kept that right open architecture that allows for it. Because it's obvious that the guys who participate in the Mesa don't want the others to join. Very often other guys do join, because they want the attention. The Mesa team has to be very deliberate in asking for new guys, asking for new players, because things change a lot.

To put it this way, Peru almost did not export any blueberry in 2014, but now is a main export of blueberries in the world. So the players change, the sectors change, the products change. So you need to start including different players. And in particular, the smaller guys of course have less direct contact with public sector entities. And what helped is that they started to associate themselves, to organize themselves in associations. And that helps a lot because if you have thousands of small firms, you cannot include them all in the Mesa. But if they organize themselves and they name representatives, that helps a lot.

Rohan: So you mentioned that the Mesa approach is still something that continued even after you left government. What is the "next step", quote unquote, for a Mesa? You know, you create a Mesa, you de-bottleneck some issues, you revive production in an ideal world. What then? Does the Mesa just end, or is there a new problem you go to? How do you graduate a Mesa.

Piero Ghezzi: I'm of two minds here. And that problem hasn't been solved, to be honest. On the one hand it's obvious that the coordination problems do not end. So Mesa needs to be a stepping stone towards something else. Government, with all its watertight compartments need to work in a different way. So if you graduate an agriculture Mesa and go back to your old ways, the problems will keep emerging and you will not solve anything. So on the one hand, coordination failures do not end, and you need to find a way to make goaling works in a Mesa mentality, in a Mesa type methodology. At the same time what we have experienced in Peru is that, since I left, we had five Presidents. The average tenure of a minister is maybe four months, five months, I don't know. Then it is very difficult. If you are a chief a staff, you need continuity. And if you have the leaders of the different ministries lasting four months, then it's impossible to have continuity.

And the Mesas have allowed that continuity. So the same dedicated team that I had is actually leading the Mesas right now at the Ministry of Finance. And that has meant that many of the Mesas had this policy continuity over the last six, seven years. Or almost eight in some cases. So that has been super helpful. So the transition has been very difficult because if you have weak ministers, weak entities, weak government, et cetera, it's very difficult to make the transition.

So my answer would be more theoretical, on what I would like to see. Is course, after some time, Mesas would need to move back to the sectors, sectors need to work in a Mesa type mentality, and then elevate certain problems to the Minister of Finance because you need the coordination issues to be addressed. And that many times, it's a budget or somebody who can convene to solve problems or conflict resolution, et cetera. So the aquaculture Mesa instead of being at the Ministry of Finance should go back to the Ministry of Production. The mining Mesa goes to the Ministry of Mining. The agriculture Mesa to Agriculture. But you have to establish those mechanisms that elevate certain problems. And in that way, you can actually expand the bandwidth of the public sector.

Rohan: I really like your use of the phrase Mesa mentality, because I think what it points to is that the Mesas are not just tools to solve a certain problem, but it's really about rearchitecting government to operate in a way where it's able to collaborate with both players inside and outside to resolve a variety of coordination failures and principal agent problems.

Piero Ghezzi: Exactly. I think you need to have this way of working and the objective of the mesas is that the public sector employees start to adopt that mentality as well. A problem solving mentality.

Mesa in way is a terrible name. Because it really conveys the idea of people sitting about a Mesa, and again, it's more a mentality, a technology than just an institution.

Rohan: Absolutely. Now, if someone came to you, and I'm sure you've encountered these situations already, a production minister or a finance minister from a different country came to you and asked you the first step that they need to take to establish or to use the same approach that you did, what would your recommendation be?

And I'm sure you've been asked this question, so you probably have a ready answer.

Piero Ghezzi: I think you need two main right decisions. First, you need the decision at the highest level in government. If you really do not have a very high level decision, it is just a sectorial minister who wants to do Mesas but doesn't have the buy in from the rest of the public sector, and ideally the President, the Prime Minister or the Minister of Finance, then the problems you can solve are going to be limited in scope. The second thing to have a first class dedicated team. Those two things are the main ingredients to have success in my view.

Rohan: So Piero, finally, we started with the book you wrote, and the challenges you identified in Peru's economic development and its macroeconomy. Having spent time in government and through these Mesas, what type of problems do you think you've been able to solve?

Piero Ghezzi: I wrote this book in 2013, of course that was prior to the public sector experience. I think we had a good intuition about some of the main problems. I think Peru has changed over the last years that there's this, we have moved in a way from just horizontal policy mentality, where there's no industrial policy, to increased acceptance about the fact that you really need to move into sectorial problems. That when you really talk to the participants in the private sector, if the problems in forestry are very different than agriculture, et cetera. So you really cannot move forward just with education, a right under this act, this infrastructure, et cetera; you need to go into a sector specific solution.

And within that, I think there's an increased acceptance now in Peru towards the importance of dealing with local development problems to increase employment, enhance productivity at a local level, and the need for using these sorts of tools. The demand for Mesas right now is super large. And I think one reason is that I don't think you have many other alternatives to solve coordination problems, you need to see how you adopt the methodology to more local level, more national level, et cetera. But I don't think there are a lot of other alternatives. A second is because government in general in Peru is weaker than before, and because the political system is weaker than before and is more unstable, the Mesa is the main thing people have. The thing that has allowed certain continuity and improvement in policies in aquaculture, in agriculture, in forestry, in mining, in different sectors.

Rohan: I know I said that was the last question, but I'm going to ask you one more. Re , you were a trained economist, and even prior to your role as Minister for production, you were the head of Emerging Markets research at Barclays. How has this experience in government changed the way you think about economic research?

Piero Ghezzi: Yeah. I was head of emerging markets, global economics and FX research globally, so not just emerging markets. So I had to deal a lot of macroeconomic issues. I was in charge of that position during the Lehman Brother crisis. Actually Barclays bought Lehman Brothers, the US part and the Israeli part of Lehman Brothers. So obviously the crisis made obvious the existence of market failures. But my knowledge of economics was very biased when I was at Barclays, I think. Because it was very macro strategy, international investment. And I learned a lot at the Ministry seeing the problems from the sight of the ordinary citizen. So even though I can see how the private sector, they see a government that doesn't work well. They want government to basically leave them alone. Right? Of course that's not a solution, we know that's not a solution. But we need to see how they can start valuing the thing that government do. But that is not going to happen because you give them a talk. They need to start to see government working in action and doing the right thing.

So I am a lot more of the idea of walking around, going right to the ground, talking to the ground players. Because this small farmer, right, a traditional farmer with one hectare right in the jungle or in La Sierra, has a lot to teach you. And it doesn't matter, go with Chuck, we have a couple with Chuck very often - PhDs in Harvard, Macarthur Genius Awards and still there's a lot to learn from the small farmer who doesn't have a secondary education.

Rohan: On that note, Piero, thank you so much for your time. Really appreciate this conversation.

Piero Ghezzi: Thank for the invitation.