One Economics, Many Recipes: Globalization, Institutions, and Economic Growth : Dani Rodrik: Books - leondumoulin.nl
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So the issue is whether you actually are able to turn your back on the losers enough of the time. Finally with respect to globalization, I think about the implications of these kinds of ideas, and one-third of the book deals with thinking about global economic arrangements, where I make the argument that the best kind of globalization is not necessarily the one with the fewest economic controls at the border, but the one that most enables countries to pursue their developmental, and I think for the rich countries of the North, their social objectives.
And an important part of the book of course is aimed at convincing you, the potential reader, that those two objectives do not always coincide. They do not coincide because transaction costs associated with national borders and sovereignty cannot really be eliminated even if tariffs and capital controls are. This is one of the big, important findings of the literature in international trading and international finance over the last decade, that all these capital controls and all these import tariffs have gone down, yet we find that there are huge transaction costs still associated with borders.
I think the right way to think about it is that, even in the absence of former border controls, the jurisdictional and other discontinuities associated with national borders continue to impose important transaction costs even in the absence of explicit import controls or capital controls—which means that you are inherently in a second-best setting with respect to the practice of your international economic policies. That means that you still are in a position to generate the kinds of high-productivity employment at home for your own labor force.
In a truly transaction-free world where your labor could go to the rich countries and where foreign capital could come in without any transaction costs, you would not have to worry about economic policy or industrial policy or development policy because the forces of convergence would be operating at full force. Because we live in a world that is divided up into different nation-states and that is going to be the reality for the vast majority of developing countries going forward with just a few exceptions—potentially of those in the immediate periphery of the European Union—the reality is that you need to have a domestic strategy, and that domestic strategy is going to require developmental policies and having the appropriate maneuvering space, the policy space, for their deployment.
That is why I think a thin model of globalization, a sort of shallow type of economic integration to use my colleague Robert Lawrence's term, will actually work better for most countries than a thick model. One way to restate what this says in the context of current experience is that China has done much better under a GATT model of global economic arrangements than it is likely to do under a WTO model. And that is because a set of international disciplines did not constrain China from following the kind of heterodox and sequential reforms that it followed ever since the lates and proved not only very useful for growth and poverty reduction alone but actually proved very good for generating trade and investment.
This is one of the paradoxes of the postwar order that in fact by having less-restrictive international regimes you can actually end up having more trade and more foreign investment if in fact that less-restrictive regime is one that is more consistent with the pursuing of appropriate growth and developmental strategies, which of course will also generate increased trade and investment opportunities. Let me go back to where I started. I think it is commonplace to discuss the backlash against both mainstream economics and against economic globalization. There is a never-ending stream of books being written on how mainstream economics has gotten it wrong, with Naomi Klein's "The Shock Doctrine" being one of the more better-known recent examples.
The argument that I am really making is that the problem is not with mainstream economics per se, I think the problem has been with the inappropriate application of mainstream economics and with the specific globalization agenda we have chosen to pursue rather. So ultimately what I think the book is about is, and here I am putting myself in the role of the good guy, to save mainstream economics and globalization from their cheerleaders Of course then more seriously and going forward, what I hope the book will contribute to is a new way of thinking about development and globalization policies which in many respects may seem heterodox but, once I again I would want to emphasize, in fact is better grounded in mainstream economics, than what you think is conventional wisdom and conventional approaches of the day - so, I am the true mainstream economist.
I just wanted to say about Dani that I have admired his work for many years. He writes with incredible clarity. He writes in a way that is amazingly useful for journalists in the sense that you can follow what he says, and his work is not models that God knows journalists can never follow, and I thought that the book in particular is just a really good read. It distills a lot of what Dani has been thinking about and writing about for many years and puts it into a cohesive, logical whole so that it does not read like a set of individual essays but reads like a book.
So there is my plug of Dani's book: It is really a fine read. I want to take my journalist's prerogative and try to poke some holes in what he was saying and giving some food for thought and for further questions later on. One of the things Dani was saying was that he found that industrial policy was the norm in successfully developing countries, but I think the reality, which he also acknowledges, is it is the norm in all countries.
Some use industrial policy more, some use industrial policy less, but they all use it in one way or another even if they say they do not. It is like the U. So the question really is: Although Dani does not like to talk about one-size-fits-all kinds of approaches, I think what he is looking to do is to try to figure out a way to spur entrepreneurship. That seems to come through a lot of the writing in the book. He is unconvinced that in many countries there are sufficient market incentives to spur entrepreneurship and so he sees a bigger role for government in doing that.
The book also talks about the many times and many places that there are spurts in growth, that growth goes on, I forget what the exact number is, but something like 7 to 8 percent for 5 or 6 years, it is substantial, and then it peters out for one reason or another, and that there are many, many, many fewer examples of sustained growth.
I would argue to that, although he does not make this argument quite explicitly, that if the creation of this entrepreneurial class, if one could do it, would be a big boost to that second goal which is incredibly important of sustaining these growth bursts, because presumably you would have a lobby that was arguing for the kinds of policies that would lead to the kinds of outcomes that you want. That is the case I would say for industrial policy.
I understand this is arguing economist to economist, and for an economist the idea of industrial policy as a positive thing as a first best policy is very controversial, so he makes the case where the examples where industrial policy worked really well in some of the Asian countries in particular, and Chile although it is not seen usually as a model for industrial policy is another one, and I think he may underplay the many examples of it failing essentially.
I think one way to look at the wave of privatization in Latin America and in Central and Eastern Europe is that these are essentially the hollowed wrecks of industrial policy that went awry and that they were efforts to build a domestic economic by government-run electricity, power, and so on and so forth, and when it did not really work very well, what was left was selling it off. What I would argue is something a little different than what Dani does. I have looked in my reporting career a lot at U. I realize that the U. I think the Japanese did some variation on the U.
They are the ones who spur the research that led to the Internet, that led to jet engines, and that led to a lot of the advances in rocketry and so on. The question is how did they do it. When you look at the failures of American industrial policy it is when the government sets out to do that sort of thing, when it sets out to create a commercial nuclear breeder reactor, when it sets out to create a commercial supersonic transport.
Under the Clinton administration, Al Gore led this big effort to create a superefficient automobile. Detroit took the money and it was kind of the payment to keep the administration off their backs when it came to CAFE standards. I think industrial policy works best when the government is trying to buy something for itself. In the case of DARPA and in the case of the Internet for instance, what they were trying to do is they had a lot of big fast computers, they were trying to maximize the use of these computers, and so they were trying to figure out a way to link them together.
With the jet engine, it was obvious, we were at war and wanted faster airplanes and that eventually led to a commercial industry, but it was not meant that way. It was a sort of serendipitous kind of event. The reason that it is important for the government to act this way is because then the incentives naturally align themselves in the proper way. When the government is trying to buy something for itself it can better tell the difference between what is a useful kind of project to pursue than what is not. When Dani was talking about the sticks and carrots, what are the proper sticks to design into the system, how to cut off company A and company B when you know they are going to lobbying like hell to keep the kinds of projects that they have.
The other thing that I found that was interesting there too is essentially what they do is they will create a community of companies who are the project winners and that they get together and they are required as part of the contracts to share information. It creates on the one hand a fair amount of interplay between the companies which are also competing very fiercely to go on and to go past round one, to round two or round three and actually be the ones to develop whatever it is the government is looking for.
Also I think that Dani had some very useful requirements that companies involved in industrial policy regarding the sticks which were: There is the famous example of the Japanese trying to convince Honda not to get into the automobile industry, or get out of the automobile industry, because there was too much competition, but again it is I think the kind of defining characteristic.
Poor countries are not going to be looking for the newest and latest technology and that is also certainly true. But there are many, many things that poorer countries need. They need ports, they need to buy uniforms for their soldiers, they need to fix up their roads, they need to figure out how to adapt certain technologies.
So instead of being a system where they are trying to create technologies, it might be a system where they are trying to adapt technologies, but nevertheless, I think the idea would be the same. The principle would be, first of all, what does the government need for itself and then the spillovers and serendipity will lead from that.
Let me say what a great pleasure it is to be here to speak on Dani's book. I am going to do three things. Praise Dani of course.
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And then interpret Dani for those who think they have not completely understood Dani, which I think probably is a null set, but I will try and do that just a same. Then I want to criticize Dani as well, so I hope to do all three things and do it in the quickest possible way so that I do not come between you and your conversation with Dani. I am a big, big fan of Dani's. To be a co-author I think at least you have to be. I can say that one of the finest minds in the profession is Dani's.
It is really a very subtle mind, and it is unconventional but not the kind of unconventional mind about which you say "interesting points" and then you move on. You have to stop and address what Dani's saying and you cannot move on. Many of you may not know this, or probably you do, but he is the first recipient of the Albert Hirschman Award, and one cannot think of a better recipient for that than Dani.
So that is the praise, Dani. But let me then go and interpret Dani for you. The heart of it all, which is the key problem for the Washington Consensus—let's call it WC for the moment—is the following. If you take banking, if you take openness to capital, if you take trade, the picture is the same. What in some ways sets the stage for Dani to say he does, and he has said that is his motivation, is that [the notion that if] you reform more and you get more growth sits somewhat awkwardly.
The way I like to put it is that the irresistible force of ideology meets the immovable force of inconvenient fact, reality does not play ball, and so you need someone like Dani to point that out. Let me interpret Dani. Dani's claim I think is that the WC is a template, it is a kind of mindless template, and it is a biased template. At an analytical level the template that if you do more reforms and you get more growth is an intellectual straightjacket because it forces you into a somewhat incorrect reading of the growth history.
Dani's contribution of course here is that successful growth experiences have been extremely varied and rich, and he may want to call it unorthodox, but let's just call it heterodox for the moment, if you look at what China did or what South Korea did, and the book has it also, so you should read it. A different way of reading the history has been I think extremely influential and certainly has made people sit up and ask new questions and fresh questions.
With China and India, the globalizers appropriated these two countries to their camp: China globalized more and therefore it grew more, India globalized more and therefore it grew more. I think Dani makes two very, very interesting remarks which again force you to stop and think. I think one of the really nice things that Dani says in his book is that if China had been underperforming, believe me, all of us would have had a hundred reasons as to why China is underperforming: The other aspects about China and India which I think this reinterpretation is very important is because all these reform metrics that we can eventually use, under no circumstances can you say that India and China are more open or more globalized in some policy sense as any of these other countries, so in that sense, even though the globalizers appropriate these country experiences to their own, I think there is a sense in which their experience does sit awkwardly with the Washington Consensus.
The critique of the mindless template is that when you say do everything, [here are] rules of thumb, it leads to a kind of intellectual laziness and sloppiness and points to just do what the fad says, and that is why we had these fads in development policy prescribed from the outside which in the s and s praised capital fundamentalism, moved on to structural reform, moved on to human capital, moved on to institutions. And Dani comes along with his positive contribution here to say: So it does force you to be much more sharp and hard in your thinking about what the constraints are.
Of course, as an aside I cannot help but say that when you look at these other fads that the World Bank followed, growth diagnostics could well be the latest cottage industry and the fad that the World Bank is going off with, but that is something that I will leave to Roberto to talk about—whether or not it has become a cottage industry. On the biased template I think again Dani's critique is that it is founded on this first best world with an inherent bias toward markets, and I think Dani's real contribution is to say that development is about doing different things and to stop doing old things, what you do is stop doing the status quo, the market generically or intrinsically militates against the pursuit of new things and that is why you need industrial policy, and of course Dani has some interesting variants on this new industrial policy.
This is where I would like to start my critique of Dani. I think Dani is utterly conventional in two respects.
What is the first respect in which he is utterly conventional? Take this biased template, for example. Dani is an unconventional thinker, but in talking about this biased template of the Washington Consensus there is no room for conspiracy theories or multinationals and rich country governments pursuing their agendas using the Bretton Woods Institutions or the WTO as a front. So there is a real contrast between him and Paul Krugman, for example, who sees Cheney and dark forces behind every corner.
Dani I think has too sunny and good-natured a disposition to go after conspiracy theories. One thing is that I think there are good plausible conspiracy theories one can say about the Washington Consensus. Many people thought that the WTO agenda on intellectual property was driven by rich country governments and strong corporate interests. Many countries also noticed why the World Bank through the AIDS crisis said nothing about intellectual property and the harm it could do to developing countries.
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So there is sense in which I think Dani has disappointed many of those to the left of him for not pointing out some of the interest-driven agenda of the Washington Consensus. So that the sense in which he kind of utterly conventional. There is a second sense in which I think there is more in common with him and the Washington Consensus than he lets on, and the way I like to phrase it is the following.
So where Dani differs from Jeff Sachs or the Washington Consensus is in terms of what needs to be done. Jeff will say throw money at the problem, the Washington Consensus says reforms, but Dani says, no, you have to go after different things, industrial policy and so on. But what is common to all of them is what I call the Nike premise that underlies Dani Rodrik's Mark II and the Washington Consensus which is "just do it," we know what it is, but government should go ahead and implement this.
So a sense in which there are policy levers out there that can be pulled, with a fairly top-down view of the whole process. Dani Rodrik Mark I was someone who was very deeply interested in understanding why policies were the way they were and understanding the deeper determinants of outcomes. In my view, outcomes are surely a combination of long-term, slow-moving processes, the policy reforms and what I call the triggers.
They are a combination of history and can-do hubris, a combination of persistence and possibility. We do not really know how many degrees of freedom we have and how much is actually just predetermined and I think that is the fascinating area of economics that is open. I think Dani falls too much for me on the side of possibility, hubris, and top-down can-do. Let me give you an example. Can we really understand Latin America today without addressing inequality? Dani has a great paper with Alberto Alesina on the long-term consequences of inequality.
Can we really understand Africa today without the conflict and the ethnic fragmentation determined by history and geography? Can we understand India's growth without investments made many, many years ago? South Korea and Japan, can we understand their growth without early land reforms about which Dani wrote a beautiful piece in The Journal of Economic Literature called "Understanding Policy Reforms"?
That is at the analytical level. Even at the prescriptive level, Dani has all these things about industrial policy, but there too I really would like to push Dani by saying: Dani, for example, has some very persuasive arguments about the importance of undervalued exchange rates, but can we really control undervalued exchange rates?
Are they really a policy lever? Or are they in turn determined by some deeper political economy factors. For example, lots of Africa had overvalued exchange rates which many argue were driven by ethnic conflict and so on. But I would like him to marry them with Dani Rodrik's Mark I and then we will get Dani Rodrik Mark III which has all the unconventional aspects but with an effort to go behind and understand what are the circumstances under which some of the prescriptions can work, when they cannot work, and what other preconditions need to exist.
So I cannot wait for Dani's next book. Like my two predecessors, I am also a great admirer of Dani and an avid reader of his works and books and papers which I have been reading for the past 15 years and always with the same sense of discovery and admiration for his complexity and the depth of his thinking. So I was very pleased when Prakash asked me to come and participate in this session. I thought I was supposed to discuss his book, but I was told that rather I should speak about the project I am engaged in, which is the Commission on Growth and Development.
That was a surprise at the beginning, but then thinking further I thought there is a logic to this request, which is that in many respects Dani prepared the work of this commission, in some respects the commission itself is a consequence of the critiques and work that Dani has been doing with his colleagues over the years, and it is also a measure of his influence. I am going to cover a few aspects of the commission. It is a 2-year exercise, very complex, involving a large number of people, a large number of academics, a large number of practitioners, and in the 7 to 10 minutes I have I am going to be kind of flying.
On its origin, I think it would be accurate to say that the origin started when Dani came to the spring conference at the World Bank in April and gave the keynote lecture at spring conference. He brought a range of novel ideas many of which you have heard today about how to interpret the growth experience of developing countries, novel ideas on growth strategies. The concept of binding constraints to growth, and several other novel and challenging ideas which had a lot of influence on the report that we prepared at the World Bank on what we learned from the reforms in the s and the growth consequences of these reforms.
Then we had invited Professor Spence to give a lecture in at again the Spring Conference which is usually an annual event, and there were lots of similar echoes.
Transcript
We had asked Mike Spence to give this lecture first because he is a theoretician, second because he is a theoretical macroeconomist, he had never been involved in development, but had been interested in development and had been working in China and some developing countries quite extensively as he was very fascinated by the practice of policies and development policies. So again he brought a series of interesting concepts to this discussion and from there the idea of the commission was born.
Essentially the goals of the commission as it defines it are to address directly the top leadership in development countries, prime ministers, presidents, on what are the conditions, policies, strategies, most likely to lead to rapid and sustained economic growth with the ultimate goal of influencing economic growth rates, if ideas matter for what we do and the ultimate consequences of what policymakers do, that is certainly an important exercise.
As part of the objective, the commission undertook to consult and assemble academic assessments of the existing sets of knowledge in a variety of areas relevant for economic growth. The intent is not to do new economic research, but to assimilate and understand the state of the art in different parts of the discipline. In terms of the planned output of the commission, we expect to have two or three reports of different lengths addressed to different levels of leadership.
We also expect to have a large number of published papers written by academics, some in collaboration with researchers at the World Bank, and we hope the commission sees itself finishing its activities in mid We started a year-and-a-half ago brainstorming with economists and in March the commission prepared a statement of purpose on what it intended to do and why and motivations. We had several meetings in different places of the world. There was the process of commissioning, getting written, reviewing, and assimilating a large number of papers in different areas.
There are only two academics on the commission, Professor Solow and the Chair, Mike Spence, and the commission itself is populated with people who have experience in policies, people who have gone through the blood, sweat, and tears of implementing policies, reform, change, and reaping the rewards or the lack of rewards. There are some business leaders. The work of this commission is supported by a working group. These are the commission members. It is a long list of 21 persons. All of them except for the two academics have some form of policy experience coming from developing countries, Boediono and Kemal Dervis, Foxley who was the first Finance Minister of Chile after the return to democracy, and Kuczynski, the former Prime Minister of Peru.
Interestingly enough, there are many people who have had a history at the World Bank or the IMF, giving a sense that those institutions have been a nursery for economic leaders. The funding comes from several sources. Now we are one year and a few months into the process, we are reviewing the first draft of the report, and we have completed 11 of the 12 workshops that were planned and if you are interested, there is a website which details all of this.
We have about 50 to 75 papers in all. And we have had several meetings, small meetings, large meetings, with the chairman [involved], in different parts of the world. It is too early to tell you what the commission's final report will say or not say, but what is quite interesting is that in these workshops which bring together academics and some members of the commission, and sometimes large a number of the members of the commission, there are a number of issues that have emerged and a number of concepts.
I am not going to go through all this list. I think that we will make it available on the website. Just for the benefit of time, I will just focus on a few. The commission defined itself that it was interested in long, rapid, and sustained economic growth, defined arbitrarily as 7 percent over a period of 25 years or more.
There are two interesting things about this concept. One, it is possible. And second, it is possible, but at the same time it is very difficult as very few countries have achieved it. So there were a number of discussions whether or not this was the right benchmark or what is wrong with 5 percent, why not 6 percent, but it is an organizing device for our thinking. I think some of the discussions that were interesting here, which echo some of the points that Dani made, is that there is not a uniform model which can capture the evolution of an economy throughout its process of development, and at different phases of development we have to think in different models of reality.
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I think contrary to what sometimes the Bank and also the IMF thinks, there is a great uncertainty about our understanding of economic growth, and this is in sharp contrast with the confidence with which both the Bank and the IMF give advice to developing countries. It was interesting to see that all the leaders of developing countries easily agree on this idea, at least most of them. Other things that were discussed include: The Washington Consensus is not a growth strategy, at best it is a stabilization strategy.
Professor Solow put it in words that were similar to Dani's, perhaps he had seen an earlier draft of your book, that while we are clear that the ingredients are common across different growth experiences, the recipes are very country specific. I do not have enough time, and I think the main purpose of this meeting is to talk about Dani's book, so I will leave the rest aside, with just a last word that comes from a recent paper by Professor Solow which echoes I thought quite remarkably some of the issues raised:.
Just reduce a tax on capital here or eliminate an inefficient regulation there, and the reward is fabulous, a higher growth rate forever, which is surely more valuable than any lingering bleeding-heart reservations about the policy itself. But in real life it is very hard to move the permanent growth rate; and when it happens, as perhaps in the USA in the later s, the source can be a bit mysterious even after the fact. So that is some of it.
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There is much more to say, but there is not enough time today. I enjoyed Dani's book enormously, and like the others I recommend it. It is a very important read. Prakash has asked me to moderate, which was meant to be my original role, so without further ado, please, the floor is open now for questions.
Raise your hand and identify yourself, and please ask brief questions so that as many people can get a chance to interact with Dani and the others if you want as possible. Goodreads helps you keep track of books you want to read. Want to Read saving…. Want to Read Currently Reading Read. Refresh and try again. Open Preview See a Problem? Thanks for telling us about the problem. Return to Book Page. One Economics, Many Recipes: Globalization, Institutions, and Economic Growth 4.
In One Economics, Many Recipes , leading economist Dani Rodrik argues that neither globalizers nor antiglobalizers have got it right. While economic globalization can be a boon for countries that are trying to dig out of poverty, success usually requires following policies that are tailored to local economic and political realities rather than obeying the dictates of the in In One Economics, Many Recipes , leading economist Dani Rodrik argues that neither globalizers nor antiglobalizers have got it right.
While economic globalization can be a boon for countries that are trying to dig out of poverty, success usually requires following policies that are tailored to local economic and political realities rather than obeying the dictates of the international globalization establishment. A definitive statement of Rodrik's original and influential perspective on economic growth and globalization, One Economics, Many Recipes shows how successful countries craft their own unique strategies--and what other countries can learn from them.
To most proglobalizers, globalization is a source of economic salvation for developing nations, and to fully benefit from it nations must follow a universal set of rules designed by organizations such as the World Bank, the International Monetary Fund, and the World Trade Organization and enforced by international investors and capital markets. But to most antiglobalizers, such global rules spell nothing but trouble, and the more poor nations shield themselves from them, the better off they are.
Rodrik rejects the simplifications of both sides, showing that poor countries get rich not by copying what Washington technocrats preach or what others have done, but by overcoming their own highly specific constraints. And, far from conflicting with economic science, this is exactly what good economics teaches. Hardcover , pages. Globalization, Institutions, and Economic Growth.
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Mar 12, Byunghwan Son rated it really liked it. The whole book might boil down to the notion that the 'good students' of neoclassical economic reforms did not really implemented orthodox policies. Aug 30, Francesco rated it really liked it. Dani Rodrik is exploring some new ideas about economic development. It is not true that liberalization and rapid integration with the world economy propel growth in the developing countries. China, South Korea, Chile, Vietnam are successful economies that did not privatize or abolish trade barriers in the first phase of their development.
In fact, the US and other developed economies had followed exactly the same path. Therefore, better put things in the right order. What government in the less developed countries should do is to assign the right priorities. What are the most significant constraints that make the economy under-perform? There you have to intervene, but remembering to put in the equation the eventual negative effects that removing constraints can have on growth. Rodrik is a strong support of an adaptive economics. Economists in his words are too 'humble', and considering where we are he may be right.
His idea is interesting but should mature. It is good in explaining what happened ex post, but still not really useful in indicating a path to development OK, my math is bad so maybe I did miss the pointing finger.