[Gah! I fixed this up yesterday but apparently it didn't publish. Oh well, three today then.]
[The event was a discussion of Dani Rodrik's book: One Economy, Many Recipes]
Known for being skeptical of globalization and more recently for his economics blog. Economic development is really working in the most populous parts of the world. 400 million or so lifted out of poverty. However, development policy hasn't really worked; what's been promoted from the D.C. or Cambridge, Mass hasn't really correlated with what's succeed. Globalization has been working for China and India, but similarly globalization policies aren't. Financial liberalization hasn't produced expected results. Trade liberalization has led to a backlash and legitimacy problem. Thus globalization and economics must be saved from its cheerleaders. Current policies, including the new governance/anti-corruption agenda, aren't soundly based in mainstream economics.
The main policy pushed by the West, the Washington Consensus, was not sound economics and overly relied on rules of thumb. It was more a political than an economic model. The problem wasn't just not looking at institutions, it overlooked that removing all distortions simultaneously was impossible. Similarly there will always be transaction costs when crossing borders, regardless of eliminated tariffs or other controls. Thus we're not in a "first-best" world where all restraints can be removed, we're in a "second-best world" which has a different set of mainstream economic models. Sound economics is also context-specific, policy prescriptions should always be contingent on initial conditions. Successful policies are selective, sequential, unorthodox: targeting binding constraints. The best globalization isn't minimizing controls but enabling countries to pursue developmental/social objectives.
Development is about structural change. Markets are bad at structural transformation. For expanding non-traditional economic activities, market failures can be as important constraints as government failures. This is why almost success cases have had an industrial policy, including Pinochet's Chile according to Bob Davis. Standard line: industrial policy is too hard for weak government. Markets provides the sticks, government provided the carrots, rents that induce entrepreneurs and investors to try new things. Government will always know too little, design institutions that can elicit information from the private sector. Industrial policy is a process, not favored sectors and instruments. Don't "pick winners" instead "let losers go." A successful industrial policy needs to be adventurous enough that it picks some losers. Development banks should invest in lots of small activities rather than a few large ones.
The best globalization isn't minimizing controls but enabling countries to pursue developmental/social objectives. In creasing social expenditures can lead to Dutch Disease and weaken exports. In long run, no relationship but can be in the short-run when you want growth fast. Increasing the profitability of tradables will typically give a boost. Social services might run contrary to that short term goal. However, since there's lots of friction on most borders, generating high-productivity jobs at home will consistently be a priority. On the whole shallow integration will work better for most countries. The GATT model probably better for China than WTO model. However, if a country is locked in to such liberalizations they become part of the initial conditions. The good news is that most any end can be achieved by multiple ends, if one way is blocked try another.
After the break I cover the panelists responding to Prof. Rodrik.
Bob Davis, Pulitzer winning Wall Street Journal reporter:
Industrial
Policy is the norm everywhere. He wants to spur entrepreneurship in
general. Talks about growth spurts 7-8% for 5-6 years and then petters
off in most cases. The entrepreneurial class is critical to sustain
spurts. Davis sees a lot of wreckage of failed industrial policy. In
the U.S. case, DARPA is most successful (internet, jets). DARPA didn't set out with
specific goals like "let's make the internet." It works best when the
government tries to buy something for itself. Internet, wanted to link computers. Jets,
wanted faster planes. Incentives better align than when trying for
yourself. Another bonus is that it requires information sharing. For poorer countries
the goals are ports, uniforms, adapting technology are the goals. I
certainly buy DARPA's success but the government often has trouble buying things
for itself see the Future Combat System, Missile Defense, FBI's virtual
case file.
I asked Prof. Rodrik what he thought of this idea and in some ways it's a little heterodox for even Dani Rodrik. Developing countries are tying to get away from that model generally. So it's an interesting idea. It's the issue South Africa is confronting with a big public investment drives. Can your publicly held railroads, transport companies, ports, can that transform your global economy and transform capabilities. Hard to do the first job, competitive sourcing properly. If you can do competive sourcing, try it.
Roberto Zagha, Senior Advisor at the World Bank
Talking
about the Commission of Growth and Development at World Bank. Supports
growth because of poverty reduction effects as demonstrated by China.
(If you're interested in details check the IMF website). Goal is 7% growth over 25 some years.
Arvind Subramanian, Senior Fellow and Professor, former IMF:
Banking,
access to capital, trade, by region Asia doesn't stand out and thus the Washington Consensus is wrong. Success stories: China, India, South
Korea,
Mauritius, Latin America pre-debt crisis. China as model of
globalization: If China had been under-performing, we could give a
hundred reasons why. Fads: capital fundamentalism->structural reform->human
capital->institutions. Instead find binding constraints. Of course
there's a risk growth diagnostics will be the latest fad. Critique: Dani Rodrik is utterly conventional in talking about
biased templates resulting from mistakes and not rich countries and
corporations pursuing their own interests; also bias shared with Washington Consensus,
Jeffery Sachs (sp?) a 'just do it' approach. We don't always know
where we have the freedom to act successfully. Latin America's problems come from inequality;
South Korea and Japan had early land reforms; Africa has its conflict;
all way in the past. Suggestion for industrial policy, undervalued exchange rates,
are they things we can successfully implement? Thinks Rodrik's early
work understood this and need to marry that with this.
Recent Comments