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Industrial Policy: Chris Blattman Reviews the Excellent Dani Rodrik

CB:

Economic theory, I’d like you to meet political reality. Political reality, I believe you already know economic theory. – Chris Blattman: I have just finished Dani Rodrik’s Globalization Paradox. It’s difficult to encapsulate a book that ranges so broadly, with many bloggable bits, but here’s a thought that kept nagging throughout: As Polanyi was to the self-regulating and unbridled market in the 20th century, so is Dani to self-regulating and unbridled globalization in the 21st.

I wonder if that’s a comparison that would make Dani cringe? I hope not. It’s meant as a compliment.

Published in 1944, after a turbulent 30 years, The Great Transformation was Polanyi’s way of grabbing capitalism by the neck and sticking its nose in the mess it made. After a turbulent few years in the OECD economy, and a more turbulent decade or two in emerging markets, Dani does something similar. His argument: Ever freer trade has little growth benefit, and robs poor countries of the chance to develop industry in the same way as their rich cousins. Ever freer capital flows, meanwhile, can be blamed for volatility and financial crises in emerging markets. Both are incompatible with the twin goals of sovereignty and democracy.

I buy the bulk of what Dani has to say, though I’m not sure that I believe his prescriptions will work for the poorest areas of the planet, most of all sub-Saharan Africa. His prescriptions seem to require a much more coherent state, and professional bureaucracy, and stable polity, than most nations can boast. In this third-best environment, could Asia-style industrial and growth policy cause more harm than good?... The arguments seem to hold more force for middle income countries — the Turkeys and Perus and South Africas of the world — than for the Ugandas and Liberias...

I felt a different lack in Dani's book: the "industrial policy" prescriptions Dani recommends were the ideology underpinning the disastrous post-WWII economic policies of the Southern Cone of South America--and underpinning the the professed growth strategies of post-WWII initial African leaders like Ghana, Zambia, and Kenya. Dani would say, correctly, that these countries' governments preached but did not practice. But that simply kicks the can down the road: we need a theory not of market failure--we understand that well--but of government failure to understand why policy ideologies that work very well in western Europe and eastern Asia have a strong tendency to fail elsewhere.

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