Wednesday, November 14, 2007

Rodrik on One Economics, Many Recipes

Dani Rodrik, One Economics, Many Recipes: Globalization, Institution, and Economic Growth. Princeton University Press, 2007.

You can think of this book as a highly rigorous reply to the Washington Consensus. The Washington Consensus, as it has become enshrined in the development literature, was a simple universal prescription for structural change and economic growth. One problem with the Washington Consensus was that it often didn't work, sometimes with tragic consequences.

Dani Rodrik, Professor of International Political Economy at the Kennedy School of Government/Harvard, explains why. Economic growth is very important, he says. It is just about the most important thing you can imagine for a less developed country because most of the other goals that you might propose are difficult or impossible to achieve if growth is not present. There is a reason why development economics is biased towards growth.

But when we look at the data, we find that there is no one sure path to development. Rather there are many successful recipes for growth (and many unsuccessful ones, too). If the world is going to grow, including especially the less developed countries, the world is going to have to accept that that growth will be diverse, powered by different engines and following different rules of the game.

The rules of the game are economic institutions. Rodrik argues that as much as markets are needed for economic growth (that's part of the Washington Consensus), effective market-supporting institutions are also needed and these institutions need to be designed in ways that take into account economic, political and even natural resource differences among countries.

The diversity of successful development requires us to rethink the institutions of international economic governance, too. The WTO, for example, has become mainly a forum for economic liberalization discussions. But free trade isn't a goal, Rodrik argues, it is a means to a goal -- the goal of economic development. The WTO today actually undermines that goal by trying to shoe-horn different countries into a single model of economic institutions. A development-driven WTO, he says, would instead take on the more difficult job of mediating trade tensions that result from the institutional diversity that economic growth requires. Free trade would be slower to develop with such a WTO in place, Rodrik suggests, but economic development might progress more evenly and at a faster pace.

This is a thorough and thoughtful critique that enlightens by going beyond the usual generalizations about the Washington Consensus and development, replacing overstatement with tight analysis and thoughtful consideration of the data. And it is very readable, too.

I must admit that I was initially disappointed when I opened One Economics. The book is a collection of nine papers, some that have already been published and some that are still "forthcoming." I am not a big fan of collected papers volumes because they seldom hang together very well. I would almost always prefer a purpose-written book that makes good use of the format to present an extended but tightly organized argument rather than presenting bits and pieces written at different times for different audiences.

It seems to me that purpose-written books almost always have more impact than collected paper volumes. That's why Joe Stiglitz, Jeffrey Sachs and Naomi Klein write them. But they take more time to write, too, which is a factor. Rodrik does a pretty good job dealing with the inherent problems of this format, in my opinion, but I wish he'd find the time for a big book.

No comments: