Dani Rodrik’s vision for global cooperation

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by Hans Dembowski

Proposals for a world in which neither G7 nor BRICS lead

Last month, I wrote about Dani Rodrik’s stance on economics and politics. A core point is that the Harvard economist argues that markets only function reliably if they are embedded in systems of governance, and that typically nation states organise such systems.

As I promised in my first blogpost concerning Rodrik’s most recent book “Straight talk on trade”, I now want to tell you what policy recommendation the Turkish-born scholar makes. Given that he emphasises the relevance of national politics, it is no surprise that he does not offer a blue print. On the contrary, he emphasises that policy innovations are needed. In this perspective, leaders must not stay stuck in conventional thinking, but embrace new ideas. Intelligently designed context-specific policies can help to overcome vested interests and gridlock, Rodrik states, and points out areas in which innovative approaches are particularly likely to deliver results:

  • For both developing countries and advanced nations, he proposes more investment in infrastructure building and maintenance. Public spending that builds assets, he argues, should not be confused with other kinds of public spending.
  • Rodrik considers industrial policies favourably, in particular in regard to eco- and climate-friendly approaches (Tilman Altenburg and Wilfried Lütkenhorst recently made a similar case in D+C/E+Z). In his eyes, mainstream economists underestimate the extent to which government agencies in the rich world, including the USA in particular, have been driving technological progress and, by implication, the development of high-tech industries. The internet, for example, was initially developed for the US military. Funding for university research, moreover, often lays the groundwork for entrepreneurship.
  • Rodrik wants governments to become even more involved in innovation. He suggests that they set up equity funds to promote new high-tech businesses. In successful cases, they could then boost social-protection programmes with the returns from such investments. He argues: “The key is to recognise that disruptive new technologies produce large social gains and private losses simultaneously. These gains and losses can be repackaged in a manner that benefits everyone.” He wants the “innovation state” to replace the “welfare state”.
  • In regard to developing countries, Rodrik warns that it is not enough to rely on the commodities boom to drive growth. The key challenges, according to him, are “the acquisition of skills and education by the workforce, the improvement of institutions and governance, and structural transformation from low-productivity to high-productivity activities (as typified by industrialisation)”.

In the professor’s eyes, the established economic powers have lost the dynamism and the credibility to assume global leadership, and US President Donald Trump’s erratic policies are compounding the problems. At the same time, Rodrik does not see the BRICS (Brazil, Russia, India, China and South Africa) rising to the challenge. He argues that they are basically stuck in a shared attitude of opposing the west, but lack a coherent vision for the global community. In general, they are only pursuing narrowly understood national interests. Moreover, he writes that the authoritarian regimes of China and Russia lack the moral authority required to lead internationally.

Ultimately, Rodrik calls for a different kind of globalisation. He wants the international community to promote democracy rather than maximise foreign trade and cross-border investments. Governments needs policy space. Otherwise they cannot draft prudent policies that respond to their people’s demands and reflect specific national circumstances. Technocratic governance that subjects countries to the demands of international investments undermines people’s trust, he warns, and exacerbates dangerous identity politics. According to Rodrik’s assessment, the EU faces a choice: It must either devolve economic decision making back to the nation states, forfeiting integration already achieved, or democratise decision making at the EU level.

Rodrik’s book is inspiring. He convincingly casts doubt on many aspects of the conventional wisdom. His proposals, however, seem somewhat utopian. If the G7 can no longer lead and the BRICS are not ready to do so, who is supposed to drive the transformation to democracy-promoting globalisation? And what impact does it have that major countries – including India, Brazil, Turkey and most prominently the USA – are currently becoming more authoritarian? At the global level, there obviously are no easy solutions, and that is true of the national level too. Policymakers would certainly do well to look for – and test – innovative approaches.  

Dani Rodrik, 2018: Straight talk on trade. Ideas for a sane world economy. Princeton and Oxford: Princeton University Press.

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