Development and Democracy in a Shrinking World: An Interview with Harvard Economist Dani Rodrik
Dani Rodrik is a Turkish-American economist and the Ford Foundation Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government. He was previously the Albert O. Hirschman Professor in the School of Social Science at the Institute for Advanced Study in Princeton, between 2013 and 2015.
Professor Rodrik’s heterodox and influential work focuses on determinants of growth and development, economic policy choices and the consequences of international economic integration. He was the recipient of the inaugural Albert O. Hirschman Prize of the Social Science Research Council in 2007 and the Leontief Award for Advancing the Frontiers of Economic Thought in 2002. The current President-Elect of the International Economic Association, Professor Rodrik is also the author of 13 books, the latest of which is Straight Talk on Trade: Ideas for a Sane World Economy, released in 2017.
We give our special thanks to Professor Rodrik once again for taking the time for this interview with The Politic.
Your manifesto for the project Economics for Inclusive Prosperity contends that free-market conservative foundations and think tanks have monopolized the discourse on economic policy, to the detriment of both the field of economics and the public interest. What factors would you say have led to the right’s preeminence in this domain?
I’d say money, ideas, and circumstances. First, the right had the resources – from corporations and wealthy individuals — to finance libertarian and conservative think tanks, academic centers, and politicians. Second, they had appealing and plausible ideas emphasizing individual freedoms, personal autonomy and market efficiency. But ultimately what may have played the most important role is that by the late 1970s Keynesian/social solidaristic narratives appeared to have failed: the welfare state seemed over-stretched, simultaneous inflation and unemployment was inconsistent with run-of-the-mill Keynesian ideas, and the Left appeared to have run out of ideas.
In 2008, you welcomed the report of the Spence Commission on Growth and Development as signaling a much-needed shift from the immutable laundry list of policy prescriptions presented to developing countries under the Washington Consensus. Since then, how much success do you think institutions like the IMF and the World Bank have had at moving beyond the neoliberal paradigm in practice?
The neoliberal paradigm has lost ground for sure. Policy practice at the World Bank has become somewhat more pragmatic and eclectic and the IMF has given up on universal capital-account convertibility, accepting that capital controls can be sometimes useful. You will not find many open supporters of the Washington Consensus in these institutions today.
At the same time, progress has been more limited than what I would have liked. When in doubt these institutions still revert to neoliberal defaults: less regulation, more trade, more fiscal austerity. I think part of the reason is that the new, post-Washington Consensus thinking about economic policy is highly contextual and contingent and is not very well suited to large bureaucracies that require uniformity in policy. It is much easier to say, “do X regardless” than to say, “do X if circumstances are such-and-such, do Y if they are such-and-such, and Z otherwise.” The latter position might be the correct one, but it is harder to practice and justify ex post, especially in an uncertain world where you are liable to make mistakes.
Having often highlighted the continuing importance of the manufacturing sector for developing economies, how do you view the sustainability of the growth model practiced in Rwanda, where the state has been making efforts to leapfrog to an economy led by modern services like finance?
The trouble is that finance is a sector that requires relatively highly skilled workers, certainly more skilled than the average Rwandan. Therefore, there is a steep supply-side constraint to this kind of growth model. What generates sustained long-term growth is an expansion of relatively productive sectors that can absorb workers from the less productive parts of the economy. Historically, manufacturing has played that role and that is why manufacturing is the most effective growth escalator for poor economies. Of course, education can help improve skills. But that is a longer-term process that does not help much current generations.
In your essay “Is Liberal Democracy Feasible in Developing Countries?” you recount how, in the wake of industrialization, energized labor movements helped pave the way for liberal democracies in the West, suppressing identitarian cleavages that would have otherwise been a major obstacle to the emergence of liberal politics. Do you think the decline of organized labor similarly contributed to the resurgence of identity-based grievances on both sides of the Atlantic?
Yes, I do. Clearly this is one of the reasons why it is the authoritarian right that has been able to capitalize on the austerity and globalization shocks of recent decades and leverage the resulting social discontent to amass political support. The decline of the traditional working-class base for leftist parties also led to these parties receiving more support from educated elites, as Thomas Piketty has shown. So the Left found itself with an ideology that was very distant from what was needed and would have appealed to the losers of austerity and globalization.
After the latest U.K. general election, the Conservatives’ success at flipping longtime Labour strongholds has been credited in part to Boris Johnson’s combination of socially conservative rhetoric with promises of increased spending on public services and infrastructure. Is “Johnsonism” a sincere and coherent alternative to fiscal conservatism with potential reverberations in the U.S., or could Johnson’s ostensibly Keynesian agenda fall by the wayside like Trump’s one-time embrace of universal healthcare?
I am more inclined to believe that this was a fake left-wing populism, as fake as Trump’s appeal to working people has proved to be. We have seen that in domain after domain Trump has done what the plutocrats want: fewer regulations on corporations and lower taxes on the rich. His erratic trade war with China has hurt workers too. Perhaps the only (slight) exception to this is the revised trade agreement with Mexico and Canada (USMCA), where some of the pro-business clauses have been relaxed and there are some new pro-labor provisions. But on the whole, you’d have to say Trump has not been a friend to labor.
Your lecture “Who Needs the Nation State?” argues that we all do, given differences in institutional needs and preferences around the world, a convergence in which is hindered by geography. In light of this, what is your outlook on current projects of political and economic integration at the regional level? Is a United States of Europe feasible or desirable?
I am doubtful that we will see a truly united Europe – in my lifetime at least. The trouble is that European policy makers pushed too hard and too quickly to unify its economic markets and its monetary system before there was enough political support for economic unification. This created an imbalance between economic and political integration – too much of the former, and too little of the latter. When the financial crisis struck – the costs of which were aggravated by this imbalance – many of the political decisions that were taken made the problem worse.
Most importantly, the manner in which Germany and the other creditor nations responded to the crisis was to present it not as a crisis of mismanaged interdependence (and hence as much the creditors’ fault as it was the debtors’ fault) but as a morality tale pitting prudent, hardworking Germans against profligate, lazy Southern Europeans. Any semblance of solidarity that could have fueled political integration was dissipated. It will be very difficult to build that transnational solidarity anytime soon.
Speaking of nation states, it would be unfair not to mention the one where you and I hail from. What are some lessons the world should draw from Turkey’s experiences in the past two decades? Do you see any cause for optimism about an economic and democratic revitalization in the near future?
It is very hard for me to be optimistic about the Turkish economy and polity at this point. Turkey is a poignant example of how mistakes made by the liberal elite enabled the building up of an illiberal authoritarianism. Desperate to rid themselves of the secularists (who themselves had an authoritarian side of course), the liberal intelligentsia made common cause with Erdogan and his then-ally the Gulenists, legitimizing them in the eyes of the West and Turkish society more broadly. By the time they woke up, it was too late.
The details differ, but there is a certain parallel with what has happened in the U.S. and Western Europe. By acting as pro-globalization, pro-technocracy cheerleaders, liberals in these advanced democracies paved the way for the eventual political debacle that is still playing out.
Having been introduced to the work of Albert Hirschman through your writing, I want to end by asking for a few more reading recommendations for students of economics.
Karl Polanyi’s “The Great Transformation” is tough reading, but very much worth it. Among recent books, I would cite “The Triumph of Injustice” by Saez and Zucman, “Capitalism, Alone” by Branko Milanovic, and “Can Democracy Survive Global Capitalism” by Bob Kuttner. Happy reading!