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One Economics, Many Recipes: Globalization, Institutions, and Economic Growth

Author(s):Rodrik, Dani
Reviewer(s):Amsden, Alice

Published by EH.NET (October 2008)

Dani Rodrik, One Economics, Many Recipes: Globalization, Institutions, and Economic Growth . Princeton, NJ: Princeton University Press, 2007. xi + 263 pp. $35 (hardcover), ISBN: 978-0691-12591-8.

Reviewed for EH.NET by Alice Amsden, Department of Urban Studies and Planning, MIT.

Dani Rodrik, professor at Harvard?s Kennedy School of Government, comes out of the closet early on in One Economics, Many Recipes: ?This book is strictly grounded in neoclassical economic analysis.? Yet Rodrik wins all hearts and minds by a careful consideration of the facts and sheer breadth of coverage. He remains ?a believer in the ability of governments to do good and change societies for the better.? He bemoans ?exaggerated rumors of industrial policy?s death.? He identifies ?institutional arrangements that best support economic development over the long term.? He claims ?national policy choices are the ultimate determinant of economic growth.? Yet he declares ?successful countries are those that have leveraged the forces of globalization to their benefit.? Thus, market mavens, policy pros, global gurus and institutional irredentists can all savor what he says!

Rodrik concludes on an institutional note: ?It will take a lot of work to make globalization?s rules friendlier to poor nations. Leaders of the advanced countries will have to stop dressing up policies championed by special interests at home as responses to the needs of the poor in the developing world. Remembering their own history, they will have to provide room for poor nations to develop their own strategies of institution-building and economic catch-up. … Perhaps most difficult of all, economists will have to be more humble.?

Rodrik promises to get his hands dirty redesigning international policies, but his first three chapters (the second is co-authored with Ricardo Hausmann and Andres Velasco) are concerned with why some countries grow faster than others. These make the greatest contribution. In chapter one, ?Fifty Years of Growth,? we meet a Martian, thought experiments, and ?flexible neoclassical economics,? meaning ?there is no unique correspondence between the functions that good institutions perform and the form that such institutions take.? Eclecticism reigns in the policy sphere ? some good, some bad. But how to pick the winners? Rodrik relies on a consensus among sensible economists. He, of course, is right that economists are sensible, but economic development is a haphazard, haywire affair, and consensus about policies tends to exist only at the extremes. No one would demur that raging inflation will wreck an economy, but how about 20 percent year after year, which characterized Korea?s early growth phase?

Rodrik is adamant that no poor country has experienced rapid growth without ?higher-order principles of sound economic governance ? property rights, market-oriented incentives, sound money and fiscal solvency.? But are all of these building blocks really irreducible?

After World War II, economists tried to predict which developing countries would succeed, and wrongly chose those with high export/GDP ratios, such as Nicaragua and Suriname. I?ve argued that if the clock starts ticking around 1900 or earlier (Rodrik?s starts in 1960), then it becomes clear that since World War II, all the developing countries that have entered the orbit of modern world industry had prewar manufacturing experience (manufacturing/GDP), including experience in forming business enterprises bigger than a single individual. There was no leap-frogging, especially in the areas of project execution and production engineering. Of these dozen or so countries, which includes Argentina, Brazil, Chile, Mexico, India and Turkey, as well as much of East Asia, the biggest winners are in Asia because at the time of de-colonization (one of the twentieth century?s most neglected upheavals), only Asian countries kicked out not just foreign rulers but also foreign companies. This didn?t happen in the Philippines. In Latin America, which was de-colonized a century earlier, politics and foreign ownership remained unchanged after World War II. Triggered by communist off-shoots from China, Asia?s convulsions gave birth to nationally-owned firms and land reforms (in China, the Koreas, Taiwan, parts of India, Malaysia, and later Vietnam), which arguably helped subsequent economic development. So, sometimes ?getting the property rights ?wrong,?? through violence, puts food on the plate of a hungry nation.

Rodrik is critical of the World Trade Organization?s failure to customize, and pleads that ?trade rules have to allow for diversity in national institutions and standards.? Does this mean tolerance of different policies (capital controls), or just institutions and standards (postal savings banks)? How customization is to occur is unclear, but maybe the world should return to the GATT, whose members could choose which protocols to honor, whereas all or nothing is the condition for WTO membership.

With a keen sense of what’s important, Rodrik takes a paper of mine to task for arguing that WTO members go about their business willy-nilly. I bet that not a single Northern country would have joined the WTO if it couldn?t subsidize science and technology, regional development, small- and medium-size enterprises, and the environment (these days, there is hardly a firm in existence that isn?t investing in the environment and getting state support). None of these areas is adjudicated by the WTO, and all increase the competitiveness of countries with money to throw at them. Meanwhile, savvy developing countries are stirring up their own brew. Korea now controls its financial markets by a creative use of technology, learned from Singapore. Korea?s computers monitor every foreign financial flow on a 24-hour basis ? a new kind of ?free? market. Thailand uses regional policies to strengthen its automobile sector. But I agree with Rodrik?s important point: forcing everyone into the same tight shoe pinches business and world peace.

The toughest item on Rodrik?s wish-list is less haughty economists. The snootiest may be American-trained foreign economists, but they have the best excuse! The U.S. knows itself, but Asia?s new elite not only knows itself, it also knows the U.S., having studied and worked there, and it knows Japan even better, having participated in its Greater East Asia Co-Prosperity Sphere. With experience and knowledge, why do you think Asia?s economies are growing so fast?

Alice Amsden?s recent books are The Rise of ?the Rest? (Oxford University Press, 2001) and Escape From Empire (MIT Press 2007). She is the Barton L. Weller Professor of Political Economy at MIT.

Subject(s):Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII