Must-Read: Dani Rodrik: The Mirage of Structural Reform
Must-Read: If you set out to take Vienna, take Vienna. If you want to balance the foreign exchange account, give people incentives to boost exports and cut back imports. Any economy that might suddenly need to balance its foreign exchange account needs to have a flexible currency–or partners who are willing to take steps to do the job themselves. Greece lacks both.
The Mirage of Structural Reform: “If structural reforms have not paid off in Greece…:
…it is not because Greek governments have slacked off…. Instead, the current disappointment arises from the very logic of structural reform: most of the benefits come much later, not when a country really needs them. There is an alternative strategy…. A selective approach that targets the ‘binding constraints’…. So, which binding constraints in the Greek economy should be targeted? The biggest bang for the reform buck would be obtained from increasing the profitability of tradables–spurring investment and entrepreneurship in export activities, both existing and new. Of course, Greece lacks the most direct instrument for achieving this–currency depreciation…. But… tax incentives to special zones to targeted infrastructure projects… an institution close to the prime minister that is tasked with fostering a dialogue with potential investors… [with] authority to remove the obstacles it identifies, rather than having its proposals languish in various ministries. Such obstacles are typically highly specific–a zoning regulation here, a training program there–and are unlikely to be well targeted by broad structural reforms…