Should-Read: Edward Hadas: Review: Dani Rodrik gives economists a better name

Should-Read: External benefits from the development of communities of engineering practice developing around successful labor-intensive manufacturing export industries has been a standard road to economic development since… well, since the days when the mechanized textile industry located itself in the (lower wage) English midlands because London and Amsterdam both had higher-wage things to do with their labor. The problem is that China may well be the last country for which this is possible. So what next for our hopes for development and convergence?

Edward Hadas: Review: Dani Rodrik gives economists a better name: “Straight Talk on Trade: Ideas for a Sane World Economy… this easy-to-read and sometimes loosely connected collection of columns and essays…

…Rodrik rejects the methodological goal of finding one true model for each and every economic variable. He explains that models are always simplifications, leaving out factors that do not seem to be important. But the key factors which influence, say, unemployment rates or technological development are not the same in every time and place. Since the facts change, the models should too. As Rodrik says, “There is virtually no question in economics to which ‘it depends’ is not an appropriate answer”. Rather than search for an explanation which always works, economists should become experts at determining what model is appropriate under which circumstances….

All of the great successes of economic modernisation – from Japan in the 19th century to China under Deng Xiaoping – grew by exporting as freely as they could while sharply restricting imports. Conversely, no poor country has become rich by opening itself totally to the world market. That pattern suggests a useful stylised fact – freedom in trade is not always good for everyone. Over the years, Rodrik has developed this insight in several ways. He argues that workers harmed by new trade patterns have a legitimate complaint. He also bemoans the destabilising effects of cross-border flows of financial capital….

Rodrik’s latest claim is more controversial – and more depressing. He coined the phrase “premature de-industrialisation” to describe the increasing difficulty of economic development. Thanks to the relentless advances of technology, it will no longer be easy to follow the path to wealth pursued by Asian countries, which used low-skilled workers to build up successful export industries. Worse, since protectionist policies are prohibited by international agreement, “few poor countries now have the opportunity to develop simple manufactures for home consumption”. Rodrik argues that in the future, development will have to rely more on services. Since those require far more skills and stronger institutions than manufacturing, fewer countries are likely to succeed….

Rodrik’s readers might appreciate a bit less gloom. “Straight Talk” is pessimistic about the future growth of developing countries, the pace of technological innovation, the strength of democracy and the resilience of China. Rodrik’s basic thesis is that it is hard to prosper in “a global environment that threatens to turn even more hostile”. The travails of the European Union and the rise of demagogues in countries from Turkey (where to Rodrik was born) to the United States (where he has lived for decades) support and understandably colour his views. But as a specialist in development, he might have mentioned some of the seriously good global news – the almost universal increase in life expectancies, the decline in deaths from war or the spread of life-changing mobile phones…