In one of my politics classes last year I actually spent some time researching the variables that lead to economic growth and continued development in China since 1978. Amazingly, it turned out that simple decisions by the government to decentralize power to local and regional authorities played a rather large part in the amazing level of growth that China has witnessed. As touched upon in Rodrik's article, the establishment of autonomous township and village enterprises (TVE's) acted as a major force of structural change within the country. Taking power away from the central government, and putting the capital and land ownership rights in the hands of local communities, China set the stage for capitalistic structures that encouraged competitiveness, innovation, and thus economic growth.
Of importance in this research I came across a theory proposed by Charles Tiebout’s who was a well known economist for his research on the role of decentralization in economic development. Tiebout’s “consumer-voter” theory provides an adequate explanation for the success of TVE's on China's astounding growth process. According to Tiebout, small decentralized subsidiary governments can compete with one another to gain mobile consumers that seek a certain preference “package” of taxes, public goods, etc. By creating a system of competition for residents, the establishment of TVE's ultimately results in the creation of the lowest costs for consumers and government subsidiaries. In part, this not only leads to greater economic success, but in part it also helps to establish a system in which individuals can move to which ever area provide them with their desired level of political voice, and demand for public goods such as security, schooling, employment, and other goods. Therefore, decentralization has the ability to provide greater economic and political rewards than more centralized hierarchical structures of government.
As seen in the Rodrik article, this hybrid form of central planning on a political scale, and capitalism on an economic scale allowed China to pursue a course of development much different than any other country throughout history. All it took were some small incremental steps, but once in motion, the theory of "Tiebout sorting or consumer voting" proved so successful that residents no longer wanted the government to intervene in economic matters of each locality. The self-reinforcing process of this mechanism made further strides towards economic autonomy as time went on. Thus, China had the means of maintaining its growth strategy.
To me it is amazing to see how such small changes like establishing property rights, or refusing to intervene in local economies can spark such economic growth and development as seen in China over the past 30 years.
Rodrik’s paper argues that traditional growth theory is not, as was once assumed, singularly correct, adequate, and sufficient to address developing countries, each with its own specific development issues and constraints. Much less should these theories, by definition abstractions of reality and not empirically substantiated, be transformed into policy prescriptions on the basis that they will work effectively—in theory.
In fact, Rodrik argues that there is only a weak correspondence between these principles of neoclassical economics and the specific policy recommendations that Washington/the West is quick to prescribe. There has, instead of brainstorming context-specific courses of economic development borne out of sound theory, a quickness of Washington economists to assert necessary policy prescriptions, instead of merely possible or viable ones. The entire paper basically describes the existence of faulty, inadequate assumptions about development that entail a causal line that runs in only one direction, restricting the problem to a single exclusive solution.
Many of Rodrik’s cited Washington proposals are based on the assumption of a singular cause precipitating a desired effect; and furthermore, the assumption that said policy will cause only the desired effect(s) described in theory. In reality, though, a universal principle can be applied in myriad ways, and this diversity of potentially derived policies speaks to the various sociopolitical and cultural contexts in which it will be implemented. An example of this, on page 988, derives seven plausible policies, derived from two universal economic principles that are designed to meet one objective.
Rodrik concludes that the fundamentals of growth are not to be discounted, but instead asserts that development policies should not be based on such theories such as the Solow model simply because they are fleshed out and understood. Moreover, differing policies, such as central planning or liberalization and privatization, based on seemingly competing theories, do not need to be universally accepted or rejected—this speaks to the context-specific possibilities and constraints of each developing country. Growth theory at large is a necessary ingredient to implement prescriptions of development, but by no means is it the sufficient condition. Success lies in the specific, not the generalized.
Throughout his paper, author Dani Rodrik makes a compelling argument against the western-world’s desire to develop and employ “one-size-fits-all” models of economic development. Through a series of carefully selected examples, Rodrik shows that each region of the world, and further, each country, has specific characteristics that ultimately shape the course of its economic development or lack there of. As a result of the innate difference that exists between countries, developmental policies that have worked in some do not work in others, and vise versa. He asserts that policy prescription simply cannot be made from ten thousand feet up. Instead, an intimate knowledge of a given country’s culture, economy, history, customs, and many more factors must be obtained before an effective growth strategy may be implemented. He suggests that in some cases a trial and error approach is the most effective way to zero in on the developmental approach that is most appropriate for a given country.
It is very refreshing to hear an economist downplay the importance of models and their ability to be accurately applied to a multitude of situations. In the case of development economics, Rodrik suggests that models are largely inapplicable because of all of the exogenous factors at play during a countries development. However, he is not saying that the decades of research and publications on the subject of development are antiquated and obsolete. On the contrary, he states that the orthodox ideas such as the necessity for market-based competition, sound money, debt sustainability, etc must work hand-in-hand with a healthy mix unorthodox ideas in order to achieve real economic development. He says, “what stands out most in the real success cases [is]…an unconventional mix of standard and non-standard policies well attuned to the reality on the ground.” Rodrik leaves the reader with an understanding that policy must be implemented on a case-by-case basis to truly be effective, because with economic development, one size does not fit all.
Rodrik's statement that "the hard work has to be done at home" stuck out to me. In development economics, and all branches of economics for that matter, there is rarely a black and white answer. However, economics can be very helpful in understanding what goals must be achieved in order for development to occur. For example, economic principles show us that incentives must be provided to entrepreneurs in order to increase investment, but exactly what these incentives look like can vary drastically.
As Rodrik says, a Martian looking at the East Asians countries that have recently undergone extensive growth would not understand this outcome based on the Washington proposals. China, the classic development success story, followed few conventional rules, but still applied economic concepts. Rodrik points out that vast knowledge on local economic and political conditions must be known before any sort of sustainable development can take place. Moreover, development strategies that are successful in one country likely will fail in another. Each country is unique and should be treated that way when considering development policies.
What stood out in Rodrik's article to me was the fact that there is not one singular strategy or some sort of cure-all formula for growth. Saying that one strategy is right while another is flawed is wrong. Rodrik is quick to point out that while there are several key factors that growing countries all share, the way in which they get to those factors are different. Rodrik is quick to point out, however, that this does not mean that the field of development economics cannot do anything, nor does it mean that countries can experiment to find growth. Rather, it takes a calculated look at an individual country to find out what will work for that country, based on the social, cultural, and political state of the country. Growth may come in unusual forms, but what seems critical to Rodrik's article is that the same ends can come from many means.
Rodrik's findings come as both a sign of hope but also with frustration. On the one hand, once a country has figured out how to grow successfully, the process is easy and does not take much to get started. On the other hand, as countless failures will show, figuring out how to successfully grow is the hardest part. The biggest challenge ahead may be getting the developed world to adopt this model and look at countries on an individual basis to determine successful growth. The cookie-cutter model of growth will not work, as the empirical evidence shows.
One of the things that particularly struck me about the article was when Rodrik began mentioning how the Martian might predict Latin America to grow compared to its actual end result. Latin America, appearing to take all the right moves in the direction of growth on paper, has seen very little results in return in reality. She also notes how African countries have experienced a similar problem, and it poses the question of what these countries need to do in order to salvage their people from this situation. It seems that perhaps more developed countries could lend a hand, not necessarily financially but at least in terms of policy, so that these countries could find a way out of the struggle that they have been facing. However, Rodrik points out that developing countries may not need a hand, like in the case of China. 30 years ago China was a struggling, developing country, and today it is a booming economy. However, it did not follow any of the traditional steps that a lot of today’s developed countries followed to achieve this status. China came up with many programs of its own—such as the Household Responsibility System and the Township and Village Enterprises—which manage to redistribute wealth in a way that capitalism would likely never have imagined. This brings to mind what Professor Casey mentioned in class that Marxism might, in fact, have some good ideas buried beneath what many Westerners consider to be outrageous theories. Perhaps the best way for a country to find a way out of a bad situation is for the country to be left to find its own unique method—for in many cases, other countries may not be so sensitive to the particular situation of that country and advise it in a way that worked for them, but would not for the developing country.
As Professor Casey mentioned, an interest in development economics originated in rebuilding post-WWII Europe, and many of the European countries targeted had social, legal and health infrastructure already in place at the time of rebuilding. The theories that arose often are not suited for current developing countries as they lack some of the infrastructure that was in place in Europe, and efforts to emulate these strategies in developing countries have proved unsuccessful.
Rodrik elaborates on this idea, stating that, “policy packages associated with growth accelerations tend to vary considerably from country to country” (19). This reminded me of the false-paradigm model approach to development that is mentioned in the textbook. Under this approach, well-meaning “expert” advisors from developing countries offer development models that may lead to unsuitable growth policies. Rodrik’s paper emphasizes the need for growth strategies to be specifically tailored towards the countries and regions being targeted. Thus, the growth strategies suggested under the false-paradigm model frequently are not suitable for developing countries, especially because local opportunities, capabilities and constraints need to be considered. While this may seem frustrating as economic growth requires some experimentation and there is not a uniform model to emulate, there are success stories of countries applying unorthodox growth strategies. In addition, Rodrik mentions that adapting existing technologies is a critical component in the early developing process, so this is an area where economists and policy makers can look to developed countries for guidance.
I really like Rodrik's idea of "non-standard practices in the service of sound economic principles." Many conflicting economic models are formed around the same underlying ideas such as incentives, property rights, sound money, etc. Certain models/institutions are going to work better than others in different situations. It is clear that one must take into account the context of a country's economic issues before attempting to impose reform. Rodrik emphasizes the idea of "experimentation" in reforming policy and developing individualized growth strategy. While experimentation does seem like a great way to obtain situation-specific policy reform, I can't help but wonder how efficient it really is. It seems as though, at least in my experience, law and public policy reform can take quite a while. If a country is in a more desperate economic situation,experimentation could be detrimental to large communities of people. That being said, there is obviously no "ultimate cure" for LDCs. Perhaps the second best option for countries in dire need of economic reform is "coppycatting" other countries who have come from similar social and economic situations.
Rodrik points out that Western economic policies are models that will not always produce the "typical results." In forming economic policy, it is more important to look at the context of an LDC--their economic and policial contexts. Rodrik reveals that China is an example of an "unorthodox" approach to successful growth. His anecdotal data reveals that there are "shortcuts" to growth in some cases that will prove to be more successful. There is more than one way to go about growth and it really depends on the situation for the LDC. In China the political support for reform process allowed it to grow through its TVE program where government, rather than private sector ran the economy. In Japan, their post-war political climate was important to their economic policy, which needed centralized control. Rodrik explains that "search and discovery" can be a good way to promote growth as it seeks to find the issue at hand, fix it, and promote growth. Finally, Rodrik notes the importance of broadening the perspective of institutions, revealing that new institutions are not always needed. Rather, improving existing institutions can result in better economic policy.
One aspect I thought was missing from Rodrik's analysis was the effect of cultures or customs within a country. She spends a good deal of the paper discussing the relevance of institutions, both in terms of form and function. While stable institutions are an important factor in economic performance and growth, cultural variables influence the form these institutions take.
For example, in Islamic countries, finance operates differently than in the west. Universities in Bahrain include Islamic Finance as a major in their business school, rather than just economics. Institutions in several Muslim states must conform to sharia law and recommendations. Interest on loans may be forbidden or follow different guidelines due to sharia law. I'm sure that cultural influences in other regions effect the formation and function of institutions in similar ways.
While Rodrik discusses some social factors, religion and other cultural variables are never mentioned. Otherwise her review of development literature is thorough and effective in noting the limitations of economic models for real world situations.
At the conclusions section I really liked how Rodrick highlighted the Feynmen quote “It’s the things that nobody knows anything about that we can discuss… It the subject that nobody knows anything about that we can all talk about!” This quote resembles what needs to be done with establishing development theory. There is no cure all answer for initiating and sustaining development, therefore no one model or person can looked to for the solution. As Professor Casey noted in class, the Solow growth model that was established approximately 50 years ago is still our best development theory today despite the major changes that the world has undergone with the key market players in the world. The recipe for maintaining developmental progress is still unknown, but it is known that it will take more than one solution to apply to the diversity of countries in the world. Thus, only by further discussing and refuting new ideas will we eventually learn the various remedies to the development dilemma.
I particularly like how Rodrick highlighted the challenge of finding a solution when he mentions, “If Latin America was booming today and China and India were stagnating, we would have an easier time fitting the world to our policy framework. Instead, we are straining to explain why unorthodox, two-track, gradualist reform paths have done so much better than sure-fire adoption of the standard package.” We can apply strategies that we think should be the remedy for certain situations, yet the economy responds in unpredicted ways. It may have short-term success such and then stagnate like the “lost years” in Latin America. Although according to theory Latin America had the right variables to generate future growth, the predicted expectations did not occur. It will be interesting in the years to come to see if the current developing giants will be able to maintain their high rates of growth or if they will come to a halt while another nation steps up to take their place with a completely different development strategy.
I think Rodrik's analysis is very interesting. The fact that it takes very little to jump start growth is hopeful, but it is also discouraging that so many of these countries may have a hard time adjusting existing institutions to sustain that growth. I also think that Rodrik's point about solutions should be context-oriented makes perfect sense. Rodrik points out that the most successful examples are those that use local knowledge in their policies, such as China's creation of TVEs. It is very interesting to see that neoclassical economic principles can be applied in varying and creative ways in order to solve geographically different problems that are fundamentally the same.
The argument I found most interesting, even though Rodrik only touched on it with a few sentences, is the idea that China may experience the same type of growth collapses that other countries that showed progress have demonstrated. Has China taken the necessary steps to create sound institutions that will be able to maintain its exceptional growth, or has it not "outgrown its institutional underpinnings" yet?
I found Rodrik’s first stylized law—namely, that “in practice, growth spurts are associated with a narrow range of policy reforms”—to be particularly interesting, but not solely for the connection he is able to tease out between “short” (I do not consider “the better part of a decade” a short time, even considering the timeframe required for industrialize) growth spells and a focused set of policy reforms (Rodrik 16). While I agree with the author that short phases of growth brought on by specific policy reforms are a good thing if they can increase wellbeing and capability without sacrificing environmental or other concerns, I wonder if it is possible that these spurts of growth could hurt long term development by exacerbating existing inequalities or by solely targeting (with “a narrow range of policy reforms”) “a narrow range” of poverty or non-development (Rodrik 16). For example, what if a country were to experience growth for eight years due to a “narrow” educational reform and this growth were to create rising expectations among the populace. (Rodrik 16). When the growth stops, the populace may be much less willing to put up with the current government and policies; now that they have more, they expect or want more, which the government may not be able to provide, leading to any number of undesirable societal effects. Another example: what if the growth brought about by educational reform were to bendistributed unequally? Now, those did not benefit have less reason to be hopeful about long term growth prospects, since narrow reforms—which ostensibly would be easier to execute than larger ones—did not better their lot. Once again this could lead to instability and resentment among the populace. These examples are not meant to disparage leaders from striving to attain some form of growth via small, passable reforms. Rather, I just wanted to point out that small spurts of growth are, like most growth models and paradigms, not a magic bullet for issues of underdevelopment. This is especially important to keep in mind when considering that several of the countries Rodrik mentioned—Argentina, Brazil, and Chile (although to a lesser degree) specifically—went on to experience economic crises after their short periods of growth.
Rodrik's points about the differences about initiating growth and sustaining it in different countries were very insightful. It is clear that countries have different "pre-existing institutional landscapes," so it is not reasonable to apply a set of principles that may generate success in one country to another. Given the nature of a country's culture, politics, administration, markets, and other factors, there are bound to be different implications for different countries: the costs and benefits of implementing a policy for growth will vary between countries, succeeding in some and failing in others. Furthermore, he describes the "shocks," which really only cause spurts in growth, rather than sustained growth. The background environments of these countries also vary significantly and therefore can have different effects on economic activity. It is good to see that it often does not require a complicated and exhaustive set of institutional reforms to start generate growth, but it is especially daunting to think of the many ways to combine orthodox and unorthodox institutional practices in a way that maintains economic growth. It is difficult for me to even comprehend the weight that these decisions carry or how one even begins to consider policy reforms that affect an entire nation...especially when considering the Washington Consensus and its many "rules." I do think, however, that the "Augmented" Washington Consensus gives a comprehensive list of things for policy makers to consider since each country deals with each "rule" in a different way.
The most important part of this entire paper is the four paragraphs in the conclusion. When it comes down to it, economic theory is a tool to aid the process of discovering how to bring about growth and development in LDCs, not an answer in itself. I guess the way I think of it, economics is to growth and development what precedent is to the law. Even though precedents provide guidelines and standards for how the law should be interpreted and applied, it is the facts of each individual case that ultimately determine the outcome. Similarly, growth and development need to be handled on a case by case basis.
Rodrik lays out his aim (in the abstract) by saying that his paper "is an attempt to derive broad, strategic lessons from the diverse experience with economic growth in last fifty years." What we learn from the article, and most development readings, is that there really is no solution. Models and previous cases can't always serve as examples. This is where I would like to see Rodrik take his argument further. It's not just that previous methods and models can't directly be formed into policy--what I find to be interesting to study is why this is the case. Most of it likely has to do with varying socioeconomic and cultural norms across countries, which as we have read about, play a large role in consumer preferences and decision making. Rodrik touches on the idea of government corruption, but I see this as more of a problem than he lets on. Any sort of development solution will likely involve the government at some point (the level of involvement varying), but there will be large setbacks if corruption exists. Unfortunately, government tends to be both ineffective and corrupt in developing nations. While Rodrik provided some insight to having to apply different strategies to each nation, I feel it would be interesting to study at a deeper level the different elements of a nation that would be conducive to different policies and strategies, and why.
The most important piece of information I took from this piece by Rodrik was the idea that “a semblance of property rights, sound money, fiscal solvency, market-oriented incentives…” are “common to all successful growth strategies” (Rodrik). It seems that Rodrik has taken what has become an over developed and complicated cookie cutter model for growth that is wrongly assumed to work in any climate and simplified the growth model to a couple of key economic characteristics required of growth. There seems to be a logical disconnect in taking what institutions and policies work for our culture/society and applying them to different cultures/societies, yet that is what many “experts” on development have encouraged. It is refreshing how Rodrik is able to simplify a mess of policies and strategies for development and highlight the characteristics of development present in all growing societies; property rights, sound money, fiscal solvency and market oriented incentives. The next step in applying Rodrik’s idea is to look at countries on a case by case basis and devote a substantial amount of resources into researching and understanding the history, cultural, societal structure and existing government and economic policies. Once the research has been completed, policies can be implemented that focus on ensuring some type of property rights, sound money, fiscal solvency and market-oriented incentives based on what will be most effective for that specific country. This new growth strategy is contingent on the idea that there is a process of trial and error and adjustment that is essential optimal growth and the development of better institutions to ensure long term growth. The question that needs to be asked is whether the United States (and all developed countries) can put aside its collective ego and accept that our policies and institutions are usually not going to be the best policies and institutions in other countries. It seems reasonable that people would be able to understand Rodrik’s logic however the Cold War and the unrelenting determination of the US to impose it political and ideological views wherever possible raises concern that ego and politics may get in the way of implementing optimal growth strategies in developing countries.
I enjoyed the logic behind this paper, in particular the aspect of institutions. I agree with Rodrik in that institutions are not necessary for economic growth to start. However, once the economy begins to grow institutions need to be in place. Property rights institutions are the most important because they lead to higher per capita GDP, more investment, and a more developed stock market. SO, once an economy gets to a certain point, it will need property rights institutions. Also, legal or contracting institutions are important in the fact that they solve the fundamental problem of exchange easier and faster than two individuals could without these institutions. Obviously, we are more concerned with getting economics into the growth stage. My only questions is would the presence of strong institutions help economies start to grow? Also, what is the effect of de-centralization? It helps specialize which makes markets more efficient. It also creates hard-budget constraints, competition, and institutionalized power.
I ‘m also particularly amazed by Rodrik's analysis of how East Asian countries', particularly China's economic growth of the last decades came about by 'unorthodox' means, but resulted in 'orthodox' results. I found his support for 'experimental' ideas in the field of development economics (where the stakes are so high) and to try to think 'outside the box' encouraging. For me, Rodrik just highlighted why this area is so exciting and interesting, precisely because we CANNOT predict what happens beforehand and well-thought-through, 'risky' measures are oftentimes rewarded and needed to refresh policymakers' minds and generate novel ideas. However, I wanted to note that, with regard to China, we need to keep in mind that the central government in Beijing does not need to pay as much attention to public support and domestic political bargaining or competition with other parties, as democratic governments do. Also, there are less time-consuming bureaucratic procedures that need to be followed before a policy can be implemented or new laws passed and executed. The fact that China is ruled under a one-party-system has had a huge impact on the efficiency of the government to ignite and sustain the county's rapid growth. This is why, in my opinion, even though China serves as a great example to illustrate policy reforms that promote economic growth, it is very difficult to implement these strategies (as efficiently) in most other developing countries. The one-child-policy for instance is also related to economic reforms (even though not directly) and has been carried out in a harsh and reckless way (with regard to the rights of the people), but has contributed positively to China's growth strategies (and in fact, helped restrain world population growth extremely). If I'm not mistaken, India officially also promotes a one-child-policy but is unable to carry it out and manifest it as a law, which has had negative effects on India's growth rates. This exemplifies Rodrik’s argument for the ‘individuality’ of each country and the fact that there is no single solution to development.
I think that we can all agree, having read this paper and continuing on from the discussion of the last, that local cultural and economic factors are most important in the development of any growth strategy. There is no "model plan" which can guarantee growth. The article points out that many unconventional growth strategies have also failed, so is growth strategy mostly luck? I don't think so. I think that understanding local conditions through research/trial-and-error methods is the best approach. As the article points out, find where policy change is most needed and can be theoretically most effective and start there. It doesn't take much to get growth started. Sustaining it requires a second step in policy changes, but without the initial movement, most attempts will undoubtedly fail. A part of the article I would like to discuss further is mentioned briefly in the last paragraph of Section III. The political side of development can hinder growth as easily, if not more so, than stagnation. Policy is a political decision and I would like to know of any strategy which can legally bypass corrupt or inept political control of an economy.
While Rodrik’s thesis is a useful examination of differing but successful economic policies and approaches throughout the world, I felt that there were two general shortcomings of her paper. Firstly, I found Rodrik’s conclusion that there is no "one size fits all" approach to economic development to be a bit obvious. Cultures, economies, infrastructures, social conditioning, and government forms differ (often drastically) from place to place. It should come as no surprise that approaches to economic development should differ as well. Secondly, Rodrik’s proposed solution framework gives too much credit to a government’s ability to alter its structure or intentions to accommodate economic growth. Nonetheless, these points too have important implications for the advisement of economic policy.
In her paper, Rodrik recognizes that "growth strategies require considerable local knowledge." It logically follows than that both local governments and populations should be actively involved in both advising and administrating the development process. Indeed in China’s TVE system, a localized approach worked quite well. It is interesting however, that most of the international assistance to third world development comes through highly centralized and broad institutions such as the World Bank and IMF who interact primarily with governments before the actual economic sector. Perhaps a better solution would be to provide greater government assistance to institutions whose focus is ground up development than sweeping top down change. Such an approach can leverage the local knowledge to develop a unique economic approach that suits the economic realities of the region.
As mentioned above, I also feel that Rodrik gives too much credence to a government’s ability or willingness to make certain social, economic, or political alterations to stimulate growth. Governments undoubtedly reflect the views and interests of those with power. Advanced democracies have often managed to grant such power to the governed, but many third world countries lack such virtuous government. Instead, many governments reflect the will of a few vested interests which may benefit from the economic makeup of the region. Altering such government structures requires the establishment of deeper and more beneficial economic and political incentives which Rodrik’s paper falls short of mentioning.
In all, Rodrik’s paper is useful in illustrating the differing economic theories and approaches within different regions of the world and detailing their outcomes. Other than that however, I did not find the paper to be overwhelmingly insightful.
Rodrik makes it clear for the audience that what works for one country will not necessarily work for another. After providing many examples of public policy attempts in various countries, we can understand that markets and economic systems vary from country to country. Unfortunately, we have yet to learn from our failures because we are blinded by the short-run effects of our successes. We are fairly confident in our plans to jump-start growth all over the world but we forget to include many other variables that should be factored in to our experiments. As some other people mentioned, we need to consider culture as an important feature of every economy. Culture helps shape our lifestyles, values, and beliefs and ultimately it can affect the way we respond to growth policies and attempts to change. Culture is rooted so deep in our societies that even massive development cannot easily alter it. Appendix 3.1 also brought up a good point that population and technology are constantly changing. Our policies keep evolving not only because they need to be altered from market to market, but because they need to keep up with growth. China's unorthodox way of developing should be a prime example for policymakers. They did not adhere to a simple checklist and implement policies that should succeed in certain situations but instead they went in a riskier direction and decided to experiment and observe the reactions of their own economy and market. Economists can provide an idea or advice to countries that need to change but ultimately, the countries themselves need to decide what's best for them and then try it on for size to ensure success in both the short-term and long-term.
I completely agree with Siwan on the fact that Rodrik lays out some of the key policies that have contributed to China's exceptional growth from a LDC to its current level. He breaks down very complex ideas and lays them out in a way that makes a great deal of sense, specifically in the context of Development Economics.
However, I would like to argue about Siwan's point about the political aspect of China's story. It is true that China's current political party has been in power for over 30 years, but that certainly does not mean that there is now political pressures being put on Bejing. The fact that most of their policies have be aimed at increasing the standard of living in Urban areas (and consequently limiting migration to those areas through their Housing Registration Act) has led to a wide disparity in the Standard of Living between the Urban and Agricultural Sectors, as well as the opportunities available, social mobility, education, etc. The fact that China has had such regular economic growth is largely why we have not seen a country-wide revolution yet. There are nearly daily reports of citizens uprising in some sort of fashion, though most of them appear to be very minor instances (reports are sketchy as they are done by policemen who have an incentive to under-report their numbers). But that is not to say that these instances are not significant. Therefore, it can be said with confidence that Beijing is walking on a fine line. Thus it is easy to see that the decision-makers in Beijing have become increasingly more cautious with how the will proceed to continue, because one wrong move could spell the end for more than just their political positions. We can see examples of this in their censoring of various media institutions (aka the internet).
I really enjoyed reading this piece – Rodrik’s analysis was well written and easy to follow. I was intrigued by the analysis on his first key argument – that neoclassical economic analysis is a lot more flexible than practitioner’s in the policy domain generally believe. He begins by outlining the “Washington Consensus” and uses the intelligent Martian to show that sustainable growth in East Asian countries is not necessarily consistent with the main components of the consensus. Though higher-order economic principles such as property rights, sound money, fiscal solvency etc. are essential elements to successful growth – these factors alone are not the sole determinants of sustainable growth. Using China’s growth as an example, Rodrik states that there are multiple ways of applying sound economic principles. He also stresses that successful growth stems from policies that are specifically tailored to local capabilities and opportunities. This reminds me of something Professor Casey touched on in class - that perhaps there is no one unified theory of development. Rodik’s second point distinguishes igniting economic growth from sustaining it. I was surprised by his point that attempting to emulate successful policies elsewhere often fails. It seems logical that given their economies at the time, Gorbachev would want to model a successful policy from China. In hindsight, Gorbachev should have tailored the program to better fit the needs of the Soviet Union. But how is a developing country at present to know if they haven’t properly adjusted programs to fit their needs? Rodrik recommends policy experimentation. But is doing so actually practical?
As Rodrik carefully discusses the evolution of development economics, he states that uniform, "one size fits all" economic growth does not exist. Each country/region has unique characteristics (culture, geography, governments, etc); yet, many economists and government officials shape their policies around rigid, theoretical models that ignore these seminal differences. Rodrik argues that while these models and principals are helpful in determining broad generalizations about economic growth, they are ineffective in local application. He believes that policy makers should not ignore neoclassical or more government-oriented models, but should be pragmatic in their application and tailor strategies to fit the unique characteristics of the country. He describes this as an "art… [that] consists of selecting appropriately from a potentially infinite menu of institutional designs" (18-19). I thought it was insightful (and very refreshing for an economics paper) how Rodrik analyzed development patterns from the unbiased perspective of a Martian. He stated the Martian would have trouble identifying uniform policies that led to sustained economic growth, especially in Latin America. They underwent a period of deregulation and liberalization that ultimately led to feeble growth rates for the next decade. Rodrik really impressed me with his lack of bias towards what "normally" leads to sustainable economic growth. Even from my limited exposure to economic literature, I still feel that the majority of economists lean toward either a free-market/neo-classical approach or a more regulated, welfare-driven one. His argument for balance and pragmatism seems to be the most sound.
This paper does a great job of reevaluating the universal theories of creating and sustaining economic growth. I liked the use of a martian in this paper as an unbiased evaluator of the different growth strategies Asian and Latin American countries implemented, and the outcome of those actions.
One of the greatest success of the paper is how it drastically changes one's view of even the simplest growth strategies. The example used was that "trade liberalization is good for economic performance." That statement sounds logical, and most people wouldn't have an issue agreeing with it. However, below this statement the author lists a total of seven conditions that must be met in order for this one growth strategy to hold true. They include the economy being in reasonably fully employment, the liberalization being politically sustainable, and that there are no adverse effects on fiscal balance.
These are factors that aren't always taken into consideration, and by doing so it drastically changes how growth strategies should be viewed even on the most basic levels.
This paper not only reviews the historical evolution of growth theories, but it also mentions the lack of success these growth theories can have when implemented generically.
One of the best parts of this paper was when he reviews the neoclassical model of "free market" and Laissez-faire thinking. Liberalization of markets and open trade are two of the common actions associated with this regulation. However, he mentioned places in Asia, where a completely free market was not needed. In China, the farmers only sell the surplus at market price and the rest at the lower government price.
China has seen one of the largest growth rates and yet, it is not a full free market system. This paper is also unique is that it begins to introduce the idea that history and culture play a strong role in determining what kinds of institutions and policies are needed for that country to have success, because the growth strategies are too generic.
I found it very interesting how Rodrik went beyond a discussion of just the context specificity of institutional roles in development and focused a large part of his paper on the relation between time and development strategies. The distinction between the relatively easy short-run ignition of growth and the comparatively more difficult long-run sustenance of economic growth is undoubtedly important as we look to ultimately close the gap between poor and rich countries. I believe the realization that short-run goals require different institutions and strategies than long-run goals demand highlights the necessity of continuous action on the development front for growing nations. It is not sufficient to install certain policies and institutions that are designed to aid in short run growth and then halt efforts with the expectation that these same short-run strategies will continue into the future and affect and sustain long-run development. This continuity of efforts towards development is expressed when Rodrik states, “Just as it is silly to think of these as the prerequisites to economic growth in poor countries, it is equally silly not to recognize that such institutions eventually become necessary to achieve full economic convergence” (28). In essence, different countries at different stages in their development require different strategies to propel their growth into the long-run. This seems like an obvious observation; however, I believe the dynamic, changing nature of these situations is often overlooked, as the focus often centers on “single-shot” solutions that unrealistically expect the same institutions and policies to not only ignite growth but also sustain it as well. Thus, from Rodrik’s paper, I gained an understanding of both the tendency towards diversion of economic development from traditional framework and the necessity of context specificity in addressing not only differences in the cultures and attitudes in specific countries but also differences in time. Constant attention and continuous revision to nations’ development strategies appear to be essential to successfully transition growth and development from the short-run to long-run.
Dorik’s argument explains that there is no one-fits all-strategy in terms of economic growth and development, and effectively proves this point by detailing the typically prescribed formula for economic growth and reveals the gaping holes in this theory by producing counterexamples. By showing that countries that do not mimic the traditional growth theory model have succeeded, such as burgeoning economies of Southeast Asia, especially China (which at one time cited a remarkable 8% growth rate), yet those who seem to follow the prescription, such as Latin American countries, have not yet experienced substantial growth, Dorik emphasizes that economic growth policy cannot be generalized across and even within countries. The disparity between the “ideal” model and the East Asian reality suggests that growth policy should be context specific. In 1994, North wrote, “economies that adopt the formal rules of another economy will have very different performance characteristics than the first economy because of different informal norms and enforcement [with the implication that] transferring the formal political and economic rules of successful Western economies to third-world and Eastern European economies is not a sufficient condition for good economic performance.” Here exists the argument that is function, not form of policies that is critical in sustaining growth. Key economic principles deemed necessary for growth do not translate into simple enactable policy changes, but must be tailored to fit specific countries based on political structure, economic history, and cultural norms.
Despite working myself through what can only be described as a marathon event of expressions I haven't heard for a really long time, this article made me happy. I do not recall an economics article ever making me happy. Rodrik sums up his paper well, to conclude that big ideas matter - no one (or few) dispute that free markets, rights, incentives and security matters - but they only matter insofar as they are applied along side efficient governmental interaction. And only insofar as they are not at odds with general trends in an economy, like the religion, culture and history of the consumers, investors and policy-makers alike. Consider Ghana - one of the wealthier countries in Western Africa: the non-western culture here is at odds with the idea of "personal" gain as a rational approach to interacting with the economy (I mean not to say that Ghanaians are not rational, merely that in the light of the big-idea-expectation of their actions they are not). For cultural reasons wealth is shared in a unique way which disrupts the assumptions on which the bigger ideas depend. Simply, because most income is shared, the marginal utility for a Ghanaian to enter into a business or job is much less than what we customarily expect (at least in terms of financial gain). Rodrik mentions as well the Chinese groups of entrepreneurs with no property rights, which is certainly at odds with the most basic assumptions we make in micro-economics.
What I particularly enjoyed in this article is the idea that immediate and sustained growth is not the same. What kick-starts the economy does not, the evidence Rodrik presents, suggest that growth in itself encourages more growth BY itself. Growth makes easier reform, but if reform is not realized the immediate economic growth is unlikely to continue at its present level. The paper of course provides little in the way of direction in combining big economic ideas with specific application, but references what little work there is on the subject, and I hope has encouraged a wide array of economists to investigate better approaches based as much in politics and culture as in economics. Could one hope that blanket-application economics are now only part of history?
Rodrik's paper was specifically interesting to me when discussing Asian countries ability to grow without the need to strictly adhere to the growth model that has previously been used to describe successful developing economies. China did a great way of combining the growth strategies while continuing to work within the boundaries of governmental policies to increase economic success. China did a good job of setting policies at levels that promoted growth instead of hindering it. What I learned the most from this paper, is that there are no growth strategy that is a blanket answer for all countries that are trying to get out of their economic slump. What works well for one country could fail in another country or part of the world. However, it did seem obvious that a country needs to recognize and capitalize on the abilities, resources of the region and its people. It seems that failure of economic growth is evident when countries try to do to much with the resources and capabilities. Lastly, I thought this piece was informative and easy to read. It gave insight into how developmental economics has been viewed in the past and how it is changing with more examples of success.
I think that this article shows a very good understanding of the complexity of the problem and makes some points that any economist should consider. I think that given the success of the western world and the prevelance of great economic minds in the west for a long time we have considered the western methods of acheiving economic growth the only method. This idea is as naive as saying 50+50 is the only way to add to 100. No two economies are the same and that which works in one country will likely run into problems in another. As Rodick says "No country has experienced rapid growth without minimal adherence to what I have termed higher-order principles of sound economic governance—property rights, market-oriented incentives, sound money, fiscal solvency. But as I have already argued, these principles were often implemented via policy arrangements that are quite unconventional" There are certainly some things that any economist will tell you a country much acheive in order to have a healthy economy but what many economist don't acknowledge is that there is an almost infinite combination of methods that can be used to acheive the same end result. It all depends on the particular situation of each individual country which method will work best for them to acheive economic growth. We have to move past the days of telling other countries how they should manipulate their policies and let them make their own decisions based on what they know to be true about their countries. This idea is best summed up by Rodrick "There is increasing recognition in the economics literature that high-quality institutions can take a multitude of forms and that economic convergence need not necessarily entail convergence in institutional forms"
One line in Rodrik's "Growth Strategies" that i found interesting was, "Development policy has always been subject to fads and fashion". He went on to lay out how development policies have changed over the years. In the 50's and 60's it was about "big push, planning and import-substitution". Then in the 70's it was more about the "role of the price system and outward-orientation". In the 80's it changed again and has since been expanded upon.
By saying these constantly changing development policies are subject to 'fads and fashion" seems to emphasize a lack of confidence in these strategies. There is a clear uncertainty in the correct development strategy and that no single strategy offers a perfect solution.
In one of my politics classes last year I actually spent some time researching the variables that lead to economic growth and continued development in China since 1978. Amazingly, it turned out that simple decisions by the government to decentralize power to local and regional authorities played a rather large part in the amazing level of growth that China has witnessed. As touched upon in Rodrik's article, the establishment of autonomous township and village enterprises (TVE's) acted as a major force of structural change within the country. Taking power away from the central government, and putting the capital and land ownership rights in the hands of local communities, China set the stage for capitalistic structures that encouraged competitiveness, innovation, and thus economic growth.
ReplyDeleteOf importance in this research I came across a theory proposed by Charles Tiebout’s who was a well known economist for his research on the role of decentralization in economic development. Tiebout’s “consumer-voter” theory provides an adequate explanation for the success of TVE's on China's astounding growth process. According to Tiebout, small decentralized subsidiary governments can compete with one another to gain mobile consumers that seek a certain preference “package” of taxes, public goods, etc. By creating a system of competition for residents, the establishment of TVE's ultimately results in the creation of the lowest costs for consumers and government subsidiaries. In part, this not only leads to greater economic success, but in part it also helps to establish a system in which individuals can move to which ever area provide them with their desired level of political voice, and demand for public goods such as security, schooling, employment, and other goods. Therefore, decentralization has the ability to provide greater economic and political rewards than more centralized hierarchical structures of government.
As seen in the Rodrik article, this hybrid form of central planning on a political scale, and capitalism on an economic scale allowed China to pursue a course of development much different than any other country throughout history. All it took were some small incremental steps, but once in motion, the theory of "Tiebout sorting or consumer voting" proved so successful that residents no longer wanted the government to intervene in economic matters of each locality. The self-reinforcing process of this mechanism made further strides towards economic autonomy as time went on. Thus, China had the means of maintaining its growth strategy.
To me it is amazing to see how such small changes like establishing property rights, or refusing to intervene in local economies can spark such economic growth and development as seen in China over the past 30 years.
Rodrik’s paper argues that traditional growth theory is not, as was once assumed, singularly correct, adequate, and sufficient to address developing countries, each with its own specific development issues and constraints. Much less should these theories, by definition abstractions of reality and not empirically substantiated, be transformed into policy prescriptions on the basis that they will work effectively—in theory.
ReplyDeleteIn fact, Rodrik argues that there is only a weak correspondence between these principles of neoclassical economics and the specific policy recommendations that Washington/the West is quick to prescribe. There has, instead of brainstorming context-specific courses of economic development borne out of sound theory, a quickness of Washington economists to assert necessary policy prescriptions, instead of merely possible or viable ones. The entire paper basically describes the existence of faulty, inadequate assumptions about development that entail a causal line that runs in only one direction, restricting the problem to a single exclusive solution.
Many of Rodrik’s cited Washington proposals are based on the assumption of a singular cause precipitating a desired effect; and furthermore, the assumption that said policy will cause only the desired effect(s) described in theory. In reality, though, a universal principle can be applied in myriad ways, and this diversity of potentially derived policies speaks to the various sociopolitical and cultural contexts in which it will be implemented. An example of this, on page 988, derives seven plausible policies, derived from two universal economic principles that are designed to meet one objective.
Rodrik concludes that the fundamentals of growth are not to be discounted, but instead asserts that development policies should not be based on such theories such as the Solow model simply because they are fleshed out and understood. Moreover, differing policies, such as central planning or liberalization and privatization, based on seemingly competing theories, do not need to be universally accepted or rejected—this speaks to the context-specific possibilities and constraints of each developing country. Growth theory at large is a necessary ingredient to implement prescriptions of development, but by no means is it the sufficient condition. Success lies in the specific, not the generalized.
Throughout his paper, author Dani Rodrik makes a compelling argument against the western-world’s desire to develop and employ “one-size-fits-all” models of economic development. Through a series of carefully selected examples, Rodrik shows that each region of the world, and further, each country, has specific characteristics that ultimately shape the course of its economic development or lack there of. As a result of the innate difference that exists between countries, developmental policies that have worked in some do not work in others, and vise versa. He asserts that policy prescription simply cannot be made from ten thousand feet up. Instead, an intimate knowledge of a given country’s culture, economy, history, customs, and many more factors must be obtained before an effective growth strategy may be implemented. He suggests that in some cases a trial and error approach is the most effective way to zero in on the developmental approach that is most appropriate for a given country.
ReplyDeleteIt is very refreshing to hear an economist downplay the importance of models and their ability to be accurately applied to a multitude of situations. In the case of development economics, Rodrik suggests that models are largely inapplicable because of all of the exogenous factors at play during a countries development. However, he is not saying that the decades of research and publications on the subject of development are antiquated and obsolete. On the contrary, he states that the orthodox ideas such as the necessity for market-based competition, sound money, debt sustainability, etc must work hand-in-hand with a healthy mix unorthodox ideas in order to achieve real economic development. He says, “what stands out most in the real success cases [is]…an unconventional mix of standard and non-standard policies well attuned to the reality on the ground.” Rodrik leaves the reader with an understanding that policy must be implemented on a case-by-case basis to truly be effective, because with economic development, one size does not fit all.
Rodrik's statement that "the hard work has to be done at home" stuck out to me. In development economics, and all branches of economics for that matter, there is rarely a black and white answer. However, economics can be very helpful in understanding what goals must be achieved in order for development to occur. For example, economic principles show us that incentives must be provided to entrepreneurs in order to increase investment, but exactly what these incentives look like can vary drastically.
ReplyDeleteAs Rodrik says, a Martian looking at the East Asians countries that have recently undergone extensive growth would not understand this outcome based on the Washington proposals. China, the classic development success story, followed few conventional rules, but still applied economic concepts. Rodrik points out that vast knowledge on local economic and political conditions must be known before any sort of sustainable development can take place. Moreover, development strategies that are successful in one country likely will fail in another. Each country is unique and should be treated that way when considering development policies.
What stood out in Rodrik's article to me was the fact that there is not one singular strategy or some sort of cure-all formula for growth. Saying that one strategy is right while another is flawed is wrong. Rodrik is quick to point out that while there are several key factors that growing countries all share, the way in which they get to those factors are different. Rodrik is quick to point out, however, that this does not mean that the field of development economics cannot do anything, nor does it mean that countries can experiment to find growth. Rather, it takes a calculated look at an individual country to find out what will work for that country, based on the social, cultural, and political state of the country. Growth may come in unusual forms, but what seems critical to Rodrik's article is that the same ends can come from many means.
ReplyDeleteRodrik's findings come as both a sign of hope but also with frustration. On the one hand, once a country has figured out how to grow successfully, the process is easy and does not take much to get started. On the other hand, as countless failures will show, figuring out how to successfully grow is the hardest part. The biggest challenge ahead may be getting the developed world to adopt this model and look at countries on an individual basis to determine successful growth. The cookie-cutter model of growth will not work, as the empirical evidence shows.
One of the things that particularly struck me about the article was when Rodrik began mentioning how the Martian might predict Latin America to grow compared to its actual end result. Latin America, appearing to take all the right moves in the direction of growth on paper, has seen very little results in return in reality. She also notes how African countries have experienced a similar problem, and it poses the question of what these countries need to do in order to salvage their people from this situation. It seems that perhaps more developed countries could lend a hand, not necessarily financially but at least in terms of policy, so that these countries could find a way out of the struggle that they have been facing.
ReplyDeleteHowever, Rodrik points out that developing countries may not need a hand, like in the case of China. 30 years ago China was a struggling, developing country, and today it is a booming economy. However, it did not follow any of the traditional steps that a lot of today’s developed countries followed to achieve this status. China came up with many programs of its own—such as the Household Responsibility System and the Township and Village Enterprises—which manage to redistribute wealth in a way that capitalism would likely never have imagined. This brings to mind what Professor Casey mentioned in class that Marxism might, in fact, have some good ideas buried beneath what many Westerners consider to be outrageous theories. Perhaps the best way for a country to find a way out of a bad situation is for the country to be left to find its own unique method—for in many cases, other countries may not be so sensitive to the particular situation of that country and advise it in a way that worked for them, but would not for the developing country.
As Professor Casey mentioned, an interest in development economics originated in rebuilding post-WWII Europe, and many of the European countries targeted had social, legal and health infrastructure already in place at the time of rebuilding. The theories that arose often are not suited for current developing countries as they lack some of the infrastructure that was in place in Europe, and efforts to emulate these strategies in developing countries have proved unsuccessful.
ReplyDeleteRodrik elaborates on this idea, stating that, “policy packages associated with growth accelerations tend to vary considerably from country to country” (19). This reminded me of the false-paradigm model approach to development that is mentioned in the textbook. Under this approach, well-meaning “expert” advisors from developing countries offer development models that may lead to unsuitable growth policies. Rodrik’s paper emphasizes the need for growth strategies to be specifically tailored towards the countries and regions being targeted. Thus, the growth strategies suggested under the false-paradigm model frequently are not suitable for developing countries, especially because local opportunities, capabilities and constraints need to be considered. While this may seem frustrating as economic growth requires some experimentation and there is not a uniform model to emulate, there are success stories of countries applying unorthodox growth strategies. In addition, Rodrik mentions that adapting existing technologies is a critical component in the early developing process, so this is an area where economists and policy makers can look to developed countries for guidance.
I really like Rodrik's idea of "non-standard practices in the service of sound economic principles." Many conflicting economic models are formed around the same underlying ideas such as incentives, property rights, sound money, etc. Certain models/institutions are going to work better than others in different situations. It is clear that one must take into account the context of a country's economic issues before attempting to impose reform. Rodrik emphasizes the idea of "experimentation" in reforming policy and developing individualized growth strategy. While experimentation does seem like a great way to obtain situation-specific policy reform, I can't help but wonder how efficient it really is. It seems as though, at least in my experience, law and public policy reform can take quite a while. If a country is in a more desperate economic situation,experimentation could be detrimental to large communities of people. That being said, there is obviously no "ultimate cure" for LDCs. Perhaps the second best option for countries in dire need of economic reform is "coppycatting" other countries who have come from similar social and economic situations.
ReplyDeleteRodrik points out that Western economic policies are models that will not always produce the "typical results." In forming economic policy, it is more important to look at the context of an LDC--their economic and policial contexts. Rodrik reveals that China is an example of an "unorthodox" approach to successful growth. His anecdotal data reveals that there are "shortcuts" to growth in some cases that will prove to be more successful. There is more than one way to go about growth and it really depends on the situation for the LDC. In China the political support for reform process allowed it to grow through its TVE program where government, rather than private sector ran the economy. In Japan, their post-war political climate was important to their economic policy, which needed centralized control. Rodrik explains that "search and discovery" can be a good way to promote growth as it seeks to find the issue at hand, fix it, and promote growth. Finally, Rodrik notes the importance of broadening the perspective of institutions, revealing that new institutions are not always needed. Rather, improving existing institutions can result in better economic policy.
ReplyDeleteOne aspect I thought was missing from Rodrik's analysis was the effect of cultures or customs within a country. She spends a good deal of the paper discussing the relevance of institutions, both in terms of form and function. While stable institutions are an important factor in economic performance and growth, cultural variables influence the form these institutions take.
ReplyDeleteFor example, in Islamic countries, finance operates differently than in the west. Universities in Bahrain include Islamic Finance as a major in their business school, rather than just economics. Institutions in several Muslim states must conform to sharia law and recommendations. Interest on loans may be forbidden or follow different guidelines due to sharia law. I'm sure that cultural influences in other regions effect the formation and function of institutions in similar ways.
While Rodrik discusses some social factors, religion and other cultural variables are never mentioned. Otherwise her review of development literature is thorough and effective in noting the limitations of economic models for real world situations.
At the conclusions section I really liked how Rodrick highlighted the Feynmen quote “It’s the things that nobody knows anything about that we can discuss… It the subject that nobody knows anything about that we can all talk about!” This quote resembles what needs to be done with establishing development theory. There is no cure all answer for initiating and sustaining development, therefore no one model or person can looked to for the solution. As Professor Casey noted in class, the Solow growth model that was established approximately 50 years ago is still our best development theory today despite the major changes that the world has undergone with the key market players in the world. The recipe for maintaining developmental progress is still unknown, but it is known that it will take more than one solution to apply to the diversity of countries in the world. Thus, only by further discussing and refuting new ideas will we eventually learn the various remedies to the development dilemma.
ReplyDeleteI particularly like how Rodrick highlighted the challenge of finding a solution when he mentions, “If Latin America was booming today and China and India were stagnating, we would have an easier time fitting the world to our policy framework. Instead, we are straining to explain why unorthodox, two-track, gradualist reform paths have done so much better than sure-fire adoption of the standard package.” We can apply strategies that we think should be the remedy for certain situations, yet the economy responds in unpredicted ways. It may have short-term success such and then stagnate like the “lost years” in Latin America. Although according to theory Latin America had the right variables to generate future growth, the predicted expectations did not occur. It will be interesting in the years to come to see if the current developing giants will be able to maintain their high rates of growth or if they will come to a halt while another nation steps up to take their place with a completely different development strategy.
I think Rodrik's analysis is very interesting. The fact that it takes very little to jump start growth is hopeful, but it is also discouraging that so many of these countries may have a hard time adjusting existing institutions to sustain that growth. I also think that Rodrik's point about solutions should be context-oriented makes perfect sense. Rodrik points out that the most successful examples are those that use local knowledge in their policies, such as China's creation of TVEs. It is very interesting to see that neoclassical economic principles can be applied in varying and creative ways in order to solve geographically different problems that are fundamentally the same.
ReplyDeleteThe argument I found most interesting, even though Rodrik only touched on it with a few sentences, is the idea that China may experience the same type of growth collapses that other countries that showed progress have demonstrated. Has China taken the necessary steps to create sound institutions that will be able to maintain its exceptional growth, or has it not "outgrown its institutional underpinnings" yet?
I found Rodrik’s first stylized law—namely, that “in practice, growth spurts are associated with a narrow range of policy reforms”—to be particularly interesting, but not solely for the connection he is able to tease out between “short” (I do not consider “the better part of a decade” a short time, even considering the timeframe required for industrialize) growth spells and a focused set of policy reforms (Rodrik 16).
ReplyDeleteWhile I agree with the author that short phases of growth brought on by specific policy reforms are a good thing if they can increase wellbeing and capability without sacrificing environmental or other concerns, I wonder if it is possible that these spurts of growth could hurt long term development by exacerbating existing inequalities or by solely targeting (with “a narrow range of policy reforms”) “a narrow range” of poverty or non-development (Rodrik 16). For example, what if a country were to experience growth for eight years due to a “narrow” educational reform and this growth were to create rising expectations among the populace. (Rodrik 16). When the growth stops, the populace may be much less willing to put up with the current government and policies; now that they have more, they expect or want more, which the government may not be able to provide, leading to any number of undesirable societal effects. Another example: what if the growth brought about by educational reform were to bendistributed unequally? Now, those did not benefit have less reason to be hopeful about long term growth prospects, since narrow reforms—which ostensibly would be easier to execute than larger ones—did not better their lot. Once again this could lead to instability and resentment among the populace.
These examples are not meant to disparage leaders from striving to attain some form of growth via small, passable reforms. Rather, I just wanted to point out that small spurts of growth are, like most growth models and paradigms, not a magic bullet for issues of underdevelopment. This is especially important to keep in mind when considering that several of the countries Rodrik mentioned—Argentina, Brazil, and Chile (although to a lesser degree) specifically—went on to experience economic crises after their short periods of growth.
Rodrik's points about the differences about initiating growth and sustaining it in different countries were very insightful. It is clear that countries have different "pre-existing institutional landscapes," so it is not reasonable to apply a set of principles that may generate success in one country to another. Given the nature of a country's culture, politics, administration, markets, and other factors, there are bound to be different implications for different countries: the costs and benefits of implementing a policy for growth will vary between countries, succeeding in some and failing in others. Furthermore, he describes the "shocks," which really only cause spurts in growth, rather than sustained growth. The background environments of these countries also vary significantly and therefore can have different effects on economic activity.
ReplyDeleteIt is good to see that it often does not require a complicated and exhaustive set of institutional reforms to start generate growth, but it is especially daunting to think of the many ways to combine orthodox and unorthodox institutional practices in a way that maintains economic growth. It is difficult for me to even comprehend the weight that these decisions carry or how one even begins to consider policy reforms that affect an entire nation...especially when considering the Washington Consensus and its many "rules." I do think, however, that the "Augmented" Washington Consensus gives a comprehensive list of things for policy makers to consider since each country deals with each "rule" in a different way.
The most important part of this entire paper is the four paragraphs in the conclusion. When it comes down to it, economic theory is a tool to aid the process of discovering how to bring about growth and development in LDCs, not an answer in itself. I guess the way I think of it, economics is to growth and development what precedent is to the law. Even though precedents provide guidelines and standards for how the law should be interpreted and applied, it is the facts of each individual case that ultimately determine the outcome. Similarly, growth and development need to be handled on a case by case basis.
ReplyDeleteRodrik lays out his aim (in the abstract) by saying that his paper "is an attempt to derive broad, strategic lessons from the diverse experience with economic growth in last fifty years." What we learn from the article, and most development readings, is that there really is no solution. Models and previous cases can't always serve as examples. This is where I would like to see Rodrik take his argument further. It's not just that previous methods and models can't directly be formed into policy--what I find to be interesting to study is why this is the case. Most of it likely has to do with varying socioeconomic and cultural norms across countries, which as we have read about, play a large role in consumer preferences and decision making. Rodrik touches on the idea of government corruption, but I see this as more of a problem than he lets on. Any sort of development solution will likely involve the government at some point (the level of involvement varying), but there will be large setbacks if corruption exists. Unfortunately, government tends to be both ineffective and corrupt in developing nations. While Rodrik provided some insight to having to apply different strategies to each nation, I feel it would be interesting to study at a deeper level the different elements of a nation that would be conducive to different policies and strategies, and why.
ReplyDeleteThe most important piece of information I took from this piece by Rodrik was the idea that “a semblance of property rights, sound money, fiscal solvency, market-oriented incentives…” are “common to all successful growth strategies” (Rodrik). It seems that Rodrik has taken what has become an over developed and complicated cookie cutter model for growth that is wrongly assumed to work in any climate and simplified the growth model to a couple of key economic characteristics required of growth. There seems to be a logical disconnect in taking what institutions and policies work for our culture/society and applying them to different cultures/societies, yet that is what many “experts” on development have encouraged. It is refreshing how Rodrik is able to simplify a mess of policies and strategies for development and highlight the characteristics of development present in all growing societies; property rights, sound money, fiscal solvency and market oriented incentives.
ReplyDeleteThe next step in applying Rodrik’s idea is to look at countries on a case by case basis and devote a substantial amount of resources into researching and understanding the history, cultural, societal structure and existing government and economic policies. Once the research has been completed, policies can be implemented that focus on ensuring some type of property rights, sound money, fiscal solvency and market-oriented incentives based on what will be most effective for that specific country. This new growth strategy is contingent on the idea that there is a process of trial and error and adjustment that is essential optimal growth and the development of better institutions to ensure long term growth.
The question that needs to be asked is whether the United States (and all developed countries) can put aside its collective ego and accept that our policies and institutions are usually not going to be the best policies and institutions in other countries. It seems reasonable that people would be able to understand Rodrik’s logic however the Cold War and the unrelenting determination of the US to impose it political and ideological views wherever possible raises concern that ego and politics may get in the way of implementing optimal growth strategies in developing countries.
I enjoyed the logic behind this paper, in particular the aspect of institutions. I agree with Rodrik in that institutions are not necessary for economic growth to start. However, once the economy begins to grow institutions need to be in place. Property rights institutions are the most important because they lead to higher per capita GDP, more investment, and a more developed stock market. SO, once an economy gets to a certain point, it will need property rights institutions. Also, legal or contracting institutions are important in the fact that they solve the fundamental problem of exchange easier and faster than two individuals could without these institutions. Obviously, we are more concerned with getting economics into the growth stage. My only questions is would the presence of strong institutions help economies start to grow?
ReplyDeleteAlso, what is the effect of de-centralization? It helps specialize which makes markets more efficient. It also creates hard-budget constraints, competition, and institutionalized power.
I ‘m also particularly amazed by Rodrik's analysis of how East Asian countries', particularly China's economic growth of the last decades came about by 'unorthodox' means, but resulted in 'orthodox' results. I found his support for 'experimental' ideas in the field of development economics (where the stakes are so high) and to try to think 'outside the box' encouraging. For me, Rodrik just highlighted why this area is so exciting and interesting, precisely because we CANNOT predict what happens beforehand and well-thought-through, 'risky' measures are oftentimes rewarded and needed to refresh policymakers' minds and generate novel ideas.
ReplyDeleteHowever, I wanted to note that, with regard to China, we need to keep in mind that the central government in Beijing does not need to pay as much attention to public support and domestic political bargaining or competition with other parties, as democratic governments do. Also, there are less time-consuming bureaucratic procedures that need to be followed before a policy can be implemented or new laws passed and executed. The fact that China is ruled under a one-party-system has had a huge impact on the efficiency of the government to ignite and sustain the county's rapid growth. This is why, in my opinion, even though China serves as a great example to illustrate policy reforms that promote economic growth, it is very difficult to implement these strategies (as efficiently) in most other developing countries.
The one-child-policy for instance is also related to economic reforms (even though not directly) and has been carried out in a harsh and reckless way (with regard to the rights of the people), but has contributed positively to China's growth strategies (and in fact, helped restrain world population growth extremely). If I'm not mistaken, India officially also promotes a one-child-policy but is unable to carry it out and manifest it as a law, which has had negative effects on India's growth rates. This exemplifies Rodrik’s argument for the ‘individuality’ of each country and the fact that there is no single solution to development.
I think that we can all agree, having read this paper and continuing on from the discussion of the last, that local cultural and economic factors are most important in the development of any growth strategy. There is no "model plan" which can guarantee growth. The article points out that many unconventional growth strategies have also failed, so is growth strategy mostly luck? I don't think so. I think that understanding local conditions through research/trial-and-error methods is the best approach. As the article points out, find where policy change is most needed and can be theoretically most effective and start there. It doesn't take much to get growth started. Sustaining it requires a second step in policy changes, but without the initial movement, most attempts will undoubtedly fail. A part of the article I would like to discuss further is mentioned briefly in the last paragraph of Section III. The political side of development can hinder growth as easily, if not more so, than stagnation. Policy is a political decision and I would like to know of any strategy which can legally bypass corrupt or inept political control of an economy.
ReplyDeleteWhile Rodrik’s thesis is a useful examination of differing but successful economic policies and approaches throughout the world, I felt that there were two general shortcomings of her paper. Firstly, I found Rodrik’s conclusion that there is no "one size fits all" approach to economic development to be a bit obvious. Cultures, economies, infrastructures, social conditioning, and government forms differ (often drastically) from place to place. It should come as no surprise that approaches to economic development should differ as well. Secondly, Rodrik’s proposed solution framework gives too much credit to a government’s ability to alter its structure or intentions to accommodate economic growth. Nonetheless, these points too have important implications for the advisement of economic policy.
ReplyDeleteIn her paper, Rodrik recognizes that "growth strategies require considerable local knowledge." It logically follows than that both local governments and populations should be actively involved in both advising and administrating the development process. Indeed in China’s TVE system, a localized approach worked quite well. It is interesting however, that most of the international assistance to third world development comes through highly centralized and broad institutions such as the World Bank and IMF who interact primarily with governments before the actual economic sector. Perhaps a better solution would be to provide greater government assistance to institutions whose focus is ground up development than sweeping top down change. Such an approach can leverage the local knowledge to develop a unique economic approach that suits the economic realities of the region.
As mentioned above, I also feel that Rodrik gives too much credence to a government’s ability or willingness to make certain social, economic, or political alterations to stimulate growth. Governments undoubtedly reflect the views and interests of those with power. Advanced democracies have often managed to grant such power to the governed, but many third world countries lack such virtuous government. Instead, many governments reflect the will of a few vested interests which may benefit from the economic makeup of the region. Altering such government structures requires the establishment of deeper and more beneficial economic and political incentives which Rodrik’s paper falls short of mentioning.
In all, Rodrik’s paper is useful in illustrating the differing economic theories and approaches within different regions of the world and detailing their outcomes. Other than that however, I did not find the paper to be overwhelmingly insightful.
Rodrik makes it clear for the audience that what works for one country will not necessarily work for another. After providing many examples of public policy attempts in various countries, we can understand that markets and economic systems vary from country to country. Unfortunately, we have yet to learn from our failures because we are blinded by the short-run effects of our successes. We are fairly confident in our plans to jump-start growth all over the world but we forget to include many other variables that should be factored in to our experiments. As some other people mentioned, we need to consider culture as an important feature of every economy. Culture helps shape our lifestyles, values, and beliefs and ultimately it can affect the way we respond to growth policies and attempts to change. Culture is rooted so deep in our societies that even massive development cannot easily alter it. Appendix 3.1 also brought up a good point that population and technology are constantly changing. Our policies keep evolving not only because they need to be altered from market to market, but because they need to keep up with growth.
ReplyDeleteChina's unorthodox way of developing should be a prime example for policymakers. They did not adhere to a simple checklist and implement policies that should succeed in certain situations but instead they went in a riskier direction and decided to experiment and observe the reactions of their own economy and market. Economists can provide an idea or advice to countries that need to change but ultimately, the countries themselves need to decide what's best for them and then try it on for size to ensure success in both the short-term and long-term.
I completely agree with Siwan on the fact that Rodrik lays out some of the key policies that have contributed to China's exceptional growth from a LDC to its current level. He breaks down very complex ideas and lays them out in a way that makes a great deal of sense, specifically in the context of Development Economics.
ReplyDeleteHowever, I would like to argue about Siwan's point about the political aspect of China's story. It is true that China's current political party has been in power for over 30 years, but that certainly does not mean that there is now political pressures being put on Bejing. The fact that most of their policies have be aimed at increasing the standard of living in Urban areas (and consequently limiting migration to those areas through their Housing Registration Act) has led to a wide disparity in the Standard of Living between the Urban and Agricultural Sectors, as well as the opportunities available, social mobility, education, etc. The fact that China has had such regular economic growth is largely why we have not seen a country-wide revolution yet. There are nearly daily reports of citizens uprising in some sort of fashion, though most of them appear to be very minor instances (reports are sketchy as they are done by policemen who have an incentive to under-report their numbers). But that is not to say that these instances are not significant. Therefore, it can be said with confidence that Beijing is walking on a fine line. Thus it is easy to see that the decision-makers in Beijing have become increasingly more cautious with how the will proceed to continue, because one wrong move could spell the end for more than just their political positions. We can see examples of this in their censoring of various media institutions (aka the internet).
I really enjoyed reading this piece – Rodrik’s analysis was well written and easy to follow. I was intrigued by the analysis on his first key argument – that neoclassical economic analysis is a lot more flexible than practitioner’s in the policy domain generally believe. He begins by outlining the “Washington Consensus” and uses the intelligent Martian to show that sustainable growth in East Asian countries is not necessarily consistent with the main components of the consensus. Though higher-order economic principles such as property rights, sound money, fiscal solvency etc. are essential elements to successful growth – these factors alone are not the sole determinants of sustainable growth. Using China’s growth as an example, Rodrik states that there are multiple ways of applying sound economic principles. He also stresses that successful growth stems from policies that are specifically tailored to local capabilities and opportunities. This reminds me of something Professor Casey touched on in class - that perhaps there is no one unified theory of development.
ReplyDeleteRodik’s second point distinguishes igniting economic growth from sustaining it. I was surprised by his point that attempting to emulate successful policies elsewhere often fails. It seems logical that given their economies at the time, Gorbachev would want to model a successful policy from China. In hindsight, Gorbachev should have tailored the program to better fit the needs of the Soviet Union. But how is a developing country at present to know if they haven’t properly adjusted programs to fit their needs? Rodrik recommends policy experimentation. But is doing so actually practical?
As Rodrik carefully discusses the evolution of development economics, he states that uniform, "one size fits all" economic growth does not exist. Each country/region has unique characteristics (culture, geography, governments, etc); yet, many economists and government officials shape their policies around rigid, theoretical models that ignore these seminal differences. Rodrik argues that while these models and principals are helpful in determining broad generalizations about economic growth, they are ineffective in local application. He believes that policy makers should not ignore neoclassical or more government-oriented models, but should be pragmatic in their application and tailor strategies to fit the unique characteristics of the country. He describes this as an "art… [that] consists of selecting appropriately from a potentially infinite menu of institutional designs" (18-19).
ReplyDeleteI thought it was insightful (and very refreshing for an economics paper) how Rodrik analyzed development patterns from the unbiased perspective of a Martian. He stated the Martian would have trouble identifying uniform policies that led to sustained economic growth, especially in Latin America. They underwent a period of deregulation and liberalization that ultimately led to feeble growth rates for the next decade.
Rodrik really impressed me with his lack of bias towards what "normally" leads to sustainable economic growth. Even from my limited exposure to economic literature, I still feel that the majority of economists lean toward either a free-market/neo-classical approach or a more regulated, welfare-driven one. His argument for balance and pragmatism seems to be the most sound.
This paper does a great job of reevaluating the universal theories of creating and sustaining economic growth. I liked the use of a martian in this paper as an unbiased evaluator of the different growth strategies Asian and Latin American countries implemented, and the outcome of those actions.
ReplyDeleteOne of the greatest success of the paper is how it drastically changes one's view of even the simplest growth strategies. The example used was that "trade liberalization is good for economic performance." That statement sounds logical, and most people wouldn't have an issue agreeing with it. However, below this statement the author lists a total of seven conditions that must be met in order for this one growth strategy to hold true. They include the economy being in reasonably fully employment, the liberalization being politically sustainable, and that there are no adverse effects on fiscal balance.
These are factors that aren't always taken into consideration, and by doing so it drastically changes how growth strategies should be viewed even on the most basic levels.
This paper not only reviews the historical evolution of growth theories, but it also mentions the lack of success these growth theories can have when implemented generically.
ReplyDeleteOne of the best parts of this paper was when he reviews the neoclassical model of "free market" and Laissez-faire thinking. Liberalization of markets and open trade are two of the common actions associated with this regulation. However, he mentioned places in Asia, where a completely free market was not needed. In China, the farmers only sell the surplus at market price and the rest at the lower government price.
China has seen one of the largest growth rates and yet, it is not a full free market system. This paper is also unique is that it begins to introduce the idea that history and culture play a strong role in determining what kinds of institutions and policies are needed for that country to have success, because the growth strategies are too generic.
I found it very interesting how Rodrik went beyond a discussion of just the context specificity of institutional roles in development and focused a large part of his paper on the relation between time and development strategies. The distinction between the relatively easy short-run ignition of growth and the comparatively more difficult long-run sustenance of economic growth is undoubtedly important as we look to ultimately close the gap between poor and rich countries. I believe the realization that short-run goals require different institutions and strategies than long-run goals demand highlights the necessity of continuous action on the development front for growing nations. It is not sufficient to install certain policies and institutions that are designed to aid in short run growth and then halt efforts with the expectation that these same short-run strategies will continue into the future and affect and sustain long-run development. This continuity of efforts towards development is expressed when Rodrik states, “Just as it is silly to think of these as the prerequisites to economic growth in poor countries, it is equally silly not to recognize that such institutions eventually become necessary to achieve full economic convergence” (28). In essence, different countries at different stages in their development require different strategies to propel their growth into the long-run. This seems like an obvious observation; however, I believe the dynamic, changing nature of these situations is often overlooked, as the focus often centers on “single-shot” solutions that unrealistically expect the same institutions and policies to not only ignite growth but also sustain it as well. Thus, from Rodrik’s paper, I gained an understanding of both the tendency towards diversion of economic development from traditional framework and the necessity of context specificity in addressing not only differences in the cultures and attitudes in specific countries but also differences in time. Constant attention and continuous revision to nations’ development strategies appear to be essential to successfully transition growth and development from the short-run to long-run.
ReplyDeleteDorik’s argument explains that there is no one-fits all-strategy in terms of economic growth and development, and effectively proves this point by detailing the typically prescribed formula for economic growth and reveals the gaping holes in this theory by producing counterexamples. By showing that countries that do not mimic the traditional growth theory model have succeeded, such as burgeoning economies of Southeast Asia, especially China (which at one time cited a remarkable 8% growth rate), yet those who seem to follow the prescription, such as Latin American countries, have not yet experienced substantial growth, Dorik emphasizes that economic growth policy cannot be generalized across and even within countries. The disparity between the “ideal” model and the East Asian reality suggests that growth policy should be context specific. In 1994, North wrote, “economies that adopt the formal rules of another economy will have very different performance characteristics than the first economy because of different informal norms and enforcement [with the implication that] transferring the formal political and economic rules of successful Western economies to third-world and Eastern European economies is not a sufficient condition for good economic performance.” Here exists the argument that is function, not form of policies that is critical in sustaining growth. Key economic principles deemed necessary for growth do not translate into simple enactable policy changes, but must be tailored to fit specific countries based on political structure, economic history, and cultural norms.
ReplyDeleteDespite working myself through what can only be described as a marathon event of expressions I haven't heard for a really long time, this article made me happy. I do not recall an economics article ever making me happy.
ReplyDeleteRodrik sums up his paper well, to conclude that big ideas matter - no one (or few) dispute that free markets, rights, incentives and security matters - but they only matter insofar as they are applied along side efficient governmental interaction. And only insofar as they are not at odds with general trends in an economy, like the religion, culture and history of the consumers, investors and policy-makers alike. Consider Ghana - one of the wealthier countries in Western Africa: the non-western culture here is at odds with the idea of "personal" gain as a rational approach to interacting with the economy (I mean not to say that Ghanaians are not rational, merely that in the light of the big-idea-expectation of their actions they are not). For cultural reasons wealth is shared in a unique way which disrupts the assumptions on which the bigger ideas depend. Simply, because most income is shared, the marginal utility for a Ghanaian to enter into a business or job is much less than what we customarily expect (at least in terms of financial gain). Rodrik mentions as well the Chinese groups of entrepreneurs with no property rights, which is certainly at odds with the most basic assumptions we make in micro-economics.
What I particularly enjoyed in this article is the idea that immediate and sustained growth is not the same. What kick-starts the economy does not, the evidence Rodrik presents, suggest that growth in itself encourages more growth BY itself. Growth makes easier reform, but if reform is not realized the immediate economic growth is unlikely to continue at its present level.
The paper of course provides little in the way of direction in combining big economic ideas with specific application, but references what little work there is on the subject, and I hope has encouraged a wide array of economists to investigate better approaches based as much in politics and culture as in economics.
Could one hope that blanket-application economics are now only part of history?
Rodrik's paper was specifically interesting to me when discussing Asian countries ability to grow without the need to strictly adhere to the growth model that has previously been used to describe successful developing economies. China did a great way of combining the growth strategies while continuing to work within the boundaries of governmental policies to increase economic success. China did a good job of setting policies at levels that promoted growth instead of hindering it. What I learned the most from this paper, is that there are no growth strategy that is a blanket answer for all countries that are trying to get out of their economic slump. What works well for one country could fail in another country or part of the world. However, it did seem obvious that a country needs to recognize and capitalize on the abilities, resources of the region and its people. It seems that failure of economic growth is evident when countries try to do to much with the resources and capabilities. Lastly, I thought this piece was informative and easy to read. It gave insight into how developmental economics has been viewed in the past and how it is changing with more examples of success.
ReplyDeleteI think that this article shows a very good understanding of the complexity of the problem and makes some points that any economist should consider. I think that given the success of the western world and the prevelance of great economic minds in the west for a long time we have considered the western methods of acheiving economic growth the only method. This idea is as naive as saying 50+50 is the only way to add to 100. No two economies are the same and that which works in one country will likely run into problems in another. As Rodick says "No country has experienced rapid growth without minimal adherence to what I have
ReplyDeletetermed higher-order principles of sound economic governance—property rights, market-oriented
incentives, sound money, fiscal solvency. But as I have already argued, these principles were
often implemented via policy arrangements that are quite unconventional" There are certainly some things that any economist will tell you a country much acheive in order to have a healthy economy but what many economist don't acknowledge is that there is an almost infinite combination of methods that can be used to acheive the same end result. It all depends on the particular situation of each individual country which method will work best for them to acheive economic growth. We have to move past the days of telling other countries how they should manipulate their policies and let them make their own decisions based on what they know to be true about their countries. This idea is best summed up by Rodrick "There is increasing recognition in the economics literature that high-quality institutions
can take a multitude of forms and that economic convergence need not necessarily entail
convergence in institutional forms"
One line in Rodrik's "Growth Strategies" that i found interesting was, "Development policy has always been subject to fads and fashion". He went on to lay out how development policies have changed over the years. In the 50's and 60's it was about "big push, planning and import-substitution". Then in the 70's it was more about the "role of the price system and outward-orientation". In the 80's it changed again and has since been expanded upon.
ReplyDeleteBy saying these constantly changing development policies are subject to 'fads and fashion" seems to emphasize a lack of confidence in these strategies. There is a clear uncertainty in the correct development strategy and that no single strategy offers a perfect solution.