It is unsurprising that Americans tend to have a superiority complex regarding our historically successful growth strategies: since the U.S. has established itself as a highly developed country, it is natural that we believe that the market strategies and institutional groundwork that has been implemented here are the most efficient and universally applicable. However, Rodrik provides a refreshing dose of perspective, suggesting that both growth strategies and institutional forms are highly context-specific and can vary greatly between countries. While he recognizes that countries struggle to achieve significant economic growth without enacting a semblance of property rights, sound money, fiscal solvency, and market-based incentives, economic reform programs can legitimately differ from the Western-preferred Washington Consensus method. Rodrik illustrates this point by describing China’s manipulation of market forces to produce economic growth without at all following the Western formula. It is important to recognize that many developing countries lack the cultural context or institutional network to impose the aforementioned neoclassical values in the “traditional” way; thus, Western countries should be cautious to not deliver “sound economics in unsound form.”
Rodrik also makes an interesting distinction between creating growth and sustaining it. It appears to take little to initiate the growth cycle, but short-term growth does not ensure long-term sustainability unless the country develops institutions that have their basis in protecting property rights and the rules of law. However, institutional form is not determined simply by institutional function, so Rodrik emphasizes once again that institutional form can and should vary depending on “differences in social preferences, complementarities among different parts of the institutional landscape, between rich and poor countries, and among poor countries.” Income convergence among countries is possible even without institutional convergence. Ultimately, it is clear that there is no one, best way to economic growth.
I appreciate Rodrik’s article for it’s simplistic, logical approach to viewing the actual development processes that have taken place across the globe. It is refreshing to see the dismantling of the one-size fits all approach that defines much of the earlier literature and policy recommendations of Western economists. Rodrik acknowledges at several different points in the article that the institutional forces present in each country have the most impact on what will produce initial growth than sound neoclassical economic theory. For instance, Rodrik writes “since these local circumstances vary, so do the reforms that work… growth strategies require considerable local knowledge.”
One of the ideas I particularly like is that small changes in policy, market forces, etc. can jumpstart high rates of economic growth. Developing countries do not need full-scale liberalization and opening of their markets in order to achieve growth. In fact, it seems that liberalizing or opening themselves to international forces can even be detrimental to long-term growth if done too early. A prime example in Rodrik’s paper is China’s agricultural reform. Another example is South Korea where focused investment and protection from foreign competition allowed for initial growth. Only then could the southern half of the peninsula start allowing world exposure in the form of product specific exports. This gives credibility to the step-by-step approach to long-term growth. Argentina is an example of the long-term negative consequences of international exposure too early in the development process. By pegging its currency to the dollar, the Argentinians experienced short-run growth from increased confidence in the financial markets. However, aside from the inherent issues related to valuing its currency artificially high, when the dollar became more volatile it automatically shook confidence in Argentina’s currency.
Rodrik’s lengthy analysis of the growth frameworks provides an in-depth perspective on how growth practices are derived from neoclassical theories. Like Nick, I found it intriguing that Rodrik did not merely dismiss these neoclassical economic analyses for not fully encompassing the means by which countries can grow their economies, but rather he expanded the breadth of the neoclassical frameworks to include the processes of countries like China that deviated from the traditional growth path hypothesis. In pointing out the flaws of the strict interpretation of the Washington Consensus, Rodrik alleviates the rigid constructs of the system, which allows it to be applied more loosely to non-standard growth countries. Critics of outlines such as the Washington Consensus want to throw the baby out with the bath water when reality does not entirely mimic the model, but Rodrik’s flexibility approach accounts for the discrepancy between the two entities and draws insights from the adjusted framework.
An interesting insight that I gleaned from the paper is the role of the Washington Consensus in terms of long-term economic growth. As China, Hong Kong, and much of Southeast Asia showed, strict adherence to the WC is sufficient for economic growth but not absolutely necessary in the short run. He states that minor changes can affect huge transformations in developing economies and that the ambitious agenda proposed by the WC might not be plausible politically or economically for many countries. What his conclusions do imply, however, is that the WC outline is necessary for long-term growth and economic convergence. This notion comes into play when Rodrik details the extreme difference between igniting growth and sustaining it. The development of the institutions outlined in the WC is key to sustained growth according to Rodrik.
Given the evidence of context-specific successes in economic growth, Rodrik comes to the conclusion that “successful reforms are those that package sound economic principles around local capabilities, constraints, and opportunities.” If economists and policy makers can acknowledge the imperfect nature of economic growth outlines such as the Washington Consensus, then it seems plausible to me that they can start to extrapolate ideas from the examples of non-standard growth countries and discern which modifications of the higher order economics principles would work best for individual developing countries.
Dani Rodrik’s “Growth Strategies” does an excellent job of clearly demonstrating just why we study developmental economics. The wide range of ideas, successes, failures, and theories discussed in the paper show, as we have discussed in class and read in our textbooks, that there is no easy way to achieve development. There is no “rule of thumb” for economics, and instead we must utilize the past to attempt to understand where we could potentially be heading in the future. Rodrik builds his argument around two key points. The first point is that neoclassical economic analysis is not a rigid and well-defined domain. In fact, he claims that it is a lot more flexible in terms of options for achieving the first-order economic principles and packaging these principles into growth strategies. The second point is that we cannot evaluate short-term growth bursts and long-term sustained growth in the exact same way. He argues that the former strategy is easy to achieve while the latter requires much more thought and effort. If the two growth ideas are not differentiated, we cannot accurately discuss strategies to achieve them. As he walks the reader through numerous examples of countries achieving great success in growth through unconventional and unorthodox methods, we see just how flexible growth strategies can be. He further accentuates this point through his imagined Martian anecdote. Here, he demonstrates the fact that if one were to use pure intuition and classical expectations of what drives growth to estimate potential success for countries based on the strategies they employed, one would probably struggle to accurately predict the results he examines. As he discusses these unconventional avenues to growth, he notes that if a currently under-developed country tried to follow the exact same path that one of the examined countries, say China, followed, it would probably fail. He stresses that success changes between situations, climates, and cultures and no growth strategy can be perfectly replicated. However, just because they cannot be copied does not mean that they should not be studied! The most interesting part of the article to me was his “two-pronged” growth strategy. He divides growth into two categories: short-run strategies with the goal simply being to stimulate growth, and long-run strategies aimed at sustaining growth. For our class purposes, it is this second prong that really aligns with our definition of development. After identifying these two categories, he focuses a lot on the need to engage in short term growth first. He claims that spurring growth is fairly easy, and that this strategy, as compared to long term growth strategies, does a much better job of addressing the immediate concerns and constraints in the economy. From here, it takes much more extensive research and work to sustain the growth in the long run. It is in discussing the sustained, long-term growth that he focuses on the need to achieve the deeper, more extensive institutional reform that has been the focus of our class thus far.
In reading this article, what struck me the most was the story and discussion of what would have happened if a western economist had prescribed policies for Chinese reform in 1978. As is obvious from the article, such a western plan largely based on the Washington Consensus would almost definitely not have been the best option in the situation. This made me reflect heavily on the way we view economic policy in the US and why we view it this way. The truth is, we often think that there is only one way to do things, our way. We acknowledge the very different circumstances that exist in other nations around the globe, but usually seem to believe that the same policies we use for economic growth should also be applied to these nations. This is most clearly shown by the fact that we have tried to apply what we call the Washington Consensus, a term obviously US-centered, to much of the developing world. What the example of China shows is that this kind of thinking is not always beneficial, and can lead us to judge a nation’s methods as “wrong” even if they are producing economic growth that may not be possible using our “correct” policies. China, using its “unorthodox” policies and dual-track approach, was able to accomplish all the higher-order objectives that a western economist would have wanted to achieve. China designed policies that fit where their country was economically at the time and that would actually be plausible. They approached their reform objectives creatively rather than adopting the most basic and standard policies, creating transitional institutions to help them along the path. What is even more interesting to me is that this kind of “unorthodox” approach is actually “the rule rather than the exception,” as Rodrik explains. It is not that our standard policy recommendations are necessarily wrong, but more so that they need elaborating upon to include all the extra conditions that must be present for them to be effective. As the article states, no country has ever experienced rapid growth without at least some adherence to the higher-order principles of economic governance, so it seems that we have the theory right. We just need some help with putting this theory into practice, and, like many of the examples of mixing orthodox with unorthodox policies, it may take some experimentation. Our standard agenda is very demanding of institutions and often times these just do not exist in developing nations. Each nation needs its own personalized prescription for growth, as what works in one nation will probably not work in another because there is such an abundance of exogenous factors that vary from country to country. In turning economic theory or ideas into actual policy, we must take care not to bypass “the black box” too quickly by prescribing the same policies to all of the economic issues of the world. As Rodrik points out, neoclassical economics can indeed support a wide variety of institutions.
Rodrik’s article on growth strategies provides valuable insight into why economic growth may not and where it may be successful. Rodrik’s argument is instructive because rather than saying that economic growth can’t work, he uses case studies to show how countries have flourished. A key part of his argument is that the first phase of development philosophy was useful to lay groundwork for how we think about economic growth today, but it must be revised to account for unorthodox practices and local capacities. Rodrik indicates this by placing his argument for a new phase of growth strategy in the context of the ideas that there is not one set of neoclassical institutions that will ensure growth and igniting development is different than sustaining it.
Rodrik’s examples of Korea, Taiwan and China are all useful in the analysis of unorthodox economic growth. I thought the takeaway from Rodrik’s analysis of the Southeast Asian countries was that their experiences with economic growth were not an accident. Even though Rodrik notes that development in Southeast Asia at time proceeded in a trial and error fashion, conscious effort to avoid use of orthodox economic development practices (the Washington Consensus) and utilize local capabilities, constraints and opportunities led to economic success. For example, China found success in unconventional liberalization of private property useful given the population size and institutions that already existed in the country. The Township and Village Enterprises (TVE) were the growth engine of china until the 1990s, ownership rights were vested in local communities that had a vested interest in ensuring sufficient production. The efficiency loss incurred due to the absence of private control rights was probably outweighed by the implicit security guaranteed by local government control.
Historical examples of different growth strategies can be useful for policy makers when thinking about both past and future growth. The first point of Rodrik’s argument, that neoclassical models are not the end all and be all for economic growth, is clearly shown in China, Taiwan and South Korea. The second part of Rodrik’s argument, that igniting and sustaining economic growth are different entities has policy implications for today. By taking into account the context of the country in question, policy makers may be able to determine where the country is on the growth spectrum and what the next stage of growth should be. Individual analysis of endowments may point to the role of socializing investment risks as South Korea did, currency manipulation as done in China or pursuing large real exchange rates like Chile and Uganda to trigger or further economic growth.
The growth strategies article makes two striking points, both which are well-developed and well-defended in the article. First off, there is no clear cut way to spur economic growth. Every economy is different and a solution that works somewhere won't necessarily work elsewhere. Second off, creating short-term economic growth is all well and good, however sustaining that growth in the long-term is a whole different beast. One quote from the paper that, to me, seemed to capture exactly what Rodrik is trying to say and that I fully agree with is "successful reforms are those that package sound economic principles around local capabilities, constraints, and opportunities" (17).
In effect, there is no one size fits all solution for growth. The export processing zone worked great in Mauritius but did not work in other places that tried. This is clearly because Mauritius found a comparative advantage that they held over others, and took advantage of it. Clearly every country that needs to grow their economy has the potential to find a similar advantage, they just need more educated citizens and better governments to help achieve that potential.
When thinking about how to sustain long-term growth, I think there are clearly a few universal policy requirements. The government needs to enforce laws (be it contract, property, etc.), have ample money, regulate financial markets and so on. If they put the institutions in place to help an economy succeed, and help to jumpstart an initial growth, they could see great results. I think a huge problem (Rodrik touches on this) in today's world is that many developing country's have such corrupt governments. These are places where short-term growth could very feasibly turn into long-term growth, but instead greedy politicians skim off the top and screw over their people. It's up to the developed world to spot these corrupt governments, and help to stop them. If government's begin to act in their country's best interest, by setting successful institutional practices in place, and seek advice from economically successful countries, they will be able to figure out ways to grow their economies. The world will not become developed in a day, and there is no perfect solution, but with education, experimentation, and honest government, developing countries will begin to converge.
The disconnect between economic principles and policy effectiveness that Dani Rodrik talks about in his Growth Strategies paper is essentially the “black box” that we talked about in class. Principles such as trade liberalization, property rights, fiscal solvency, and market-oriented incentives may be sound economics, but Rodrik says they can be implemented in unsound form. What works for China may not work for Russia. But just because these principles SEEM to fail in some countries doesn’t mean they are no longer true. Rodrik argues that neoclassical economic principles are more flexible than traditionally believed. It boils down to crafting institutions to enact these principles that fit with a country’s characteristics, e.g. social norms, existing institutions, government power. This seems like common sense, but our desire for a cure-all simple solution can override reason if we’re not careful.
Just because the attempted application of these principles seems to produce different results in each country does mean the principles are no longer true. Rodrik gives a good overview of how these principles have been implemented successfully, even with unorthodox means, and how they have failed due to the absence of some critical puzzle piece. The way he talks about countries almost reminds me of people. People generally want to improve their lives, and this desire motives action. But perhaps some circumstance, such as bad credit or lack of education, is holding them back. Everyone is unique, so these ‘developing’ people might respond in different ways to change that is meant to help them. A proud person might scorn aid or an irresponsible person might miss opportunities. That doesn’t mean they would take a better life if it were handed to them. In a similar way, developing countries have their own personal deficiencies and circumstances to overcome, and the tools needed to spur growth will have to be tailored to each country’s individual needs.
One last point in the paper I’d like to mention is the paragraph on “scale economies and inter-industry linkages.” This ties directly into the paper we read last week by Krugman and our class discussion on the impact of positive spillovers. These ideas imply that the whole is greater than the sum of its parts. Rodrik talks about a two-pronged approach that takes into account both short-term and long-term growth strategies. If his assumption that short-term growth only needs a small positive shock and that deeper institutional framework is easier to build in an environment of growth, then the positive feedback loop of coordinated industrial policy should make long-term growth an feasible goal for any country in the world, no matter its current poverty.
With the support of multiple examples of countries that have achieved growth through the application of orthodox principles in unorthodox ways, Rodrik advanced two arguments. First, there is no guidebook to transform an underdeveloped country into a developing country into a developed country. The establishment of free markets, the promotion of sound money, good governance, free trade, promotion of foreign and domestic investments, and other frequently touted factors of growth cannot achieve the same robust results with every implementation. It is essential that governments complement these economic principles with “local capabilities, constraints and opportunities.” Short-term growth is relatively easy to achieve, especially for countries that are so far below their steady-state (due to diminishing marginal returns). However, institutions must be appropriate to implement the changes to sustain long-term growth. China’s growth really exemplifies this argument, as it has been extremely successful with a highly involved and controlling government. Just in the example of agriculture, the government is able to create market incentives to increase productivity yet at the same time, also ensure that state quota will still be satisfied. If the US were to adopt these policies in the hopes of replicating the double-digit growth, there would be an uproar worse than the potential failure. Rodrik’s second argument is in the distinction between sufficiency and sustainability, that is, short-term and long-term growth strategies. Again, this relies on the type of institutions and policies that are country-specific rather than based solely on economic principles. I enjoyed this article because of the focus on countries that have achieved the same level of growths other developed countries, but through the combination of unorthodox and orthodox means. It is important to be reminded that theory is only a foundation and is incomplete.
Rodrik does a great job explaining his two arguments: that neoclassical economic analysis is a lot more flexible than generally though and that maintaining economic growth and sparking economic growth can be two separate enterprises. In terms of the flexibility of economic growth, Rodrik uses strong examples with the East Asian countries and also Mauritius. It is a common theme around the world that a country will be better off with a westernized economy or a westernized government. While the Washington Consensus is effective in achieving its goals revolving around macroeconomic stability through property rights and successful market incentives to work, other systems and institutions have shown similar results. Rodrik makes a good point in that institutions and the success of those institutions relate to context. For example, China used unorthodox institutions such as the Household Responsibility System and Japan used a team-centered approach. Both of these countries achieved strong economic growth and in terms of China, Rodrik states, “it’s hard to argue that a more standard, ‘best practice’ set of institutional arrangements would have necessarily done better” (8).
In terms of igniting economic growth and sustaining economic growth, Rodrik claims that economists are put in a predicament because the policies and institutions in place to create economic growth might not be enough to achieve economic success in the long run. This occurs because the policies in place to spark growth might not help a country’s economy withstand shocks and possible market failures.
Dani Rodrik explores the flexibility of neoclassical economic analysis as well as the differences between igniting and sustaining economic growth. East Asian countries such as China, South Korea, and Taiwan serve as great examples of countries that have experienced significant growth in a variety of different ways, while remaining compatible with neoclassical economic reasoning. In addition, many countries fail to steadily converge with rich countries over an extended period of time. This is because sustaining growth is more difficult that igniting it.
According to Rodrik, “Neoclassical economic analysis does not determine the form that institutional arrangements should or do take...the higher order principles of sound economic management do not map into unique institutional arrangements” (Rodrik 10). This explains the different approaches China, Taiwan, and South Korea took to jump-start economic growth. Not only were the strategies of these East Asian countries diverse, their economic policies showed little resemblance to the Washington Consensus. However, “these unorthodox institutions worked precisely because they produced orthodox results, namely market-oriented incentives, property rights, macroeconomic stability, and so on” (8). Unfortunately, the same policy that worked for China, South Korea, or Taiwan will not necessarily work for other countries. In the words of Rodrik, “Attempts to emulate successful policies elsewhere often fail” (16). He continues by saying, “Successful reforms are those that package sound economic principles around local capabilities, constraints and opportunities. Since these local circumstances vary, so do the reforms that work” (17). Each country must find its own economic recipe for success.
Short-term growth does not automatically translate to long-term convergence. Rodrik emphasis the difficulties of sustaining growth by saying, “Few countries except for a few East Asian ones have steadily converged to the income levels of the rich countries. The vast majority of growth spurts tend to run out of gas after a while” (17). Initial reforms, according to Rodrik, “Must be deepened over time with efforts aimed at strengthening the institutional underpinning of market economies” (17). Rodrik insists that a “two-pronged” growth strategy is necessary to initiate and sustain growth.
Rodrik's paper on growth strategy highlights the fact that one size doesn't fit all when it comes to growth. As seen in the case of East Asian countries, especially China, there is no straight-forward recipe to growth. In fact, they all had different recipes for achieving growth. I think that's one thing that as Americans we tend to forget, countries don't need to mimic us in order to succeed. Rodrik really focuses on the example of China when it comes to different growth strategies because of China's exceptional growth rate of 8.0 percent since the 1970s. China's approach to reform was experimental as they only liberalized agriculture at the margin as opposed to full liberalization and assigning land to households based on their size. Their unorthodox institutions ended up producing orthodox results, so Rodrik makes the point that it's hard to argue that a traditionally "best" set of institutional arrangements would have been better.
And these unorthodox methods weren't just to kickstart the growth, but to maintain it as well. This ties into the Lewis Two-Sector model that was discussed in class last week. China is really the only country that fits the model, and maybe it is because of their unorthodox methods. For China, it's because of their extreme government control that they have experienced such rapid growth within the past thirty years. But also bringing the "one size doesn't fit all" argument, China's growth strategy is unique to China, and I don't think it would work on any other country (except for maybe India) just because of China's sheer population size in conjunction with the rest of the world.
Aside from the China example, Rodrik really emphasizes that to achieve sustainable growth, a country needs a two-pronged approach. 1) An investment strategy to kickstart the growth and 2) An institution building strategy to sustain growth. If a country has a great program to kickstart growth, it's all for nothing if they can't sustain it. A lot of his paper really emphasizes government's role when it comes to growth and development, as it is an integral part. Government really is the first step in implementing growth, because if a country has a corrupt or shaky government, there's no way they'll be able to achieve sustainable growth when the regime itself isn't sustainable.
Dani Rodrik looks at the varying growth strategies taken by many different countries, outside some of the more high profile examples. He also looks at the assumptions and nuances to orthodox economic policy and the difficulty in studying development economics. He shows that there is clearly no one-size-fits-all approach to development, as the promoters of the Washington Consensus seemed to suggest. But even within the framework of the Washington Consensus, he points out the theoretical assumptions in even the least controversial aspects often fail in different ways in different countries. Given these differences between countries, neoclassical models like those in promoted in the Washington Consensus can actually be applied to in a broader sense than is typically believed. He makes it clear that aspects of this system can be used in more comprehensive growth strategies. Next, he argues that there needs to be a more coordinated plan that includes a short run strategy aimed at stimulating growth with different long-run strategies to sustain that growth. He uses a table that shows many surprising examples of countries that have experiences periods of growth, usually due to a small factor. However, this growth can falter in the long run. This two-pronged growth plan needs to be tailored to the country and their institutions however. Mauritania for example was able to promote growth with a two-sector approach, while South Korea used several different methods.
Again, all of this gets back to importance of institutions. He mentions that social institutions expand past government but doesn’t look as closely at specific institutions outside the government. For example, he mentions Poland and the Czech Republic as countries that faired fairly well after the fall of the Soviet Union because they had prior experience with capitalism. To take that further, we read a paper in another class that actually showed if a Balkan country had been apart of Austria-Hungary they faired better after the fall of communism because of stronger, historical institutional legacies. When looking at growth strategies it would be interesting to take a look at longer historical legacies to really adapt growth strategies to specific countries.
It is obvious that there is not a theorized routine to improve the economies of the world. History shows examples of conventional policies working and failing and unconventional policies doing the same. There is no formulized way to implement efficient and productive development policies. Dani Rodrick explains this by delving into popular strategies, analyzing the results on different countries, and looking at his findings through the eyes of a “Martian”- an idealist. Possibly the most puzzling of all is China’s ability to take unconventional measures, differing drastically from the Washington Conesus, of complete hands-on government intervention and instigate and maintain growth. There is fascination with regards to this to a certain extent; however, I would enjoy reading Rodrick’s response to the way in which China enhanced growth by joining the World Trade Organization and then proceeded to violate all bargains made upon entry and take full advantage of the organization. This, without a doubt, has given China an unfair advantage to achieve long-term economic growth. They are cheating to obtain it. Overall, with any reform policies, there are a myriad of factors that must be true in order to obtain development. This being said, it is important to study and analyze each individual country and suggest, theorize, and model specialized ideas in order to obtain economic development.
Rodrik makes two fundamental distinctions in this paper that are critical for understanding economic growth: the differences in applicability of development policy and the contrasts between the beginning and continuation of economic growth. First is the distinction that that economic solutions and sparks in one economy can never translate directly to another. Parts can certainly play an equally significant role in both, but the entirety of the policy cannot be duplicated in entirely divergent countries to the same effect. Second, Rodrik makes the distinction between the ignition and perpetuity of growth, the first constituting a relatively simple process by his measures, the second demanding a more effective system of institutions to promote and ensure stability.
Unsurprisingly, the Chinese experience offers a principle example of a development scheme that benefitted from, but did not duplicate, the fundamental ideas of the Washington Consensus. Some agricultural liberalization and a vague sense of communal ownership (TVEs) were implemented that showed an influence from the principles of full liberalization and private ownership but refrained from even nearing those full realizations. This economic result may not be part of a political system more friendly to the Washington Consensus, but the Chinese method shows that at least some of the ends from the Western economic policies can be realized through different methods in the East.
The two-pronged growth dimension of the paper offers, at least in the second part, a compelling case for the importance of democracy within development. During the ignition phase to initiate growth, the policy initiatives matter far more than the institutions. But "in the long run," as Rodrik notes, "the main thing that ensures convergence with the living standards of advanced countries is the acquisition of high-quality institutions." Where Rodrik takes a somewhat admonitory tone, at the end of 24, he notes that a government powerful enough to establish these property rights could also revoke them with equal speed. Though he does not explicitly state it, the presence of democracy serves as a strong incentive for leaders to perpetuate the institutions that promote and harbor sustained growth.
In this article, Dani Rodrik is analyzing growth strategies over the past fifty years, and delves into complicated issues such as growth policy, engendering growth, and trying to sustain that growth. Rodrik initially notes something that is very important, and easy to skip over- how we measure growth. This is a key variable that can completely change the growth analyses. Rodrik discusses how a growth measurement of increases in real per capita income hides much of the larger picture- that as incomes goes up for everyone, it goes up more for developing countries, thus creating an equality gap. This example and several others illustrate Rodrik's point that there has been a tremendous variation and series of ups and downs of economic growth- meaning that analyzing and studying these variations are key points to creating informed and effective policy. Rodrik sets out to discover what works when it comes to economic growth. Rodrik discusses the notion that growth policies tend to be "context specific", and that it can be difficult to generalize policy and compare countries. While I agree that this is a difficult comparison, my volunteer experience domestically and internationally has led me to wonder whether policy could benefit more from country to country comparison. Although I understand the vast differences in economic and political systems aa well as access to resources and general cultural differences, I think there are basic similarities, especially when it comes to children's development and education, that are often overlooked. Though policies have to be adapted and tailored to fit a country and its institutions, there is the potential for much cross-cultural learning. Rodrik goes on to cover the main goals of economic growth and reform, and gives examples of varying ways to achieve these goals. He especially notes the importance of short run versus long run growth. While countries can learn from each other regarding certain aspects of what works and what doesn't work for economic growth, adjustments will need to be made in the long run to account for country specific variables and to balance detrimental changes that could occur from short run growth.
I felt Rodrick's paper on growth strategies successfully tied together many of the subjects we've been discussing in class - the evolution of ideas, the complications associated with erecting strict formulaic guidelines based on theories, and the inherent difficulty in stating that a single strategy is the true answer to the world's growth problems. His two main points, that neoclassical economic analysis has much more flexibility and capacity to address problems than we understand today and the distinct difference between instigating and sustaining economic growth, are underscored by powerful examples relating to East Asia's developmental success over the past several decades. Rodrick's initial statement that he would be focusing "more on developing a general understanding of the approaches that “work" rather than on specific strategies fit well with our discussion on methodology. He admits that a strict, model-based system often doesn't account for more subtle issues going on within countries, a point that seemed particularly self-evident upon reading it. The understanding Rodrick displays regarding the differences between regions seems necessary in order to make better economic judgement calls.
I was particularly impressed with his ability to rationalize the incorrect assumption an economist could make about East Asian growth when given only the Washington Consensus system to work with. Stating a main theme in his paper - "that growth-promoting policies tend to be context specific" - Rodrick not only respectfully disputes some overreaching methodology, but doesn't decry the need for specific policies or suggest we simply abandon developing countries because there is no easy generalized answer.
Rodrik is right at the end of his paper - we talk about things we don’t know about and in the case of Growth Theory it may not be the reason but theories and principles do not translate directly in to policy recommendations. The black box in between is country-specific and multi-routed. However, important ways of thinking about growth rather than trying to find a universal solution is what growth economics is all about. It requires careful review of the local economic, political, cultural environment, but not generalizations taken from elsewhere, to develop policy recommendations.
The paper talks about two matters. First, the neoclassical model of growth can be more flexible in actual reforms that politicians think and that creative packing adding more factors will be desirable. Second, sustaining a economy in growth and sparking a economic growth are two different subjects although we always think them as one. In his second argument, Rodrik points out that the Washington Consensus developed by westerners is more of a solution to sustain a growing economy, derived from experience of the western world, rather than a way to start the growth. He found this by listing the “rules” of Washington Consensus, and the succeeded steps East Asian countries took to start their growth. A brief comparison easily draws one’s attention to the deviation of the real growth story from the Consensus, suggesting that there isn’t really a “consensus”. For example, many suggest privatization and deregulation as the standard for growth; however, what we saw in China was that in farms, farmers started to own land but still had a quota to hand in the government and the rest went into the free market. Considering China’s national context, it was more appropriate than the “standard” because the farmers were incentivized while the government collected what it needed to sustain its fiscal health. To conclude, Rodrik clears many misunderstandings about the so-called golden practice to growth, and open up fresher looks on the matter, pointing out the importance of context-specificity in institutional reforms for developing countries.
In "Growth Strategies" Dani Rodrik analysis the different ways in which countries grew over the past 50 years and the ways in which it didn't. Rodrik argues that there is no ultimate recipe that will spur growth and sustain it. Also, Rodrik argues that despite of these, political actors have lots of room for creative policies that are context specific. Rodrik looks first at the Washington Consensus (sometimes considered the holy grail of economic growth) and then compares those countries that adopted the "free market and sound money" policies against do ones that did not. I found this comparative economics particularly interesting, because it is not supported by any other evidence other than the growth levels that each country achieved. Though I can't be argued that policies do not need to be context specific, it would be interesting to see does the data represent this fact. For instance, it would be interesting to see what the impact of Town Village Enterprises in China was once they were established. What is more, it was interesting to see how it is important to be able to differentiate from igniting and sustaining growth. As Rodrik mentions, igniting growth is not a complicated process, the challenge is sustaining it. Rodrik mentions that it is important to create unorthodox policies that adhere to the ideas of sound economic governance. I found this point rather confusing because he mentioned at first that the countries that did not adhere to the Washington Consensus grew the most, while those that did adhere failed to grow. Therefore, does this means that we need culture specific policies, which adhere to the guidelines of the Washington Consensus but are unorthodox techniques? Looking back at my personal experience from Argentina, I can tell that in the 90s, when it was a Poster Child of the Washington Consensus, Argentina did not adopt any culture-specific policy. The policies that Argentina adopted, like pegging U$1 to 1 peso, were all orthodox and an imitation of Brazilian or Chilean policies. The outcome of these was a major crisis in 2001 that resulted in a collapse of the institutional system and the financial markets. These policies are a clear example of igniting vs. sustaining growth. When Argentina adopted the U$1 to $1 peso policy, growth skyrocketed. However, when it was time to improve our institutions to sustain growth it was not possible. Why? Because in a place where institutions are week, it is essential to strengthen institutions before creating an external shock that will spur growth. Rodrik’s piece on Growth Strategies provides a very useful insight to the different growth techniques that policy makers can achieve through a culture specific policy. It is important to keep in mind that despite that adopting the policies that the Washington Consensus promotes, the principles behind those policies are still the main key to achieve long and sustained growth. According to Rodrik, how to achieve this growth is up to policymakers in each country.
Rodrik examines the many growth strategies that have been applied to various regions throughout the world in the past 30 to 40 years and ultimately determines that we cannot trust traditional neoclassical economic growth solutions to yield positive results. Rodrick takes a look at recent growth in regions such as Latin America and many parts of Asia. He examines to what extent the set of sound neoclassical growth principles, that he calls the Washington Consensus, has been applied in each of these regions and the subsequent effect of these principles on economic growth. What Rodrik discovers is that Latin America has applied this Washington Consensus the most of any region he examines. In turn, this region has showed the least amount of growth as compared to places like Southeast asia and China.
The conclusion ultimately reached by Rodrik as a result of his examination of this data is that different practices in different regions yield different results. I think this conclusion is extremely important to understand and embrace in development economics. We are too often looking for a uniform solution to our poverty problems and yet as Rodrik clearly indicates the same policy may work well in one country and simultaneously fail in another country. Rodrik does a very good job of stressing the fact that there must be a local connection to economic policy so that sound institutions are formed and the policy addresses the reality of local problems. Rodrik also stresses the importance of the types of institutions that exist in the developing country. If legitimate institutions do not exist when certain neoclassical principles are applied to economic growth then these changes in policy will most likely not make a difference. Thus, Rodrik points out that as long as unorthodox problems are leading to orthodox results then countries will eventually arrive at the level of development they desire. Another important point of Rodrik's is that if you look at the various periods of growth in a region such as Latin America, you recognize that growth usually comes in short spurts and does not necessarily last very long. This is due to poor long term growth strategies. He mentions that short term economic growth strategies must be coupled with long term strategies or the growth is likely to be fast but quickly undone. I think the most important lesson to learn from this article comes from Asia. Many of these Asian countries did not conform to standard economic theory instead they examined the facts of their local situation and acted accordingly which often yield high levels of development within their country.
Rodrik's approach to historical analysis of growth models is refreshingly apolitical. Many people tend to assume that the policies outlined in the Washington Consensus are the most effective or even the only reliable strategy for growth, despite the fact that history tells us a very different story. In fact, the countries that have implemented the policies that most closely resemble the Washington Consensus have only been moderately successful at best, as is the case in Peru and many Latin American countries. Meanwhile, in Asia there have been many cases of countries with significant deviations from the Washington Consensus that have had surprisingly accelerated growth with high levels of government interaction, most notably in the case of China. It seems to me, given this historical data, that the weakest point of the Washington Consensus is the idea that deregulation drives growth.
Rodrik uses these facts to argue that although economic growth has a few essential ingredients, including the protection of property rights, fiscal and monetary discipline, and market competition, there is hardly a single universal application of policies (eg. the Washington Consensus) that can achieve these ends. This idea would seem to support that each country must thoroughly analyze their economic position in order to choose the best growth strategy given their specific situation rather than simply apply a catch-all band-aid to stimulate and maintain economic growth. And history seems to support this idea, as a large variety of different growth strategies across the globe have managed to yield positive results.
I found Rodrik's analysis unique and refreshing. In a field full of "world experts" and PHD's that seem to have all figure it out, it is refreshing to read an article from a man who admits "we don't know." I found his analysis of East-Asian growth particularly fascinating. When actually looking at a real economy, that has experienced real growth, we find that the principles in our macro text-book did not fully contribute to the growth. As an economics major, it is drilled into our heads that privatization breads competition which breads success but East Asia did not privatize their economy they centralized it. As students we are told that ideas, deregulation, and a "free market" create strong economies. In contrast, the fastest growing economy went exactly the opposite direction that our principles of Macro book would suggest. China's federal government said, "here are your ideas, here is what you will create, and here is how much you will be payed" and guess what? It worked. Rodrik caution readers to remember that China is an economic powerhouse but that does not necessarily make them an admirable government.
Another point is the idea of convergence. It would seem that convergence is the logical next step for underdeveloped countries that have so much room to grow compared to developed nations. In contrast, nations have experienced divergence. This is because of technology and investment. It would make economic sense to go to the Congo if you are an Economic PHD because your skills are rare, but it turns out that Economic PHD's need capital to function. They need other PHD's to bounce ideas off of, students to educate, and capital to increase their production.
It is easy to get our heads buried in the sand of models, curves, and theories without looking at the big-picture. I admire Rodrik's ability to understand the models but look at development from a birds eye's prospective and step back. Rodrik factors the models into his assessment, but he does not let economic jargon cloud his judgement when he makes the humble claim that when it comes to economics, sometimes "we just don't know."
Growth Strategies By Dani Rodrik gives an interesting insight into the different tactics that have been used to take on economic growth. The paper is divided into two arguments. One of the arguments is that neoclassical economic analysis is more “flexible than its practitioners have given it credit.” The other argument is that “igniting economic growth and sustaining it are somewhat different enterprises.” The paper delves into policy design, institutionalism and reforms in countries and how their economic growth over the past some 50 years has changed.
When looking at policy design Rodrik pays attention to how they have alleviated the burdens that have been placed on citizens in these economies. These restrictions place a hold on potential growth because they set another obstacle for free markets. In China he notes that the government plays a large role in the growth of households and businesses. They implement institutional boundaries in the public sector that can affect the private sectors as well. Rodrik focuses on the rural sector which represents the largest population percentage in China. For example, Rodrik mentions that the Chinese government “liberalizes agriculture at the margin” while keeping the plan system that was set forth intact. Farmers were granted the freedom to sell their goods to the market but had to follow the obligations to the state. The fact that “the Chinese approach to reform was “experimental in nature” is telling given the fact that this has been the most productive in comparison with other nations that have brought forth well designed strategies that have succeeded in the past. Yet, policies need to be reformed to adapt to the changes that continue to happen as the economy grows. It is a “give and take” economy that the Chinese government has implemented. In order to participate in the economy, citizens must obey the rules and reforms that the Government has created in order to sustain and produce growth.
Growth Strategies, written by Dani Rodrik, discusses the problems that countries have when taking steps between economic theory and policy making. Rodrik has two arguments. The first argument is that economic principles do not lead into neat and organized policy decisions. The second argument is that starting economic growth is not the same as sustaining growth. Rodrik warns the reader that ignoring these arguments will lead to misguided and ineffective policies. Rodrik makes a clear and important point that studying the economic failures and success of other countries is important but it does not create clear policy decisions. Studying other countries gives a “general understanding of the approaches that work.” It is crucial to look at policies but it is more important to look at why the policies worked in a certain country. Property rights are important for most countries but will take different steps to create in different countries. Countries have different formal and informal institutions that dictate how policies will pan out. However, as Rodrik points out, a country must do their homework studying the reality of their country and use different policies as an experiment. Policy makers have goals in mind but they have to be inventive, in relation to their individual country, in order to reach the goal of growth. For example, both Taiwan and South Korea subsidized non-traditional industrial activities, but one country did it through tax incentives and the other used directed credit. I like when Rodrik says, “Successful reforms are those that package sound economic principles around local capabilities, constraints and opportunities.” This idea is very similar to marketing strategies. For example, Under Armor should not try to be Nike because the two companies have different stretches and ways of functioning. Just like a third world country should not try to exactly emulate the United States. As Rodrik says, “The hard work needs to be done at home.” Once growth is achieved it must be sustained. A country’s individual institutions must promote and strengthen the growth that has taken place. Growth strategies of all countries should be studied but they have to be placed in the context of the individual country.
Rodrik’s paper successfully presented his analysis of the previous growth strategies used over the past 50 years. Through his paper he shows many different policies, both conventional and unconventional, and how both sometimes work or both fail. It is clear that there is no way to know how a policy or growth strategy will turn out and they will for sure vary by location, rather the ability to understand change is need and to act is what is required for growth. One interesting example is when Rodrik looks at China through two different lenses: Martian and the Washington Consensus. China’s situation is very different in that it is the opposite of the Washington Consensus and he looks at why this popular strategy was not used and the results without it. The Washington Consensus is a hand on government approach, where they initiate and sustain growth, and a polar opposite to Chinas strategy. In China’s case the governments supreme power allowed them to get out of the way and for the “farmers to farm’ or let people do what they do best as their growth strategy. It is China’s rule that allowed their growth strategy to be successful. I believe that Rodrik’s idea that “one way is not the best and only way” is true and that the ridged structure of growth strategies is often times their flaws. I also enjoyed his example about the Noble prize winning physicist and the fact that “it’s the subject that nobody knows anything about that we can all talk about!”(Rodrik 27) So perhaps going back to older growth strategies that did work and looking at why they worked and how they could be used to further growth is the best way to move forward.
Many economists and political academics alike, often complain of the growing disconnect between good economic policy and the economic policy that is forced through by government bureaucrats. On the surface, it appears that Dani Rodrik's "Growth Strategies" is an extension of this paradigm in highlighting countries that have strayed from the "economic truisms" of neoclassical economics, Americanized as the "Washington Consensus". The Washington consensus states that price liberalization, privatization of state run industries and the free access to international markets complimented with good governance are necessary to bring about and sustain economic growth.
The article uses China's economic policies as a sharp contrast to the American norms. Chinese economy policy in the late 20th century revolved around state-controlled land, government run industries and a hybrid commodity market- requiring farmers to meet state quotas before selling at markets good. Despite the differences between the political and economic circumstances that should work and China's, the country experienced tremendous growth. Rodrik compliments the China case, with smaller, developing countries that also "defied" the economic principles of the Washington Consensus to ultimately succeed. South Korea (limited foreign trade capabilities) and Mauritius (export processing zone) both experienced "economic accelerations".
Is the aim of the article to simply show us how these nations got lucky? No, rather it demonstrates that Washington Consensus relies on a supply and demand model that depends upon a plethora of economic assumptions. In a perfect world, all economies would unflinchingly adhere to these principles. However, virtually every economy- especially not developing countries, do not follow these assumptions such as perfect information and efficient institutions. As a result, the Washington Consensus must be carefully tailored to fit the mold of the individual characteristics of various developing countries. The Consensus should be viewed as a basic, flexible framework for economic progress, not a rigid standard to which all countries should be compared to.
I feel that Dani Rodrik’s first argument has already been fully discussed in class through various methods. Therefore, his second point of thought is where I wish to focus my attention.
Igniting economic growth in less developed nations is very different from sustaining it. A successful reform encompasses the sound economic conditions of addressing the area’s local capabilities, obstacles, and prospects, which means that the agency providing the relief must not only acknowledge but fully understand the physical, geographic, political, and cultural constraints. Identifying which of these problems is the most important in the country is in and of itself is extremely hard to determine. But consider that the most egregious impediments to economic growth and development have been identified; then one must consider the chronological sequence as well as the degree of relief that public policy target. The main issue here is that the short-run approach at stimulating growth often if not always differs from the medium-run strategy aimed at sustaining growth. Rodrik points out that a period of growth does not guarantee the continuation of expansion. Although he does point out that to achieve long term growth, prosperity, and convergence institutions must insulate the economy from external shocks that could disrupt or halt growth. If the proper mix of targeted policy and community interaction is achieved, many new investments should transpire and will therefore encourage more entrepreneurship based on Kremer’s findings.
It is unsurprising that Americans tend to have a superiority complex regarding our historically successful growth strategies: since the U.S. has established itself as a highly developed country, it is natural that we believe that the market strategies and institutional groundwork that has been implemented here are the most efficient and universally applicable. However, Rodrik provides a refreshing dose of perspective, suggesting that both growth strategies and institutional forms are highly context-specific and can vary greatly between countries. While he recognizes that countries struggle to achieve significant economic growth without enacting a semblance of property rights, sound money, fiscal solvency, and market-based incentives, economic reform programs can legitimately differ from the Western-preferred Washington Consensus method. Rodrik illustrates this point by describing China’s manipulation of market forces to produce economic growth without at all following the Western formula. It is important to recognize that many developing countries lack the cultural context or institutional network to impose the aforementioned neoclassical values in the “traditional” way; thus, Western countries should be cautious to not deliver “sound economics in unsound form.”
ReplyDeleteRodrik also makes an interesting distinction between creating growth and sustaining it. It appears to take little to initiate the growth cycle, but short-term growth does not ensure long-term sustainability unless the country develops institutions that have their basis in protecting property rights and the rules of law. However, institutional form is not determined simply by institutional function, so Rodrik emphasizes once again that institutional form can and should vary depending on “differences in social preferences, complementarities among different parts of the institutional landscape, between rich and poor countries, and among poor countries.” Income convergence among countries is possible even without institutional convergence. Ultimately, it is clear that there is no one, best way to economic growth.
I appreciate Rodrik’s article for it’s simplistic, logical approach to viewing the actual development processes that have taken place across the globe. It is refreshing to see the dismantling of the one-size fits all approach that defines much of the earlier literature and policy recommendations of Western economists. Rodrik acknowledges at several different points in the article that the institutional forces present in each country have the most impact on what will produce initial growth than sound neoclassical economic theory. For instance, Rodrik writes “since these local circumstances vary, so do the reforms that work… growth strategies require considerable local knowledge.”
ReplyDeleteOne of the ideas I particularly like is that small changes in policy, market forces, etc. can jumpstart high rates of economic growth. Developing countries do not need full-scale liberalization and opening of their markets in order to achieve growth. In fact, it seems that liberalizing or opening themselves to international forces can even be detrimental to long-term growth if done too early. A prime example in Rodrik’s paper is China’s agricultural reform. Another example is South Korea where focused investment and protection from foreign competition allowed for initial growth. Only then could the southern half of the peninsula start allowing world exposure in the form of product specific exports. This gives credibility to the step-by-step approach to long-term growth. Argentina is an example of the long-term negative consequences of international exposure too early in the development process. By pegging its currency to the dollar, the Argentinians experienced short-run growth from increased confidence in the financial markets. However, aside from the inherent issues related to valuing its currency artificially high, when the dollar became more volatile it automatically shook confidence in Argentina’s currency.
Rodrik’s lengthy analysis of the growth frameworks provides an in-depth perspective on how growth practices are derived from neoclassical theories. Like Nick, I found it intriguing that Rodrik did not merely dismiss these neoclassical economic analyses for not fully encompassing the means by which countries can grow their economies, but rather he expanded the breadth of the neoclassical frameworks to include the processes of countries like China that deviated from the traditional growth path hypothesis. In pointing out the flaws of the strict interpretation of the Washington Consensus, Rodrik alleviates the rigid constructs of the system, which allows it to be applied more loosely to non-standard growth countries. Critics of outlines such as the Washington Consensus want to throw the baby out with the bath water when reality does not entirely mimic the model, but Rodrik’s flexibility approach accounts for the discrepancy between the two entities and draws insights from the adjusted framework.
ReplyDeleteAn interesting insight that I gleaned from the paper is the role of the Washington Consensus in terms of long-term economic growth. As China, Hong Kong, and much of Southeast Asia showed, strict adherence to the WC is sufficient for economic growth but not absolutely necessary in the short run. He states that minor changes can affect huge transformations in developing economies and that the ambitious agenda proposed by the WC might not be plausible politically or economically for many countries. What his conclusions do imply, however, is that the WC outline is necessary for long-term growth and economic convergence. This notion comes into play when Rodrik details the extreme difference between igniting growth and sustaining it. The development of the institutions outlined in the WC is key to sustained growth according to Rodrik.
Given the evidence of context-specific successes in economic growth, Rodrik comes to the conclusion that “successful reforms are those that package sound economic principles around local capabilities, constraints, and opportunities.” If economists and policy makers can acknowledge the imperfect nature of economic growth outlines such as the Washington Consensus, then it seems plausible to me that they can start to extrapolate ideas from the examples of non-standard growth countries and discern which modifications of the higher order economics principles would work best for individual developing countries.
Dani Rodrik’s “Growth Strategies” does an excellent job of clearly demonstrating just why we study developmental economics. The wide range of ideas, successes, failures, and theories discussed in the paper show, as we have discussed in class and read in our textbooks, that there is no easy way to achieve development. There is no “rule of thumb” for economics, and instead we must utilize the past to attempt to understand where we could potentially be heading in the future. Rodrik builds his argument around two key points. The first point is that neoclassical economic analysis is not a rigid and well-defined domain. In fact, he claims that it is a lot more flexible in terms of options for achieving the first-order economic principles and packaging these principles into growth strategies. The second point is that we cannot evaluate short-term growth bursts and long-term sustained growth in the exact same way. He argues that the former strategy is easy to achieve while the latter requires much more thought and effort. If the two growth ideas are not differentiated, we cannot accurately discuss strategies to achieve them. As he walks the reader through numerous examples of countries achieving great success in growth through unconventional and unorthodox methods, we see just how flexible growth strategies can be. He further accentuates this point through his imagined Martian anecdote. Here, he demonstrates the fact that if one were to use pure intuition and classical expectations of what drives growth to estimate potential success for countries based on the strategies they employed, one would probably struggle to accurately predict the results he examines. As he discusses these unconventional avenues to growth, he notes that if a currently under-developed country tried to follow the exact same path that one of the examined countries, say China, followed, it would probably fail. He stresses that success changes between situations, climates, and cultures and no growth strategy can be perfectly replicated. However, just because they cannot be copied does not mean that they should not be studied!
ReplyDeleteThe most interesting part of the article to me was his “two-pronged” growth strategy. He divides growth into two categories: short-run strategies with the goal simply being to stimulate growth, and long-run strategies aimed at sustaining growth. For our class purposes, it is this second prong that really aligns with our definition of development. After identifying these two categories, he focuses a lot on the need to engage in short term growth first. He claims that spurring growth is fairly easy, and that this strategy, as compared to long term growth strategies, does a much better job of addressing the immediate concerns and constraints in the economy. From here, it takes much more extensive research and work to sustain the growth in the long run. It is in discussing the sustained, long-term growth that he focuses on the need to achieve the deeper, more extensive institutional reform that has been the focus of our class thus far.
In reading this article, what struck me the most was the story and discussion of what would have happened if a western economist had prescribed policies for Chinese reform in 1978. As is obvious from the article, such a western plan largely based on the Washington Consensus would almost definitely not have been the best option in the situation. This made me reflect heavily on the way we view economic policy in the US and why we view it this way. The truth is, we often think that there is only one way to do things, our way. We acknowledge the very different circumstances that exist in other nations around the globe, but usually seem to believe that the same policies we use for economic growth should also be applied to these nations. This is most clearly shown by the fact that we have tried to apply what we call the Washington Consensus, a term obviously US-centered, to much of the developing world. What the example of China shows is that this kind of thinking is not always beneficial, and can lead us to judge a nation’s methods as “wrong” even if they are producing economic growth that may not be possible using our “correct” policies.
ReplyDeleteChina, using its “unorthodox” policies and dual-track approach, was able to accomplish all the higher-order objectives that a western economist would have wanted to achieve. China designed policies that fit where their country was economically at the time and that would actually be plausible. They approached their reform objectives creatively rather than adopting the most basic and standard policies, creating transitional institutions to help them along the path. What is even more interesting to me is that this kind of “unorthodox” approach is actually “the rule rather than the exception,” as Rodrik explains.
It is not that our standard policy recommendations are necessarily wrong, but more so that they need elaborating upon to include all the extra conditions that must be present for them to be effective. As the article states, no country has ever experienced rapid growth without at least some adherence to the higher-order principles of economic governance, so it seems that we have the theory right. We just need some help with putting this theory into practice, and, like many of the examples of mixing orthodox with unorthodox policies, it may take some experimentation. Our standard agenda is very demanding of institutions and often times these just do not exist in developing nations. Each nation needs its own personalized prescription for growth, as what works in one nation will probably not work in another because there is such an abundance of exogenous factors that vary from country to country. In turning economic theory or ideas into actual policy, we must take care not to bypass “the black box” too quickly by prescribing the same policies to all of the economic issues of the world. As Rodrik points out, neoclassical economics can indeed support a wide variety of institutions.
Rodrik’s article on growth strategies provides valuable insight into why economic growth may not and where it may be successful. Rodrik’s argument is instructive because rather than saying that economic growth can’t work, he uses case studies to show how countries have flourished. A key part of his argument is that the first phase of development philosophy was useful to lay groundwork for how we think about economic growth today, but it must be revised to account for unorthodox practices and local capacities. Rodrik indicates this by placing his argument for a new phase of growth strategy in the context of the ideas that there is not one set of neoclassical institutions that will ensure growth and igniting development is different than sustaining it.
ReplyDeleteRodrik’s examples of Korea, Taiwan and China are all useful in the analysis of unorthodox economic growth. I thought the takeaway from Rodrik’s analysis of the Southeast Asian countries was that their experiences with economic growth were not an accident. Even though Rodrik notes that development in Southeast Asia at time proceeded in a trial and error fashion, conscious effort to avoid use of orthodox economic development practices (the Washington Consensus) and utilize local capabilities, constraints and opportunities led to economic success. For example, China found success in unconventional liberalization of private property useful given the population size and institutions that already existed in the country. The Township and Village Enterprises (TVE) were the growth engine of china until the 1990s, ownership rights were vested in local communities that had a vested interest in ensuring sufficient production. The efficiency loss incurred due to the absence of private control rights was probably outweighed by the implicit security guaranteed by local government control.
Historical examples of different growth strategies can be useful for policy makers when thinking about both past and future growth. The first point of Rodrik’s argument, that neoclassical models are not the end all and be all for economic growth, is clearly shown in China, Taiwan and South Korea. The second part of Rodrik’s argument, that igniting and sustaining economic growth are different entities has policy implications for today. By taking into account the context of the country in question, policy makers may be able to determine where the country is on the growth spectrum and what the next stage of growth should be. Individual analysis of endowments may point to the role of socializing investment risks as South Korea did, currency manipulation as done in China or pursuing large real exchange rates like Chile and Uganda to trigger or further economic growth.
The growth strategies article makes two striking points, both which are well-developed and well-defended in the article. First off, there is no clear cut way to spur economic growth. Every economy is different and a solution that works somewhere won't necessarily work elsewhere. Second off, creating short-term economic growth is all well and good, however sustaining that growth in the long-term is a whole different beast. One quote from the paper that, to me, seemed to capture exactly what Rodrik is trying to say and that I fully agree with is "successful reforms are those that package sound economic principles around local capabilities, constraints, and opportunities" (17).
ReplyDeleteIn effect, there is no one size fits all solution for growth. The export processing zone worked great in Mauritius but did not work in other places that tried. This is clearly because Mauritius found a comparative advantage that they held over others, and took advantage of it. Clearly every country that needs to grow their economy has the potential to find a similar advantage, they just need more educated citizens and better governments to help achieve that potential.
When thinking about how to sustain long-term growth, I think there are clearly a few universal policy requirements. The government needs to enforce laws (be it contract, property, etc.), have ample money, regulate financial markets and so on. If they put the institutions in place to help an economy succeed, and help to jumpstart an initial growth, they could see great results. I think a huge problem (Rodrik touches on this) in today's world is that many developing country's have such corrupt governments. These are places where short-term growth could very feasibly turn into long-term growth, but instead greedy politicians skim off the top and screw over their people. It's up to the developed world to spot these corrupt governments, and help to stop them. If government's begin to act in their country's best interest, by setting successful institutional practices in place, and seek advice from economically successful countries, they will be able to figure out ways to grow their economies. The world will not become developed in a day, and there is no perfect solution, but with education, experimentation, and honest government, developing countries will begin to converge.
The disconnect between economic principles and policy effectiveness that Dani Rodrik talks about in his Growth Strategies paper is essentially the “black box” that we talked about in class. Principles such as trade liberalization, property rights, fiscal solvency, and market-oriented incentives may be sound economics, but Rodrik says they can be implemented in unsound form. What works for China may not work for Russia. But just because these principles SEEM to fail in some countries doesn’t mean they are no longer true. Rodrik argues that neoclassical economic principles are more flexible than traditionally believed. It boils down to crafting institutions to enact these principles that fit with a country’s characteristics, e.g. social norms, existing institutions, government power. This seems like common sense, but our desire for a cure-all simple solution can override reason if we’re not careful.
ReplyDeleteJust because the attempted application of these principles seems to produce different results in each country does mean the principles are no longer true. Rodrik gives a good overview of how these principles have been implemented successfully, even with unorthodox means, and how they have failed due to the absence of some critical puzzle piece. The way he talks about countries almost reminds me of people. People generally want to improve their lives, and this desire motives action. But perhaps some circumstance, such as bad credit or lack of education, is holding them back. Everyone is unique, so these ‘developing’ people might respond in different ways to change that is meant to help them. A proud person might scorn aid or an irresponsible person might miss opportunities. That doesn’t mean they would take a better life if it were handed to them. In a similar way, developing countries have their own personal deficiencies and circumstances to overcome, and the tools needed to spur growth will have to be tailored to each country’s individual needs.
One last point in the paper I’d like to mention is the paragraph on “scale economies and inter-industry linkages.” This ties directly into the paper we read last week by Krugman and our class discussion on the impact of positive spillovers. These ideas imply that the whole is greater than the sum of its parts. Rodrik talks about a two-pronged approach that takes into account both short-term and long-term growth strategies. If his assumption that short-term growth only needs a small positive shock and that deeper institutional framework is easier to build in an environment of growth, then the positive feedback loop of coordinated industrial policy should make long-term growth an feasible goal for any country in the world, no matter its current poverty.
With the support of multiple examples of countries that have achieved growth through the application of orthodox principles in unorthodox ways, Rodrik advanced two arguments. First, there is no guidebook to transform an underdeveloped country into a developing country into a developed country. The establishment of free markets, the promotion of sound money, good governance, free trade, promotion of foreign and domestic investments, and other frequently touted factors of growth cannot achieve the same robust results with every implementation. It is essential that governments complement these economic principles with “local capabilities, constraints and opportunities.” Short-term growth is relatively easy to achieve, especially for countries that are so far below their steady-state (due to diminishing marginal returns). However, institutions must be appropriate to implement the changes to sustain long-term growth. China’s growth really exemplifies this argument, as it has been extremely successful with a highly involved and controlling government. Just in the example of agriculture, the government is able to create market incentives to increase productivity yet at the same time, also ensure that state quota will still be satisfied. If the US were to adopt these policies in the hopes of replicating the double-digit growth, there would be an uproar worse than the potential failure. Rodrik’s second argument is in the distinction between sufficiency and sustainability, that is, short-term and long-term growth strategies. Again, this relies on the type of institutions and policies that are country-specific rather than based solely on economic principles. I enjoyed this article because of the focus on countries that have achieved the same level of growths other developed countries, but through the combination of unorthodox and orthodox means. It is important to be reminded that theory is only a foundation and is incomplete.
ReplyDeleteRodrik does a great job explaining his two arguments: that neoclassical economic analysis is a lot more flexible than generally though and that maintaining economic growth and sparking economic growth can be two separate enterprises. In terms of the flexibility of economic growth, Rodrik uses strong examples with the East Asian countries and also Mauritius. It is a common theme around the world that a country will be better off with a westernized economy or a westernized government. While the Washington Consensus is effective in achieving its goals revolving around macroeconomic stability through property rights and successful market incentives to work, other systems and institutions have shown similar results. Rodrik makes a good point in that institutions and the success of those institutions relate to context. For example, China used unorthodox institutions such as the Household Responsibility System and Japan used a team-centered approach. Both of these countries achieved strong economic growth and in terms of China, Rodrik states, “it’s hard to argue that a more standard, ‘best practice’ set of institutional arrangements would have necessarily done better” (8).
ReplyDeleteIn terms of igniting economic growth and sustaining economic growth, Rodrik claims that economists are put in a predicament because the policies and institutions in place to create economic growth might not be enough to achieve economic success in the long run. This occurs because the policies in place to spark growth might not help a country’s economy withstand shocks and possible market failures.
Dani Rodrik explores the flexibility of neoclassical economic analysis as well as the differences between igniting and sustaining economic growth. East Asian countries such as China, South Korea, and Taiwan serve as great examples of countries that have experienced significant growth in a variety of different ways, while remaining compatible with neoclassical economic reasoning. In addition, many countries fail to steadily converge with rich countries over an extended period of time. This is because sustaining growth is more difficult that igniting it.
ReplyDeleteAccording to Rodrik, “Neoclassical economic analysis does not determine the form that institutional arrangements should or do take...the higher order principles of sound economic management do not map into unique institutional arrangements” (Rodrik 10). This explains the different approaches China, Taiwan, and South Korea took to jump-start economic growth. Not only were the strategies of these East Asian countries diverse, their economic policies showed little resemblance to the Washington Consensus. However, “these unorthodox institutions worked precisely because they produced orthodox results, namely market-oriented incentives, property rights, macroeconomic stability, and so on” (8). Unfortunately, the same policy that worked for China, South Korea, or Taiwan will not necessarily work for other countries. In the words of Rodrik, “Attempts to emulate successful policies elsewhere often fail” (16). He continues by saying, “Successful reforms are those that package sound economic principles around local capabilities, constraints and opportunities. Since these local circumstances vary, so do the reforms that work” (17). Each country must find its own economic recipe for success.
Short-term growth does not automatically translate to long-term convergence. Rodrik emphasis the difficulties of sustaining growth by saying, “Few countries except for a few East Asian ones have steadily converged to the income levels of the rich countries. The vast majority of growth spurts tend to run out of gas after a while” (17). Initial reforms, according to Rodrik, “Must be deepened over time with efforts aimed at strengthening the institutional underpinning of market economies” (17). Rodrik insists that a “two-pronged” growth strategy is necessary to initiate and sustain growth.
Rodrik's paper on growth strategy highlights the fact that one size doesn't fit all when it comes to growth. As seen in the case of East Asian countries, especially China, there is no straight-forward recipe to growth. In fact, they all had different recipes for achieving growth. I think that's one thing that as Americans we tend to forget, countries don't need to mimic us in order to succeed. Rodrik really focuses on the example of China when it comes to different growth strategies because of China's exceptional growth rate of 8.0 percent since the 1970s. China's approach to reform was experimental as they only liberalized agriculture at the margin as opposed to full liberalization and assigning land to households based on their size. Their unorthodox institutions ended up producing orthodox results, so Rodrik makes the point that it's hard to argue that a traditionally "best" set of institutional arrangements would have been better.
ReplyDeleteAnd these unorthodox methods weren't just to kickstart the growth, but to maintain it as well. This ties into the Lewis Two-Sector model that was discussed in class last week. China is really the only country that fits the model, and maybe it is because of their unorthodox methods. For China, it's because of their extreme government control that they have experienced such rapid growth within the past thirty years. But also bringing the "one size doesn't fit all" argument, China's growth strategy is unique to China, and I don't think it would work on any other country (except for maybe India) just because of China's sheer population size in conjunction with the rest of the world.
Aside from the China example, Rodrik really emphasizes that to achieve sustainable growth, a country needs a two-pronged approach. 1) An investment strategy to kickstart the growth and 2) An institution building strategy to sustain growth. If a country has a great program to kickstart growth, it's all for nothing if they can't sustain it. A lot of his paper really emphasizes government's role when it comes to growth and development, as it is an integral part. Government really is the first step in implementing growth, because if a country has a corrupt or shaky government, there's no way they'll be able to achieve sustainable growth when the regime itself isn't sustainable.
Dani Rodrik looks at the varying growth strategies taken by many different countries, outside some of the more high profile examples. He also looks at the assumptions and nuances to orthodox economic policy and the difficulty in studying development economics. He shows that there is clearly no one-size-fits-all approach to development, as the promoters of the Washington Consensus seemed to suggest. But even within the framework of the Washington Consensus, he points out the theoretical assumptions in even the least controversial aspects often fail in different ways in different countries. Given these differences between countries, neoclassical models like those in promoted in the Washington Consensus can actually be applied to in a broader sense than is typically believed. He makes it clear that aspects of this system can be used in more comprehensive growth strategies. Next, he argues that there needs to be a more coordinated plan that includes a short run strategy aimed at stimulating growth with different long-run strategies to sustain that growth. He uses a table that shows many surprising examples of countries that have experiences periods of growth, usually due to a small factor. However, this growth can falter in the long run. This two-pronged growth plan needs to be tailored to the country and their institutions however. Mauritania for example was able to promote growth with a two-sector approach, while South Korea used several different methods.
ReplyDeleteAgain, all of this gets back to importance of institutions. He mentions that social institutions expand past government but doesn’t look as closely at specific institutions outside the government. For example, he mentions Poland and the Czech Republic as countries that faired fairly well after the fall of the Soviet Union because they had prior experience with capitalism. To take that further, we read a paper in another class that actually showed if a Balkan country had been apart of Austria-Hungary they faired better after the fall of communism because of stronger, historical institutional legacies. When looking at growth strategies it would be interesting to take a look at longer historical legacies to really adapt growth strategies to specific countries.
It is obvious that there is not a theorized routine to improve the economies of the world. History shows examples of conventional policies working and failing and unconventional policies doing the same. There is no formulized way to implement efficient and productive development policies. Dani Rodrick explains this by delving into popular strategies, analyzing the results on different countries, and looking at his findings through the eyes of a “Martian”- an idealist.
ReplyDeletePossibly the most puzzling of all is China’s ability to take unconventional measures, differing drastically from the Washington Conesus, of complete hands-on government intervention and instigate and maintain growth. There is fascination with regards to this to a certain extent; however, I would enjoy reading Rodrick’s response to the way in which China enhanced growth by joining the World Trade Organization and then proceeded to violate all bargains made upon entry and take full advantage of the organization. This, without a doubt, has given China an unfair advantage to achieve long-term economic growth. They are cheating to obtain it.
Overall, with any reform policies, there are a myriad of factors that must be true in order to obtain development. This being said, it is important to study and analyze each individual country and suggest, theorize, and model specialized ideas in order to obtain economic development.
Rodrik makes two fundamental distinctions in this paper that are critical for understanding economic growth: the differences in applicability of development policy and the contrasts between the beginning and continuation of economic growth. First is the distinction that that economic solutions and sparks in one economy can never translate directly to another. Parts can certainly play an equally significant role in both, but the entirety of the policy cannot be duplicated in entirely divergent countries to the same effect. Second, Rodrik makes the distinction between the ignition and perpetuity of growth, the first constituting a relatively simple process by his measures, the second demanding a more effective system of institutions to promote and ensure stability.
ReplyDeleteUnsurprisingly, the Chinese experience offers a principle example of a development scheme that benefitted from, but did not duplicate, the fundamental ideas of the Washington Consensus. Some agricultural liberalization and a vague sense of communal ownership (TVEs) were implemented that showed an influence from the principles of full liberalization and private ownership but refrained from even nearing those full realizations. This economic result may not be part of a political system more friendly to the Washington Consensus, but the Chinese method shows that at least some of the ends from the Western economic policies can be realized through different methods in the East.
The two-pronged growth dimension of the paper offers, at least in the second part, a compelling case for the importance of democracy within development. During the ignition phase to initiate growth, the policy initiatives matter far more than the institutions. But "in the long run," as Rodrik notes, "the main thing that ensures convergence with the living standards of advanced countries is the acquisition of high-quality institutions." Where Rodrik takes a somewhat admonitory tone, at the end of 24, he notes that a government powerful enough to establish these property rights could also revoke them with equal speed. Though he does not explicitly state it, the presence of democracy serves as a strong incentive for leaders to perpetuate the institutions that promote and harbor sustained growth.
In this article, Dani Rodrik is analyzing growth strategies over the past fifty years, and delves into complicated issues such as growth policy, engendering growth, and trying to sustain that growth. Rodrik initially notes something that is very important, and easy to skip over- how we measure growth. This is a key variable that can completely change the growth analyses. Rodrik discusses how a growth measurement of increases in real per capita income hides much of the larger picture- that as incomes goes up for everyone, it goes up more for developing countries, thus creating an equality gap. This example and several others illustrate Rodrik's point that there has been a tremendous variation and series of ups and downs of economic growth- meaning that analyzing and studying these variations are key points to creating informed and effective policy. Rodrik sets out to discover what works when it comes to economic growth.
ReplyDeleteRodrik discusses the notion that growth policies tend to be "context specific", and that it can be difficult to generalize policy and compare countries. While I agree that this is a difficult comparison, my volunteer experience domestically and internationally has led me to wonder whether policy could benefit more from country to country comparison. Although I understand the vast differences in economic and political systems aa well as access to resources and general cultural differences, I think there are basic similarities, especially when it comes to children's development and education, that are often overlooked. Though policies have to be adapted and tailored to fit a country and its institutions, there is the potential for much cross-cultural learning.
Rodrik goes on to cover the main goals of economic growth and reform, and gives examples of varying ways to achieve these goals. He especially notes the importance of short run versus long run growth. While countries can learn from each other regarding certain aspects of what works and what doesn't work for economic growth, adjustments will need to be made in the long run to account for country specific variables and to balance detrimental changes that could occur from short run growth.
I felt Rodrick's paper on growth strategies successfully tied together many of the subjects we've been discussing in class - the evolution of ideas, the complications associated with erecting strict formulaic guidelines based on theories, and the inherent difficulty in stating that a single strategy is the true answer to the world's growth problems. His two main points, that neoclassical economic analysis has much more flexibility and capacity to address problems than we understand today and the distinct difference between instigating and sustaining economic growth, are underscored by powerful examples relating to East Asia's developmental success over the past several decades. Rodrick's initial statement that he would be focusing "more on developing a general understanding of the approaches that “work" rather than on specific strategies fit well with our discussion on methodology. He admits that a strict, model-based system often doesn't account for more subtle issues going on within countries, a point that seemed particularly self-evident upon reading it. The understanding Rodrick displays regarding the differences between regions seems necessary in order to make better economic judgement calls.
ReplyDeleteI was particularly impressed with his ability to rationalize the incorrect assumption an economist could make about East Asian growth when given only the Washington Consensus system to work with. Stating a main theme in his paper - "that growth-promoting policies tend to be context specific" - Rodrick not only respectfully disputes some overreaching methodology, but doesn't decry the need for specific policies or suggest we simply abandon developing countries because there is no easy generalized answer.
Rodrik is right at the end of his paper - we talk about things we don’t know about and in the case of Growth Theory it may not be the reason but theories and principles do not translate directly in to policy recommendations. The black box in between is country-specific and multi-routed. However, important ways of thinking about growth rather than trying to find a universal solution is what growth economics is all about. It requires careful review of the local economic, political, cultural environment, but not generalizations taken from elsewhere, to develop policy recommendations.
ReplyDeleteThe paper talks about two matters. First, the neoclassical model of growth can be more flexible in actual reforms that politicians think and that creative packing adding more factors will be desirable. Second, sustaining a economy in growth and sparking a economic growth are two different subjects although we always think them as one. In his second argument, Rodrik points out that the Washington Consensus developed by westerners is more of a solution to sustain a growing economy, derived from experience of the western world, rather than a way to start the growth. He found this by listing the “rules” of Washington Consensus, and the succeeded steps East Asian countries took to start their growth. A brief comparison easily draws one’s attention to the deviation of the real growth story from the Consensus, suggesting that there isn’t really a “consensus”. For example, many suggest privatization and deregulation as the standard for growth; however, what we saw in China was that in farms, farmers started to own land but still had a quota to hand in the government and the rest went into the free market. Considering China’s national context, it was more appropriate than the “standard” because the farmers were incentivized while the government collected what it needed to sustain its fiscal health. To conclude, Rodrik clears many misunderstandings about the so-called golden practice to growth, and open up fresher looks on the matter, pointing out the importance of context-specificity in institutional reforms for developing countries.
- Christy
In "Growth Strategies" Dani Rodrik analysis the different ways in which countries grew over the past 50 years and the ways in which it didn't. Rodrik argues that there is no ultimate recipe that will spur growth and sustain it. Also, Rodrik argues that despite of these, political actors have lots of room for creative policies that are context specific.
ReplyDeleteRodrik looks first at the Washington Consensus (sometimes considered the holy grail of economic growth) and then compares those countries that adopted the "free market and sound money" policies against do ones that did not. I found this comparative economics particularly interesting, because it is not supported by any other evidence other than the growth levels that each country achieved. Though I can't be argued that policies do not need to be context specific, it would be interesting to see does the data represent this fact. For instance, it would be interesting to see what the impact of Town Village Enterprises in China was once they were established.
What is more, it was interesting to see how it is important to be able to differentiate from igniting and sustaining growth. As Rodrik mentions, igniting growth is not a complicated process, the challenge is sustaining it. Rodrik mentions that it is important to create unorthodox policies that adhere to the ideas of sound economic governance. I found this point rather confusing because he mentioned at first that the countries that did not adhere to the Washington Consensus grew the most, while those that did adhere failed to grow. Therefore, does this means that we need culture specific policies, which adhere to the guidelines of the Washington Consensus but are unorthodox techniques? Looking back at my personal experience from Argentina, I can tell that in the 90s, when it was a Poster Child of the Washington Consensus, Argentina did not adopt any culture-specific policy. The policies that Argentina adopted, like pegging U$1 to 1 peso, were all orthodox and an imitation of Brazilian or Chilean policies. The outcome of these was a major crisis in 2001 that resulted in a collapse of the institutional system and the financial markets. These policies are a clear example of igniting vs. sustaining growth. When Argentina adopted the U$1 to $1 peso policy, growth skyrocketed. However, when it was time to improve our institutions to sustain growth it was not possible. Why? Because in a place where institutions are week, it is essential to strengthen institutions before creating an external shock that will spur growth.
Rodrik’s piece on Growth Strategies provides a very useful insight to the different growth techniques that policy makers can achieve through a culture specific policy. It is important to keep in mind that despite that adopting the policies that the Washington Consensus promotes, the principles behind those policies are still the main key to achieve long and sustained growth. According to Rodrik, how to achieve this growth is up to policymakers in each country.
Rodrik examines the many growth strategies that have been applied to various regions throughout the world in the past 30 to 40 years and ultimately determines that we cannot trust traditional neoclassical economic growth solutions to yield positive results. Rodrick takes a look at recent growth in regions such as Latin America and many parts of Asia. He examines to what extent the set of sound neoclassical growth principles, that he calls the Washington Consensus, has been applied in each of these regions and the subsequent effect of these principles on economic growth. What Rodrik discovers is that Latin America has applied this Washington Consensus the most of any region he examines. In turn, this region has showed the least amount of growth as compared to places like Southeast asia and China.
ReplyDeleteThe conclusion ultimately reached by Rodrik as a result of his examination of this data is that different practices in different regions yield different results. I think this conclusion is extremely important to understand and embrace in development economics. We are too often looking for a uniform solution to our poverty problems and yet as Rodrik clearly indicates the same policy may work well in one country and simultaneously fail in another country. Rodrik does a very good job of stressing the fact that there must be a local connection to economic policy so that sound institutions are formed and the policy addresses the reality of local problems. Rodrik also stresses the importance of the types of institutions that exist in the developing country. If legitimate institutions do not exist when certain neoclassical principles are applied to economic growth then these changes in policy will most likely not make a difference. Thus, Rodrik points out that as long as unorthodox problems are leading to orthodox results then countries will eventually arrive at the level of development they desire. Another important point of Rodrik's is that if you look at the various periods of growth in a region such as Latin America, you recognize that growth usually comes in short spurts and does not necessarily last very long. This is due to poor long term growth strategies. He mentions that short term economic growth strategies must be coupled with long term strategies or the growth is likely to be fast but quickly undone. I think the most important lesson to learn from this article comes from Asia. Many of these Asian countries did not conform to standard economic theory instead they examined the facts of their local situation and acted accordingly which often yield high levels of development within their country.
Rodrik's approach to historical analysis of growth models is refreshingly apolitical. Many people tend to assume that the policies outlined in the Washington Consensus are the most effective or even the only reliable strategy for growth, despite the fact that history tells us a very different story. In fact, the countries that have implemented the policies that most closely resemble the Washington Consensus have only been moderately successful at best, as is the case in Peru and many Latin American countries. Meanwhile, in Asia there have been many cases of countries with significant deviations from the Washington Consensus that have had surprisingly accelerated growth with high levels of government interaction, most notably in the case of China. It seems to me, given this historical data, that the weakest point of the Washington Consensus is the idea that deregulation drives growth.
ReplyDeleteRodrik uses these facts to argue that although economic growth has a few essential ingredients, including the protection of property rights, fiscal and monetary discipline, and market competition, there is hardly a single universal application of policies (eg. the Washington Consensus) that can achieve these ends. This idea would seem to support that each country must thoroughly analyze their economic position in order to choose the best growth strategy given their specific situation rather than simply apply a catch-all band-aid to stimulate and maintain economic growth. And history seems to support this idea, as a large variety of different growth strategies across the globe have managed to yield positive results.
I found Rodrik's analysis unique and refreshing. In a field full of "world experts" and PHD's that seem to have all figure it out, it is refreshing to read an article from a man who admits "we don't know." I found his analysis of East-Asian growth particularly fascinating. When actually looking at a real economy, that has experienced real growth, we find that the principles in our macro text-book did not fully contribute to the growth. As an economics major, it is drilled into our heads that privatization breads competition which breads success but East Asia did not privatize their economy they centralized it. As students we are told that ideas, deregulation, and a "free market" create strong economies. In contrast, the fastest growing economy went exactly the opposite direction that our principles of Macro book would suggest. China's federal government said, "here are your ideas, here is what you will create, and here is how much you will be payed" and guess what? It worked. Rodrik caution readers to remember that China is an economic powerhouse but that does not necessarily make them an admirable government.
ReplyDeleteAnother point is the idea of convergence. It would seem that convergence is the logical next step for underdeveloped countries that have so much room to grow compared to developed nations. In contrast, nations have experienced divergence. This is because of technology and investment. It would make economic sense to go to the Congo if you are an Economic PHD because your skills are rare, but it turns out that Economic PHD's need capital to function. They need other PHD's to bounce ideas off of, students to educate, and capital to increase their production.
It is easy to get our heads buried in the sand of models, curves, and theories without looking at the big-picture. I admire Rodrik's ability to understand the models but look at development from a birds eye's prospective and step back. Rodrik factors the models into his assessment, but he does not let economic jargon cloud his judgement when he makes the humble claim that when it comes to economics, sometimes "we just don't know."
Growth Strategies By Dani Rodrik gives an interesting insight into the different tactics that have been used to take on economic growth. The paper is divided into two arguments. One of the arguments is that neoclassical economic analysis is more “flexible than its practitioners have given it credit.” The other argument is that “igniting economic growth and sustaining it are somewhat different enterprises.” The paper delves into policy design, institutionalism and reforms in countries and how their economic growth over the past some 50 years has changed.
ReplyDeleteWhen looking at policy design Rodrik pays attention to how they have alleviated the burdens that have been placed on citizens in these economies. These restrictions place a hold on potential growth because they set another obstacle for free markets. In China he notes that the government plays a large role in the growth of households and businesses. They implement institutional boundaries in the public sector that can affect the private sectors as well. Rodrik focuses on the rural sector which represents the largest population percentage in China. For example, Rodrik mentions that the Chinese government “liberalizes agriculture at the margin” while keeping the plan system that was set forth intact. Farmers were granted the freedom to sell their goods to the market but had to follow the obligations to the state. The fact that “the Chinese approach to reform was “experimental in nature” is telling given the fact that this has been the most productive in comparison with other nations that have brought forth well designed strategies that have succeeded in the past. Yet, policies need to be reformed to adapt to the changes that continue to happen as the economy grows. It is a “give and take” economy that the Chinese government has implemented. In order to participate in the economy, citizens must obey the rules and reforms that the Government has created in order to sustain and produce growth.
Growth Strategies, written by Dani Rodrik, discusses the problems that countries have when taking steps between economic theory and policy making. Rodrik has two arguments. The first argument is that economic principles do not lead into neat and organized policy decisions. The second argument is that starting economic growth is not the same as sustaining growth. Rodrik warns the reader that ignoring these arguments will lead to misguided and ineffective policies.
ReplyDeleteRodrik makes a clear and important point that studying the economic failures and success of other countries is important but it does not create clear policy decisions. Studying other countries gives a “general understanding of the approaches that work.” It is crucial to look at policies but it is more important to look at why the policies worked in a certain country. Property rights are important for most countries but will take different steps to create in different countries. Countries have different formal and informal institutions that dictate how policies will pan out. However, as Rodrik points out, a country must do their homework studying the reality of their country and use different policies as an experiment. Policy makers have goals in mind but they have to be inventive, in relation to their individual country, in order to reach the goal of growth. For example, both Taiwan and South Korea subsidized non-traditional industrial activities, but one country did it through tax incentives and the other used directed credit. I like when Rodrik says, “Successful reforms are those that package sound economic principles around local capabilities, constraints and opportunities.” This idea is very similar to marketing strategies. For example, Under Armor should not try to be Nike because the two companies have different stretches and ways of functioning. Just like a third world country should not try to exactly emulate the United States. As Rodrik says, “The hard work needs to be done at home.” Once growth is achieved it must be sustained. A country’s individual institutions must promote and strengthen the growth that has taken place. Growth strategies of all countries should be studied but they have to be placed in the context of the individual country.
Rodrik’s paper successfully presented his analysis of the previous growth strategies used over the past 50 years. Through his paper he shows many different policies, both conventional and unconventional, and how both sometimes work or both fail. It is clear that there is no way to know how a policy or growth strategy will turn out and they will for sure vary by location, rather the ability to understand change is need and to act is what is required for growth.
ReplyDeleteOne interesting example is when Rodrik looks at China through two different lenses: Martian and the Washington Consensus. China’s situation is very different in that it is the opposite of the Washington Consensus and he looks at why this popular strategy was not used and the results without it. The Washington Consensus is a hand on government approach, where they initiate and sustain growth, and a polar opposite to Chinas strategy. In China’s case the governments supreme power allowed them to get out of the way and for the “farmers to farm’ or let people do what they do best as their growth strategy. It is China’s rule that allowed their growth strategy to be successful.
I believe that Rodrik’s idea that “one way is not the best and only way” is true and that the ridged structure of growth strategies is often times their flaws. I also enjoyed his example about the Noble prize winning physicist and the fact that “it’s the subject that nobody knows anything about that we can all talk about!”(Rodrik 27) So perhaps going back to older growth strategies that did work and looking at why they worked and how they could be used to further growth is the best way to move forward.
Many economists and political academics alike, often complain of the growing disconnect between good economic policy and the economic policy that is forced through by government bureaucrats. On the surface, it appears that Dani Rodrik's "Growth Strategies" is an extension of this paradigm in highlighting countries that have strayed from the "economic truisms" of neoclassical economics, Americanized as the "Washington Consensus". The Washington consensus states that price liberalization, privatization of state run industries and the free access to international markets complimented with good governance are necessary to bring about and sustain economic growth.
ReplyDeleteThe article uses China's economic policies as a sharp contrast to the American norms. Chinese economy policy in the late 20th century revolved around state-controlled land, government run industries and a hybrid commodity market- requiring farmers to meet state quotas before selling at markets good. Despite the differences between the political and economic circumstances that should work and China's, the country experienced tremendous growth. Rodrik compliments the China case, with smaller, developing countries that also "defied" the economic principles of the Washington Consensus to ultimately succeed. South Korea (limited foreign trade capabilities) and Mauritius (export processing zone) both experienced "economic accelerations".
Is the aim of the article to simply show us how these nations got lucky? No, rather it demonstrates that Washington Consensus relies on a supply and demand model that depends upon a plethora of economic assumptions. In a perfect world, all economies would unflinchingly adhere to these principles. However, virtually every economy- especially not developing countries, do not follow these assumptions such as perfect information and efficient institutions. As a result, the Washington Consensus must be carefully tailored to fit the mold of the individual characteristics of various developing countries. The Consensus should be viewed as a basic, flexible framework for economic progress, not a rigid standard to which all countries should be compared to.
I feel that Dani Rodrik’s first argument has already been fully discussed in class through various methods. Therefore, his second point of thought is where I wish to focus my attention.
ReplyDeleteIgniting economic growth in less developed nations is very different from sustaining it. A successful reform encompasses the sound economic conditions of addressing the area’s local capabilities, obstacles, and prospects, which means that the agency providing the relief must not only acknowledge but fully understand the physical, geographic, political, and cultural constraints. Identifying which of these problems is the most important in the country is in and of itself is extremely hard to determine. But consider that the most egregious impediments to economic growth and development have been identified; then one must consider the chronological sequence as well as the degree of relief that public policy target. The main issue here is that the short-run approach at stimulating growth often if not always differs from the medium-run strategy aimed at sustaining growth. Rodrik points out that a period of growth does not guarantee the continuation of expansion. Although he does point out that to achieve long term growth, prosperity, and convergence institutions must insulate the economy from external shocks that could disrupt or halt growth. If the proper mix of targeted policy and community interaction is achieved, many new investments should transpire and will therefore encourage more entrepreneurship based on Kremer’s findings.