Dani Rodrik's weblog

Chris Blattman pays me a huge compliment by calling me a Karl Polanyi for the 21^st century in his review of my Globalization Paradox – although I sure hope I am somewhat easier to follow than Polanyi. He is not too far off – at least in terms of what I thought I was doing in the book.

Chris also has a legitimate criticism that he is not sure whether the ideas in the book really apply to low-income countries in Africa.

His prescriptions seem to require a much more coherent state, and professional bureaucracy, and stable polity, than most nations can boast. In this third-best environment, could Asia-style industrial and growth policy cause more harm than good? I would have liked to see this explored. The arguments seem to hold more force for middle income countries — the Turkeys and Perus and South Africas of the world — than for the Ugandas and Liberias.

I do wish I had talked about this. But I am more sanguine about the relevance of the ideas to Africa. Political leaders with some coherent sense of what they want to do (e.g., Museveni of Uganda or Meles of Ethiopia) can indeed achieve a lot, even if they do not have the kind of polities or bureaucracies that richer countries do.

I see the challenges of industrial/growth policies for such countries as no different than the challenges of, say, education policy or infrastructure policy. We would never say that African countries should stop thinking about how to conduct education policy or improve their infrastructure. Instead, we worry about how to improve the quality of such policies. I don't see why industrial policies should be any different.

The absurdities of the Ergenekon investigation in Turkey have reached even greater heights.  Now investigators are after every single copy of a draft book by the journalist Ahmet Şık (titled The Imam’s Army), which reportedly describes infiltration of the police and judiciary by Fethullah Gülen’s followers.   Individuals who have a copy of the book in their possession have been warned that they will be charged as Ergenekon accomplices if they do not turn the book over.  Police have raided the publishers and are destroying on the spot every digital copy they locate.  Meanwhile Şık himself is in jail, charged on the basis of evidence that he is told is “secret.”

There is no better chronicler of these absurdities than Claire Berlinski, to whom you should turn for more details and commentary (see here, here, and here).

As I wrote earlier, the Ergenekon investigations have turned into the judicial equivalent of a pyramid scheme.  The prosecutors first went after the ultra-nationalists thought to constitute the backbone of the plot. Then they went after those who had phone conversations with them.  Then they went after those who had no connection whatsoever but simply seemed to carry anti-government views.  Next in line were the journalists who were against the Ergenekon investigations.  And now it’s the turn of journalists who actually have supported the Ergenekon investigations, but have unkind things to say about how the police are running the show.     

Prime Minister Erdoğan has tried to distance himself from these goings-on, but he has also given the prosecutors cover by saying they must know what they are doing.  I cannot imagine that he is entirely happy with what the police and prosecutors are up to.  Why rock the boat and make so many enemies when the June elections seem to be in the bag?

One interpretation is that this is a power play by the Gülenists to show who the real boss is.  So here is the question worth pondering: who is really governing Turkey at the moment? Erdogan or the Gülenists?

Finally broke down and opened my own account: @rodrikdani

At last week's IMF conference, Vivian Davies of VoxEU.org recorded an interview with me on my recent work on "growth-reducing structural change" and other matters.  You can listen to it here.

I spent this week in London and Warwick, giving a talk at LSE among other places. I was stunned -- that is really the only way to describe it -- by the huge crowd that showed up at LSE; many had to be turned away.  There was also a long line of people afterwards getting their newly-acquired copy of The Globalization Paradox signed. (By the way, this was my second book signing; in the first one, held in Cambridge, Mass, I signed exactly two copies -- and one was for the son of the bookstore's owner...)

A podcast of the LSE lecture is available here.

This one comes from Bob Kuttner of The American Prospect.

[Rodrik’s] new book, The Globalization Paradox, is simply the best recent treatment of the globalization dilemma that I've read, by an economist or anyone else. The paradox of his title is the fact that markets need states, but states are weakened, perhaps fatally, as globalization advances. When they promote ever deeper globalization, economists undermine the very markets they cherish as well as the state's capacity to reflect the democratic wishes of its citizens.

… In this new volume, [Rodrik] gives us nothing less than a general theory of globalization, development, democracy, and the state. The book provides the pleasure of following a thoughtful, critical mind working through a complex puzzle. Rodrik writes in highly friendly and nontechnical prose, blending a wide-ranging knowledge of economic history and politics and a gentle, occasionally incredulous, skepticism about the narrow and distorting lens of his fellow economists.

Kuttner was similarly kind to Has Globalization Gone Too Far? -- my 1997 monograph which he had called one of the best books of the decade.  I have been always somewhat embarrassed by the strength of that endorsement, even though I must admit I have used it myself and have done little to prevent many a publicist from having a field day with it. 

Any book that Kuttner likes, you may fairly guess, should be hated by libertarians.  Judging by this, The Globalization Paradox certainly is.  (Anyone who thinks Singapore has a “one of the world’s smallest government,” by the way, hasn’t quite done his homework.  The country’s public sphere extends through a large range of institutions – from its Central Provident Fund, which any libertarian should think represents the height of coercion, to its sovereign wealth fund GIC – the bulk of the activities of which are not captured by budget statistics.) 

Matt Yglesias thinks The Globalization Paradox is “a pretty good book lurking behind a terrible framing device.”  Hmmm.  I guess that’s better than the other way around.  Good to see that some of his readers find the device pretty useful in thinking about what Greece, for instance, is going through at the moment.

Meanwhile Steven Pearlstein of the Washington Post provides me with the biggest compliment an economist could possibly want to hear:

In his famous treatise "The Wealth of Nations," Adam Smith acknowledged that "the division of labor is limited by the extent of the market." By extending the market as far as it can go, globalization offered the prospect of finally removing all limits to specialization by workers and businesses everywhere in what they do best.

Now comes Rodrik with a much-needed addendum to Smith's famous formulation, one that the Scottish philosopher himself would have admired: The extent of the market is limited by the workable scope of its regulation.

I will gladly settle for being a footnote (let alone an addendum) to The Wealth of Nations.

Developing countries' economies are a mish-mash, combining the productive with the unproductive, the First World with the Third. But why are some developing countries able to shift workers from low-productivity activities to higher-productivity sectors, whereas others have seen labor flowing in the opposite direction?

Read the whole article here.

I spoke today at a panel on economic growth after the crisis at a conference organized by the IMF. My co-panelists were George Akerlof, Mike Spence, Andrew Sheng, and Paul Romer. In the audience: Bob Solow, Joe Stiglitz, Olivier Blanchard, and many others. In retrospect, it was probably a mistake to have a slide called "Growth Theory in One Slide."

Here is a video of the event.

Another bizarre set of police roundups today in Turkey: eleven people, mostly journalists, were subject to early morning house searches and reportedly issued arrest warrants.  Among those caught in the net is Nedim Şener, an award-winning reporter, who has done more than anyone else to shed light on official complicity in the plot that led to the assassination of Hrant Dink, the Turkish-Armenian journalist, in 2007.   Three other journalists had been arrested in an earlier raid on the website OdaTV.

The detainees are being charged with membership in the Ergenekon Terror Organization, an alleged plot which, judging by the evidence prosecutors have so far adduced, is as imaginary as the ancient Turkic fable that lends its name to it.  As full of holes as the prosecutors’ case is, the latest charges about journalists go beyond the absurd.  They cannot possibly help the government’s case.  Prime Minister Tayyip Erdogan, who has shown some signs of wanting to distance himself from these show trials, should be enraged.

So what is going on here?

I can only make sense of this is as the judicial equivalent of a financial pyramid scheme.  In a pyramid scheme (also called a Ponzi scheme), old investors are paid back by deposits from new investors.  So survival depends on an ever-growing group of new investors. Similarly, saving the Ergenekon trials requires a pyramid of ever-more sensational new cases to obfuscate previous misdeeds.

So, as the initial cases have dragged on, with no conclusion in sight after more than three years, prosecutors have had to bring up new cases, with evidence that looks more “solid” (mainly fabricated or planted documents describing operational plans in detail). The charges have become more sensational (spying, prostitution rings, downing of a fighter jet). When doubts about the evidence have surfaced, additional evidence has had to be dug up (through anonymous tips, of course). And when reporters have uncovered unpleasant facts about what the police and prosecutors are up to, prosecutors have had to charge them with being in cahoots with the Ergenekon conspiracy (as in the recent arrests).

Pyramid schemes do not unravel gradually; they collapse from one day to the next. This, in a way is the good news.

But when pyramid schemes collapse like a house of cards, it is not just those who concocted them that get badly hurt. The entire society suffers from the aftershock. The same is likely to be true of these judicial dirty tricks. That is the bad news.

See my piece on Turkey in the FT tomorrow for more on this.

In an earlier post, I presented some preliminary results on what I called “growth-reducing structural change.” This refers to the highly anomalous and puzzling phenomenon whereby labor moves from high- to low-productivity activities.

In joint work with Maggie McMillan (Tufts and IFPRI) we have now updated and expanded our dataset and have more complete results. Here is a preview:

This shows a decomposition of aggregate labor productivity growth during 1990-2005 between two components: (i) labor productivity growth within sectors (“within”); and (ii) the economy-wide productivity effects of labor reallocation across sectors (“structural”). The economy is disaggregated into nine sectors.

Remarkably, the African countries in our sample (Ethiopia, Ghana, Kenya, Malawi, Mauritius, Nigeria, Senegal, South Africa, and Zambia) have experienced even more growth-reducing structural change than the Latin American countries. This runs totally against our expectations for a set of countries at such low levels of development (for the most part), where a Lewis-style dual economy growth dynamic ought to be in place.

The chart makes clear that the bulk of the difference in economic performance since 1990 between Asia, on the one hand, and Latin America and Africa, on the other, is accounted for by differences in patterns of structural change. Asian countries have, on average, experienced growth-enhancing structural change; not so the others.

Note that structural change has played a negligible role in the high-income countries (bottom bars, denoted by “HI”). This is as expected since inter-sectoral productivity gaps tend to be small in rich countries.

What explains these differences? We discuss several hypotheses in the paper, but one stands out: the pattern of comparative advantage. Countries with a comparative advantage in primary products tend to have a much worse performance in structural change than countries than ones without.

This is shown in the next chart, which looks at the (partial) correlation between the share of raw materials in exports (horizontal axis) and the contribution of structural change to overall productivity growth.

Note that I have regional dummies here (along with the initial share of agricultural employment) as controls, so we are picking up the effects differences within regions (and not broad regional differences).

The paper that discusses these and related findings is here.