Person:

Rodrik, Dani

Novelists have a better track record than economists at foretelling the future. Consider then Gary Shteyngart’s timely comic novel “Super Sad True Love Story” (Random House, 2010), which provides a rather graphic vision of what lies in store for the world economy. The novel takes place in the near future and is set against the backdrop of a United States that lies in economic and political ruin. The country’s bankrupt economy is ruled with a firm hand by the IMF from its new Parthenon-shaped headquarters in Singapore. China and sovereign wealth funds have parceled America’s most desirable real estate among themselves. Poor people are designated as LNWI (“low net worth individuals”) and are being pushed into ghettoes. Even skilled Americans are desperate to acquire residency status in foreign lands. This is sheer fantasy of course, but one that seems to resonate well with the collective mood. A future in which the U.S and other advanced economies are forced to play second fiddle to the dynamic emerging economies in Asia and elsewhere is rapidly becoming cliché. This vision is based in part on the very rapid pace of economic growth that emerging and developing economies experienced in the run-up to the global financial crisis of 2008-2009. Latin America benefited from a pace of economic development that it had not experienced since the 1970s, and Africa began to close the gap with the advanced countries for the first time since countries in the continent received their independence. Even though most of these countries were hit badly by the crisis, their recovery has also been swift. Optimism on developing countries is matched by pessimism on the rich country front. The United States and Europe have emerged from the crisis with debilitating challenges. They need to address a crushing debt burden and its unpleasant implications for fiscal and monetary policy. They also need to replace growth models which were based in many instances on finance, real estate, and unsustainable levels of borrowing. Japan has long ceased to exhibit any growth dynamism. And the eurozone’s future remains highly uncertain -- with the economic and political ramifications of its unraveling looking nothing less than scary. In such an environment, rapid growth in the developing world is the only thing that could propel the world economy forward and generate increasing demand for rich-country goods and services – the only silver lining in an otherwise dreary future. The question I address in this paper is whether this gap in performance between the developed and developing worlds can continue, and in particular, whether developing nations can sustain the rapid growth they have experienced of late. I will not have anything to say on the prospects for the advanced economies themselves, assuming, along with conventional wisdom, that their growth will remain sluggish at best. My focus is squarely on the developing and emerging countries and on the likelihood of continued convergence.

Development economists should stop acting as categorical advocates (or detractors) for specific approaches to development. They should instead be diagnosticians, helping decisionmakers choose the right model (and remedy) for their specific realities, among many contending models (and remedies). In this spirit, Ricardo Hausmann, Andres Velasco, and I have developed a "growth diagnostics" framework that sketches a systematic process for identifying binding constraints and prioritizing policy reforms in multilateral agencies and bilateral donors. Growth diagnostics is based on the idea that not all constraints bind equally and that a sensible and practical strategy consists of identifying the most serious constraint(s) at work. The practitioner works with a decision tree to do this. The second step in growth diagnostics is to identify remedies for relaxing the constraint that are appropriate to the context and take cognizance of potential second-best complications. Successful countries are those that have implemented these two steps in an ongoing manner: identify sequentially the most binding constraints and remove them with locally suited remedies. Diagnostics requires pragmatism and eclecticism, in the use of both theory and evidence. It has no room for dogmatism, imported blueprints, or empirical purism.

We are today in the midst of a transition away from what has come to be called “neoliberalism,” with much uncertainty about what will replace it. We might approach the absence of a solidified new paradigm with mixed feelings. On the one hand, we certainly do not need yet another orthodoxy offering cookie cutter solutions and ready-made blueprints for nations and regions with very different circumstances and needs (Rodrik, 2021a). On the other hand, economic policy needs to be guided by an overall animating vision. If history is a guide, the vacuum left by the waning of “neoliberalism” will soon be filled by a new paradigm – and the more appropriate and adaptable that paradigm, the better.

I describe in this essay an approach that I call “productivism.” This is an approach that prioritizes the dissemination of productive economic opportunities throughout all regions of the economy and segments of the labor force. It differs from what immediately preceded it (“neoliberalism”) in that it gives governments (and civil society) a significant role in achieving that goal. It puts less faith in markets and is suspicious of large corporations. It emphasizes production and investment over finance, and revitalizing local communities over globalization. It also departs from the Keynesian welfare state – the paradigm that “neoliberalism” replaced -- in that it focuses less on redistribution, social transfers, and macroeconomic management and more on creating economic opportunity by working on the supply side of the economy to create good, productive jobs for everyone. And productivism diverges from both of its antecedents by exhibiting greater skepticism towards technocrats and being less instinctively hostile to populism in the economic sphere (Rodrik, 2018).

South Africa has undergone a remarkable transformation since its democratic transition in 1994, but economic growth and employment generation have been disappointing. Most worryingly, unemployment is currently among the highest in the world. While the proximate cause of high unemployment is that prevailing wages levels are too high, the deeper cause lies elsewhere, and is intimately connected to the inability of the South African to generate much growth momentum in the past decade. High unemployment and low growth are both ultimately the result of the shrinkage of the non-mineral tradable sector since the early 1990s. The weakness in particular of export-oriented manufacturing has deprived South Africa from growth opportunities as well as from job creation at the relatively low end of the skill distribution. Econometric analysis identifies the decline in the relative profitability of manufacturing in the 1990s as the most important contributor to the lack of vitality in that sector.

Revised edition. When local cost discovery generates knowledge spillovers, specialization patterns become partly indeterminate and the mix of goods that a country produces may have important implications for economic growth. We demonstrate this proposition formally and adduce some empirical support for it. We construct an index of the "income level of a country's exports," document its properties, and show that it predicts subsequent economic growth.

When local cost discovery generates knowledge spillovers, specialization patterns become partly indeterminate and the mix of goods that a country produces may have important implications for economic growth. We demonstrate this proposition formally and adduce some empirical support for it. We construct an index of the "income level of a country's exports," document its properties, and show that it predicts subsequent economic growth.