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Webpondo
Interview With Dani Rodrik
Dani
Rodrik (A.B. in Economics from Harvard College,
and MPA and PhD in Economics from Princeton University)
is Professor of International Political Economy
at the John F. Kennedy School of Government, Harvard
University. He visited Colombia last March to
participate in a Conference on sustainable policies
for development. At the Faculty of Economics of
the Universidad de los Andes he presented his
work on the role of geography, institutions, and
economic integration on long term economic development
and agreed to give this interview for Webpondo.
Webpondo: Professor Rodrik, we want to begin by
saying that we appreciate your generosity in accepting
to give this interview.
In a recent paper you have argued that what the
world needs right now is less consensus and more
experimentation. In fact, you have said that the
"laissez-faire" outcome fails, since economic
development is a process of self-discovery that
requires experimentation and policy intervention.
Could you tell us about these ideas and how they
help us understand the contrasting experience
of development in East Asia and Latin America?
Dani Rodrik: Well, I think what happened
in the 1990s is that we grew overconfident in
terms of having the recipe for economic growth.
And I think the main difference between East Asia
in the 60s and 70s and Latin America in the 1990s
was that the East Asian strategy was the one that
was much more pragmatic and much more based on
the actual reality of these countries and the
strategies were much more home-grown as compared
to Latin America. While there are examples of
that as well in Latin America (and I think the
sole, the only clear superstar in Latin America,
Chile, is an example of a country which very much
developed its own strategy, it was very much a
home-grown strategy), throughout much of the rest
of the region, there was an excessive reliance
on a somewhat simplistic set of prescriptions
on which Northern academics had converged on.
The sentences that you quoted from my writing,
are written against that background. Right now
we need a lot less consensus and a lot more experimentation,
in the sense that we need to liberate policy makers
from some of the dogmas that we have developed.
That doesn't mean that anything goes. I think
that economics and economic science still has
a lot to say in terms of providing a frame around
this experimentation, and providing a sound of
the way of doing it. But this middle ground between
ideas that we know are clearly wrong and ideas
that are clearly right, is much larger than we
have admitted to be, and I think that's the area
which needs to be explored. I think without question,
East Asian countries would have been far worse
off if they had encountered something like the
"neoliberal consensus" or the Washington Consensus.
China would have been far worse off if it had
had no choice but to start its growth process
through a structural adjustment loan from the
World Bank, as opposed to having the relative
luxury of being able to develop it on its own.
So that's what I had in mind. .
WP: With respect to this same paper we are
referring to, there was a point that called our
attention about it and it's the fact that you
say that the very process of economic development
has to do a lot with experimentation and, in that
sense, there is some active policy intervention
that is necessary. And there are two points with
respect to this conclusion which calls our attention.
The first one is that you say that there was some
kind of more optimal mix in that policy intervention
in Asia in terms of "carrots and sticks" (in your
terms) and we would like you to explain a bit
about that combination. And also, if you are calling
for active policy intervention as a consequence
of the very process of economic development, what
about the imperfections or the potential problems
that economists so much worry about in the public
sector?
DR: When I talk about experimentation,
I have two sorts of experimentation that I have
in mind, and I think both are equally important.
One, and what you are referring to in the first
part of your question, is experimentation in the
productive sphere. The other is institutional
experimentation. The former is the process of
figuring out where your comparative advantage
lies, figuring out what you can produce profitably,
and this is an activity that's by and large undertaken
by the private sector. This is not an area for
the public sector to be doing. But, what I do
think is that because this process of experimentation
in the productive sphere (what Ricardo Hausmann,
my coauthor, and I call "self-discovery") is a
process which is rife with externalities and informational
shortcomings, it is also one area where the government
potentially has a role to play. And we summarize
that role by way of this combination of "carrot
and stick" policies.
You need the carrot policies so that there is
a positive incentive for private entrepreneurs,
private investors, to start production and investments
in non-traditional activities. That requires a
positive inducement. It is not generally going
to be undertaken in optimal amounts simply through
free market forces, because this is a process
which provides tremendous social externalities.
The first investor in Colombia that discovered
that cut flowers could be profitably exported
to the United States, created tremendous social
value. And, in fact, this innovation very rapidly
dissipated itself to Colombia with many, many
more entrepreneurs coming and starting to produce.
Economic development is fundamentally a process
of this kind where at least early on you need
sufficient incentives in place for this investment
in new activities to take place. That's the carrot
part of the policy...
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