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Dani Rodrik
Says More…

This week in Say More, PS talks with Dani Rodrik, Professor of International Political Economy at Harvard Kennedy School and President of the International Economic Association.

Project Syndicate: “What some decry as protectionism and mercantilism,” you wrote last month, “is really a rebalancing toward addressing important national issues.” As you explain in your 2017 book, Straight Talk on Trade: Ideas for a Sane World Economy, the blind promotion of unbridled globalization was never good economics. What forgotten or neglected principles has mainstream economics re-embraced (or reconsidered) recently, and are there major ones that economists are still ignoring?

Dani Rodrik: The main thing we forgot, funnily enough, was that economics is the science of trade-offs. Squeezing ever-more gains from ever-deeper trade and financial integration came at a cost: many communities and workers saw their economic well-being deteriorate, and vital global public goods, such as the climate and public health, were neglected. If one raised objections, the overwhelming response was, “We can have it all: let trade be free, and we will deal with any issue it creates using targeted remedies, such as compensation and carbon taxes.” This brings us to the second forgotten economic principle: the principle of second-best. The world is necessarily second-best, and our policy objectives are not as neatly separable as first-best economists assumed.

PS: You have also noted that US President Joe Biden’s “industrial policies, green subsidies, and made-in-America provisions” are a “source of irritation” – and, indeed, “worry” – for the developing world. Given this new global context, what should developing countries be doing to make progress toward an economic model that is more reliant on “service industries and small and medium-size enterprises, rather than on industrial exports”?

DR: The kind of development model you mention is not one with which we have much experience. So, this is a very tough question. That said, I really do not see much alternative to finding the answer.