Rodrik

Dani Rodrik provides a scathing critique of the policy advice given by supranational institutions like the IMF, World Bank and WTO to poor and developing countries. He questions the wisdom and sagacity of the economic strategies that are imposed upon the Third World countries by these supranational institutions. He firmly believes that free trade and globalization are not the magic pills that automatically translate into economic development. He says it would be naivete to think that the developing countries simply by lowering tariff and non-tariff barriers would be firmly set on a virtuous growth cycle. He buttresses his argument by citing the examples of many Latin American and African countries that have stagnated despite liberalizing their economies from the 1980s. On the question of economic growth the economies of these countries has crawled along at a snail’s pace compared to their record in the 1960s and 70s when they favored import substitution. He says that most of the countries of the developed world grew prosperous behind massive protectionist policies. He says it is over a period of decades that the countries in the developed world opened up to free trade. He is convinced that Asian success stories like China and India liberalized their economies slowly. He believes that the East Asian Tigers had few prerequisites to fulfill when they achieved spectacular growth in the 1970s. He says that these countries combined outward orientation with unconventional policies like high tariff and non-tariff barriers, public ownership of banking and industry, export subsidies, domestic content requirement, patent and copyright infringements, and restrictions on capital flows.
First Rodrik feels that assimilation into the world economy has huge opportunity costs. By opening up their economies to global trade and investment, countries have been diverting huge resources away from key areas like education, healthcare, industrial capacity and social cohesion. Secondly he also feels that these days there are excessive restrictions placed over developing economies by the WTO and others such as tight fiscal and monetary policies, administrative reform, banking reform, stringent intellectual property rights and patent rules, corporate governance and finally labor and environmental standards. The list is simply never ending and compliance with the rules takes up a substantial portion of a country’s GDP. Thirdly, he is of the opinion that to launch the economy on a virtuous path of growth and development it is pivotal to harness the energies of domestic investors and institutions. He believes that non-traditional innovative ideas and policies within the domestic economy has to set in motion investment. He cites plenty of examples like public enterprises during the Meiji Restoration in Japan, township and village enterprises in China, export processing zones in Mauritius, tax incentives for investment in Taiwan and credit subsidies in South Korea. He believes that there must be different innovations in different countries such that they are congruent with local institutions and conditions. Finally he believes integration is the result, not the cause, of economic development. According to him globalization is not an either-or question, it is sequence issue. He espouses a measured globalization.