One Book, Many Reactions

by dan_drezner on November 13, 2007

<em>One Economics, Many Recipes </em>elicited multiple reactions from this reader. As someone who’s had to review development books for a public audience over the past few years, I found Rodrik’s book to be well worth the read. As a political scientist, there were times when my wife asked me, “why are you yelling at the book?”

The first part of the book argues that the institutions that foster economic growth are highly sensitive to local conditions. Because local conditions vary so widely, it is logical that the policies that promote growth should also vary widely from country to country, while still adhering to a few key macro-conditions. In other words, there is such a thing as policy substitutability. While neoclassical economists are by and large correct about the necessary conditions for growth, the policy means through which those conditions can be met are much more heterogeneous than the augmented Washington Consensus suggests.

This emphasis on pragmatism and experimentation sounds perfectly sensible, and yet the faddishness that governs development and growth economics gives me pause. Rodrik is hardly the first economist in recent years to suggest a diagnostic approach to policy prescriptions. Even though they disagree on almost everything else, both Jeffrey Sachs and William Easterly stress the power of diagnostics and local “ownership” of development policy in their prescriptions on how to promote growth. I smell a fad here. The question is whether this fad is rooted in an improved understanding of the political economy of development, or is simply another new trend to replace passé but goodies like Harrod-Domar or the “big push“.

As a political scientist, One Economics, Many Recipes proved to be a bit more frustrating. It’s far from clear whether the political organizations that Rodrik is counting on are up to the task. The book asserts that there are “pockets of bureaucratic competence in all states.” Conflict-ridden states excepted (and this is an important exception in a book about helping out the bottom billion), this is undoubtedly true. Scholars of political organizations, however, might suggest that these areas of competence exist precisely because their existing missions are well-defined and clearly constrained. They might not want to branch out. Indeed, studies of successful agencies show that they will likely refuse new, high-profile tasks unless they are confident that their new tasks coincide with their current capabilities and practices. The possibility of failure, and a tarnishing of reputation, is the source of this risk aversion. Less successful agencies, in contrast, are more willing to take on riskier initiatives, as a way to grab power and enhance their reputation for competence.

The discussion of globalization and global governance also contained a few contradictions. The first is whether economic globalization severely restricts the policymaking autonomy of the nation-state. In chapter four, Rodrik assures us that this is not the case. Indeed, he assures us that states retain a wide array of possible “industrial policies” that could be pursued by governments. This includes signing preferential trade agreements. However, by the time we get to chapters seven and eight, Rodrik thinks the constraints of globalization are much stronger. In the extreme, he posits a governance “trilemma,” in which it is impossible to reconcile global economic integration, mass politics, and national governance.* Which is it?

As someone who just wrote a book on international regulatory regimes, my answer is “neither.” Globalization has not really transformed international relations. Governments that make the rules for large internal markets (the United States and European Union) retain the ability to determine the course of global regulatory and technical standards. Large markets have a gravitational effect on smaller actors. Their market power – and implicit coercive power – shape the preferences of smaller states and private producers. Simply put, when it comes to the setting of standards, great powers are price makers and not price takers. At the current moment, when the United States and European Union agree on a common set of standards, there will be effective coordination; if not, there will be no effective coordination. The important thing, however, is that it is the large market governments who retain the largest possible level of policy autonomy.

This leads us to the second contradiction. One Economics, Many Recipes devotes a great deal of effort to recognizing that for development policies to work, they need to be incentive compatible. China’s agricultural reforms – cited numerous times throughout the text – were ingenious because they created a “two-track” system in which the winners did not affect the pre-existing set of politically entrenched actors. Rodrik takes great pains to try to devise metaprocesses through which governments can experiment with growth-promoting policies without falling into Olsonian or Stiglerian traps. Whether sunset policies or deliberative councils would actually work is open to question. At domestic level, however, at least Rodrik gets that the incentive problems need to be factored into the equation – a vast improvement over the pie-in-the-sky proposals of Sachs or Stiglitz.

When we get to the global governance level, however, there is no discussion of incentive compatibility. The status quo allows the United States and European Union to dictate a wide array of regulatory strictures on smaller governments through a welter of multilateral and bilateral arrangements. Over the next decade or so, countries like China and India will be able to do the same. Crudely put, what’s in Rodrik’s proposals for these countries? Why would they voluntarily relinquish their power and influence for a nebulous form of “global federalism”?**

*Furthermore, this trilemma seems falsely posed. Precisely because governance takes place at the national level, and because the governance of the large market states operate by mass politics, there won’t be a movement towards Rodrik’s “complete economic integration” without a lot more consensus than exists today.

** On p. 208, Rodrik posit what he believes to be a Pareto-improving decision rule in which a “simple majority rule” decides a common global standard. A simple majority of what? States? Populations? Output?