Rodrik article for Thursday

https://www.nber.org/papers/w10050.pdf

Comments

[Beverley_xia]

Dani Rodrik’s “Growth Strategies” discussed principles and institutional practices to kick-start and sustain economic development in developing countries. Rodrik concluded that there are “higher-order principles” every country that successfully developed used but converging principles do not imply institutional convergence as well. In fact, most developing countries achieving growth spurts went with unorthodox institutions. Rodrik also emphasized the need to establish high-quality institutions to resist economic shocks and sustain development. In the article, two ideas particularly interest me.

Although the imaginary advices an economist would give to 1978 China make sense, it seems she fell for the common mistake of economists of developed countries trying to replicate development successes in developing countries. The imaginary economist left out concerns for human capital. As the article points out, China in the year 1978 had a population mainly of poor farmers. The Cultural Revolution where most educated people were prosecuted or sent to rural areas just ceased. Human capital, especially those brought about by education, was extremely lacking. In such a situation, the urban sector would not develop naturally, leaving most people stuck on farmlands. While it would be nice that when lands are privatized, the farmers would be incentivized to produce as much as possible to get rich, in reality, there were few demands for agricultural goods since most people live self-sustaining farm lives. Additionally, neglecting the importance of human capital may lead the Chinese economy to stagnation. As the O-ring model suggests, when the few high-skilled labors pair up or leave China for developed countries, the majority of Chinese companies and China could be stuck with low-skilled labor, which would impede the growth of the companies and the country.

While I always associate neoclassical economic theories with a free market with minimal government interventions, Rodrik’s demonstration that characteristics like “appropriate incentives, property rights, sound money, and fiscal solvency” of neoclassical economics do not necessarily limit to institutions promoting free markets is enlightening. It reminds policy makers to stay away from formalism and focus on what’s happening in specific countries. If the World Bank focused on the reality, it would not have loaned out money to countries that could not save enough. While saving more money worked for South Korea and Europe, there were other elements contributing to their successes. By oversimplifying development and overly emphasizing the effectiveness of free markets, numerous developing countries borrowed big and opened up without any protectionism, leading to economic failures. Developing countries are not searching in complete darkness, however, since they can still conform to higher-order principles that apply to all regimes for advice. To achieve success, countries should try to apply higher-order principles to local opportunities and constraints.

[William Chapman]

This paper really drove home the idea that there are no one-size-fits-all solutions when it comes to development. Ideas that work on paper or in one country might not work or even have a negative effect in another country. I particularly liked the China example. The Chinese government as it ‘liberalized’ its economy did so slowly and only in certain facets, not the way those who believed in the Washington Consensus would have suggested that they do. This has worked remarkably well, at least from an economic perspective, as China has seen consistently strong growth numbers over the past decades. The other East Asian countries all took different paths that also worked for them, working within the societal framework that they had already built rather than what Western economists told them they should be doing. Hong Kong, however, did closely follow a western model as did the Eastern European countries which for me showed that in some cases the Washington Consensus may actually be right at least for countries with similar institutions, economies, and cultures to the West.

The idea that growth in the short term does not necessarily guarantee success in the long term. This causes me to question the Washington Consensus. Completely free markets may galvanize growth in the short run but seems to leave a lot of holes in various needs for long term growth. Just liberalizing markets does nothing to help and may hurt the building of strong institutions, strong homegrown industries and social capital. Once these things are built, however, maybe the Washington Consensus ideas would be helpful to help continue growth into the long term.

[Alecsander Horne]

I would like to expand on the idea of the currency board and the economic situation within the government of Argentina as a result of a failed growth strategy. The article presents the idea of the currency board as a growth strategy to counteract the effects of financial mismanagement that has occurred in the government of Argentina. Argentina is classified as a developing country but stands above the other countries classified in the same group since its GDP per capita is $14,000, $2000 above the developing country benchmark. As the article states, the economy of Argentina began to grow rapidly in the 1990s but short-term growth does not guarantee success in the long run. Argentina ultimately failed to continue its growth since it did not have a credible institution in place to maintain productive economic growth. Government corruption has been the cause of such an issue and is the same reason why Argentina still struggles today from failing to maintain a growth strategy for the long-run.
For example, the median inflation for Argentina has been 220% annually since the year 1980. The problem is the country is spending more than it can afford running a fiscal deficit every year since 1950. In order to keep a steady supply of currency, the government borrows US dollars. In one instance, the government airlifted in $6 billion dollars of US currency in order to pay its citizens lining up at bank doors. The citizens of Argentina use the local currency for basic transactions but acquire US dollars which they deposit into savings abroad. There is an estimated $500 billion in assets abroad while $70-$150 billion is stashed under mattresses and safe boxes. As a result, the country is running out of currency while facing extreme rates of inflation and economic contraction. This is similar to what happened when the country faced its last economic crisis and defaulted on $100 billion of foreign currency bonds in the 1990s. The country is currently predicted to default on $115 billion of foreign currency bonds implementing yet another recession to the economy.
The implications here are to notice the lingering effects which result from the failure to transition from a short-term growth strategy into a long-term strategy of economic growth. As we know, the article states it is easy to start this growth but much more difficult to maintain from all the moving pieces. Hence, Argentina will need to develop another strategy to spur short-term growth and have the proper institution set in place in order to maintain economic success.

[Margot McConnell]

In Rodrik’s paper, “Growth Strategies,” he discusses some of the key ideas to economic growth. He brings in two arguments that form that basis for his discussion and analysis throughout his paper. The first is the flexibility of the neoclassicial economic analysis. The second has to do with the difference between “igniting” economic growth and actually sustaining it. Additionally, Rodrik emphasizes the idea that there is not a specific set of policies that all countries can use to achieve economic growth; each country is unique.
Initially, the first idea that stuck out to me was about the importance of sustaining economic growth and how that relies on a totally different set of ideas than actually “igniting” it. A common misconception about development is that once economic growth begins, it is going to continue. However, as we have seen in class, there are periods in which economic growth stagnates or even falls. One example that stuck with me is Indonesia and South Korea. During the 1997-1998 East Asian financial crisis, Indonesia was not able recover, while South Korea had a quick turnaround. This was mainly driven by the strength of the institutions. By being able to combat against the effects of the financial crisis, South Korea was able to maintain economic growth—something that can be difficult to do successfully.
Throughout this paper, South Korea is used as a prime example of successful economic growth over the years. I find South Korea to be a fascinating case study. South Korea has been at the forefront of innovation recently. There are thousands of cars produced there every year that are shipped globally, and many technology companies like LG and Samsung are located there. While South Korea has been a hot topic in terms of economic growth and development, an article I read yesterday discussed how South Korea is likely to miss its GDP growth forecast of 2.2% according to the central bank of South Korea. It will be interesting to see what South Korea does, if anything, in order to combat the lower GDP growth. Will they implement any policies or make any changes in order to sustain economic growth? If so, what will those policies be?
Another point in the paper that I found interesting was the idea about economic convergence. A lot of talk within economic development is about how all countries need to converge rather than diverge. While there is some truth to that, and yes, divergence is bad, countries do not necessarily need to converge. This emphasizes the point that a set of rules and policies for economic prosperity in one country will not necessary have the same results for another country. Many factors can contribute to this including social preferences and complementarities among institutions. This emphasizes the point that there has to be consideration for the characteristics of a specific country, including the people and the government in place. Each country is like a case study, and while other countries’ experiences can help give us insight about how to act in another country, certain policies and ideas have to be tailored to meet the needs of that individual country. I think this is something that is often missed when it comes to development economics. In fact, this can be applied in current times with the healthcare debate. While I do believe that healthcare is a right to all citizens, politicians must be careful to develop a policy that gives everyone the right to affordable healthcare. Simply saying that Canada or Sweden’s plan to healthcare works, so it should work for us too does not suffice. We have a much larger population, for example, than these countries, so a politician must keep that in mind when he or she develops his/her plan for how to solve the healthcare dilemma in the United States.

[Lauren Paolano]

In "Growth Strategies", Rodrik's discussion of the government failures and market failures within an investment strategy to kick-start growth under the section "A two-pronged growth strategy" really caught my attention. This two-pronged effort is a short-run strategy aimed at stimulating growth, and medium-to long-run strategy aimed at sustaining growth.
In order to sell new ideas to gain capital from investors, a strategy must be created that is both creative and unique. The more the entrepreneurs become excited about the idea, they will give more capital and therefore more technological advancements will be adjusted to the product/idea.

However, there are government-imposed barriers on entrepreneurship that can hinder this growth process in certain circumstances. This viewpoint believes that the government must play a more active role in the private sector. The two pillars Stern outlines of building an appropriate "investment climate" and "empowering poor people" were two really interesting principles. I am currently reading Rawls' Theory of Justice in my business ethics course, and these two principles are similar to Rawls' Two principles of justice: first, each person should have equal rights to the most extensive liberties consistent with other people enjoying the same liberties and secondly, social and Economic inequalities are to be arranged so that they are both. Basically, these two principles encompass a sense of equality among society by also empowering the poor to be ambitious to want to succeed in life. Rawls argues that the concepts of freedom and equality are not mutually exclusive and his assessment of the justice system leads him to conclude that for justice to be truly just, everyone must be afforded the same rights under the law.

[EricDragon9]

In “Growth Strategies,” by Dani Rodrik, the path that underdeveloped countries that have been able to converge with developed economies is contrasted with the prescribed path that was the common sentiment in the 1980s and was written down as the Washington Consensus.

One common thread between what we read in the textbook and this paper is the underdevelopment explanation of the false-paradigm model. In the initial sections of the paper, Rodrik discussed how the convergence of good developmental policy ideas, dubbed the "Washington Consensus," was established in the 1980s and he provides a summary of these generally accepted ideas in Table 2. However, this is not done to show how well all of these policies have been used, but to contrast on how often not all of these policies are necessary for the convergence of underdeveloped countries with the economic well-being of developed countries. In fact, in some situations where these policies were implemented, the countries did not converge. Rodrik also repeatedly states that successfully converging countries often used uncommon methods. This falls inline with the false-paradigm model, in which underdevelopment can be attributed to inappropriate advice from well meaning but often uninformed, biased, and ethnocentric advisers. While the experts who produced the Washington Consensus likely knew that there isn't a one-size-fits-all solution to underdevelopment, by generalizing such policies as such, it lost the importance of taking into account of the inherent uniqueness of each country. Thus, those countries may just take the tenants of the consensus without adjusting for their unique situation and essentially be given poor advice.

Another idea that perplexed me was regarding the necessity of a "political entity that is strong enough to establish property rights and enforce contracts [that] is also strong enough, by definition, to violate these same rules for its own purpose." While there are some examples of even the United States confiscating property (e.g. eminent domain), this does seem to go against the teachings of Amartya Sen and the role of government in providing freedoms and capabilities to its own people. If a government is able to confiscate property, then doesn't that infringe upon the individual's freedom to own property? Or can it be argued that it is necessary for the government to seize that property in order to provide freedoms to more people than the individual? But at what point does the social benefit outweigh the cost to the individual? If this is taken to an even more extreme example, the mandatory draft of men into the military during times of war, how do viewpoints change? In this case, the government is encroaching upon a fundamental freedom, the freedom to live.

[Alice Chen]

My takeaway from this paper is how there is no guidebook to development. Improved healthcare and education, of course, have shown to make a huge difference, but countries cannot adopt the same policies--especially if they are too dissimilar to begin with. I think what's interesting about having no specific "guide" to development is the question of how countries are supposed to know what to do. As the author stated, "attempts to emulate successful policies elsewhere often fail," so how can countries spur development if they are unable to follow in their neighbours footsteps? Would this have to be trial and error based?
It was also fascinating to me how unorthodox methods spurred China, South Korea and others into rapidly developing states. These nations did not follow the Washington Consensus, which is supposedly the desirable framework for economic growth. Latin American countries that did adopt the policies failed to develop as quickly as those in East Asia. Again, this brings up the question on what type of policy works best to develop a nation. Was the Washington Consensus considered a failure? And if it was, why?
Again, it's not to say that countries must use unorthodox methods to develop. Hong Kong was an interesting case where unorthodox methods played no role--but Hong Kong also had different roots than other nations from being a part of China but also a British colony. I think in the end it's important to keep in mind the different political, cultural and social aspects of countries before attempting to spur development as there is no single framework that would work for every country.

[Kate_groninger]

I thought that Rodrik’s “Growth Strategies” article did a good job of clearly conveying that there is no one set of growth policies that will automatically work for every state due to the reality that the success of policies and institutions is context specific. Instead, Rodrik sets out to focus less on the specifics, and more on the more generalized, “higher-order” economic principles, which include market-oriented incentives, property rights, and macroeconomic stability. From my understanding, these higher-order economic principles are ideally the goals that policies wish to achieve.

The example of China’s unique method of growing their economy was particularly interesting to me because what Rodrik had to say tied in very well with what we are currently discussing in my Global Politics class. We recently watched a video of scholars debating if they thought that China’s economic model could be replicated and applied to other countries to help their economies grow. Rodrik would say no, because different countries have different underlying political, historical, and cultural conditions, which means that differing countries should take unique approaches to economic growth that best suit their initial conditions.

In the politics class, we also talked about how it is not always the best idea to implement “democracies” on developing nations because depending on ethnic divides within a country, a minority group could easily be overpowered by the majority which would consequently lead to further oppression and political instability. This reminded me of Rodrik’s argument that implementing Washington Consensus reforms might not be the best course of action for a country with complex political and cultural institutions already in place. Examples of the consequences of this “west-is-best” approach can be seen across the globe, particularly in Latin America. Rodrik mentions that despite the fact that Latin American countries did more liberalization, deregulation, and privatization in the course of a few years than East Asian countries have done in four decades, their growth has been much slower. Additionally, despite widespread attempts to spread democracy in the region, there are still large amounts of social inequality, corruption, and low levels of political participation, whereas much more stable political systems are seen in certain East Asian countries that do not fit the democratic mold. In conclusion, it is not always necessary to replicate western political/economic systems. In fact, as shown by China, for example, it is often more beneficial to work with the existing political, historical, and cultural systems to accomplish the broader goals of market-oriented incentives, property rights, macroeconomic stability, an overall higher levels of living.

[Olivia Luzzio]

In his paper, "Growth Strategies", Dani Rodrik presents a compelling case for the abandonment of standard “Western” recommendations for economic development and the application of context-specific proposals aimed at igniting and sustaining economic growth through strategic country-based institutional reforms. He discusses China, Japan, and Taiwan, all of which deviated from the “Washington Consensus” method of economic development, to demonstrate that free markets and reduced role of government are not the only pathways to economic growth. Furthermore, he suggests that Latin American countries, who attempted to implement the strategies of the Washington Consensus, actually experienced economic stagnation or detriment without stable institutions in place alongside their reforms.

Rodrik suggests that democracy is an important institution for market legitimization. However, some of his southeast Asian success stories, such as China, clearly experienced profound economic growth in the absence of democracy. I am curious as to how exactly the institution of democracy fits into Rodrik’s economic growth framework. He asserts that democracy is vital to helping societies select and establish appropriate economic institutions, but he also argues that completely different institutional structures can result in comparable levels of economic growth. Furthermore, if narrow and directed reforms are poor countries’ best bet for achieving economic growth, it seems that a widespread socio-political overhaul may not be the best solution to promote development. In what contexts is democracy a significant catalyst for economic development and in what contexts is it better for countries to work within already-existing political frameworks? Considering development from a freedom standpoint, it is reasonable to predict that democracy is necessary for citizens to reach their full capacity to make their own decisions and live lives they value, and thus democracy is necessary for societies to achieve economic development. But this prospect would suggest that some of the largest economies in the world, such as China, fall short of development. I would be eager to hear Rodrik’s views regarding the role of democracy in his country-specific framework of economic development.

[Maisie Strawn]

I cannot imagine a more satisfying way to conclude our discussion of the history of growth and development theories than reading Dani Rodrik’s “Growth Strategies,” which mentioned so many of the different theories we discussed, and ultimately concluded that none of them are universally prescriptive. This seems almost intuitive--of course there is no “one-size-fits-all” solution to starting and sustaining economic growth. However, in the context of our historical study of the development of these theories, it is a pretty bold claim that none of them are really right. Rather, Rodrik claims each country’s strategy must be unique and locally-tailored. Although there are some universal guiding principles to growth strategy (property rights, incentives, rule of law, sound money, fiscal sustainability, prudential regulation, targeting, and incentive compatibility), there is no one set of institutional arrangements or policies that must be used to achieve those principles. He provides a wealth of information to prove this is the case. The rapid development of several East Asian countries provide the most powerful examples that a country does not have to follow the Washington Consensus to experience rapid growth. The second main claim of Rodrik’s paper is that kick starting growth and sustaining growth are somewhat separate objectives. Sustaining growth involves the development of high quality institutions appropriate to the country and the values of its citizens. Each country’s institutions will be different as the social preferences of its citizens are different. The ability to sustain growth is where already developed countries have a real advantage, as they have had time to experiment with and change their institutions to be most productive. This was a very interesting concept to me. It makes me wonder if, as American growth is slowing, perhaps we need to re-examine our institutions and begin a process of trial and error in order to be able to continue sustaining growth. Further, we may need to focus in on our “democratic institutions and civil liberties” in order to ensure we are supporting sound economic institutions to sustain growth.
Rodrik’s claim for the need for policy experimentation or “search and discovery” was also very interesting to me. The idea makes sense: If there is no one universally applicable set of policies to set in motion and sustain growth then, of course, countries must experiment with different policies to see what works best for them. The idea of experimenting with national policy is a little frightening to me, however. Rodrik claims this is where economists can be most helpful as they can “identify the sources of inefficiency, describe the relevant trade offs, figure out general-equilibrium implications, predict behavioral responses, and so on.” Although I agree with Rodrik’s argument that economists can help inform the experimentation process, providing more information and perhaps lowering the risk, I wonder if the need for experimentation lends itself to growth strategies tailored even more locally than the national level. Perhaps instead of trying to develop a national level strategy for growth, countries should try to foster local level growth within their borders. Under such a model, there would be more room for the trial and error process, less risk with failure, and on a smaller scale changes might mature more quickly expediting the learning process.
On a bit of a side note, this paper made better use of graphs and tables than almost any other academic paper I have ever read. There were so informative and easy to understand. Also, his language was mostly so accessible. It was very refreshing.

[Colby Boudreau]

This article by Rodrik was again pretty eye opening to how difficult of a process it is to get countries out of their poverty traps and help them develop into financially and socially strong countries. An example that stuck out to me the most was how China stimulated their growth by following such unorthodox methods and rejecting the Western norms and recommendations. This must have been an extremely big deal back when the decision was made, as the western society had proven that they were much further ahead in the race to grow and develop. However, this illustrates the point that every single scenario and country is completely different. As the article states, “...China relied on highly unusual, non-standard institutions. Second, these unorthodox institutions worked precisely because they produced orthodox results, … and it is hard to argue, in view of China’s stupendous growth, that a more standard, “best-practice” set of institutional arrangements would have necessarily done better.” This reminds me of an experience that everyone has had during math class, where you use the wrong method but still get the right answer, but still have the teacher tell you it is unacceptable. It must have been difficult for countries to witness China straying from the typical patterns of growth strategy, and coming out on the other side stronger and more successful. The concept of “liberalizing agriculture at the margins” is very interesting, given how the author earlier detailed the domino effect that changing one policy would have on the rest of the economy. It works to combine the best of both worlds, and may have introduced a potential strategy to relieve countries stuck in their agricultural poverty traps. But, as I mentioned, China demonstrated that each country is different, and in the case of underdeveloped countries, there are a plethora of reasons why countries may be mired in poverty. The point of the article, as well, is that countries can’t simply follow a prescribed path to growth or copy their neighbors without failing spectacularly. Instead leaders and countries should adopt the best bundle of all the available policies and resources, so that they may begin to slowly liberalize their people and economy in the short run, while more importantly focusing on the institutions for the long run. A strategy similar to China’s agricultural liberalization may help farmers begin to earn higher wages and eventually lead to a country making the jump from agricultural to an industrial or export society. This poses the question, how do we get countries to find the right balance between long term institutions and short term liberalization while simultaneously working to prevent other factors (such as corruption) from keeping said country in their poverty trap.

[Kenza Amine Benabdallah]

The paper“Growth strategies ”by Dani Rodrik revolves around an examination of neoclassical economic analysis and understanding the importance of context when it comes to economic growth. If there is one take away from this paper it would be that different economies function differently and local conditions matter. Therefore, there isn’t a determined solution for underdevelopment or a specific process that countries need to take in order to grow.
I thought that it was very interesting to compare this paper with the one on “institutional barriers and world income disparities”. In my opinion, the one on institutional barriers compares twenty countries and gives a very broad conclusion on what policies should be taken in order for countries to grow. On the other hand, it seems to me that this paper questions the assumptions made on that paper. Dani Rodrik insists that growth-promoting policies need to be context-specific.
I thought that it was very interesting that he took “the high performing East Asian countries” as an example to illustrate that significant deregulation or liberalization trade is not necessary for economic growth since neither of these countries undertook these policies until the late 1980s. He also talks about how China took a very different approach to reform. China is always the perfect example to portray how a country can grow very fast even when relying on a series of institutional innovations that differ entirely from the Western Norms. I wish he gave more examples of Western countries so that we are able to understand his argument a little better.
In conclusion, I loved this paper because of how he talks about how the discipline of economics offers powerful ways to analyze the consequences of proposed policy changes but emphasizes on the idea that it is necessary to realize that these principles do not translate directly into specific recommendations.

[Christopher Watt]

In thinking about where we have come and where we are going in the world of Developmental Economics, Rodrik’s Growth Strategies offers valuable analysis and insights on methods that have been used in the past and how they should inform policy decisions and market practices in the future. Despite my hopes that some revelation amongst our readings and class discussion would point to a uniform strategy for economic growth and well-being, it is evident, as Rodrik clarifies, that strategies for growth are ultimately dependent on the context in which they are used. I really appreciated Rodrik’s analysis of numerous countries’ economic and political histories, and the various “forms” of economic institutions/policies taken to serve similar “functions” across developing societies. In thinking more about the role of context, especially when pushing more liberalized market initiatives and policies, I wonder more about the ideas of laisse faire capitalism…It seems that in many places, political liberalization may need to be the pre-cursor to economic liberalization and growth. However, it is also clear that in reality there must be a balance between government/institutional intervention into the economy and privatized economic practices.
I really appreciated and learned a lot from his clarification between short and long run policies and the need to create deep, institutionally underpinning initial reforms that continue to deepen overtime in order to stimulate market economies, as well as long term, growth sustaining strategies. He also pointed out that policy interventions often should be narrow. Governments must caution not to over regulate, yet also maintain institutional blocks to external shocks to the economy.
In closing, I found a sense of hope in Rodrik’s paper. Though it is challenging for developing economies to choose between copying old policies or running courses of trial and error from a wide array of policies, there is some combination of policy interventions, government regulation, and private sector investment that can put each individual economy on a trajectory of growth. It just requires a matter of figuring out what is right for each country in the context of its preexisting political, social, and economic climates.

[Nicholas Tierney Watson]

The paper “Growth Strategies” by Dani Rodrik focuses and really drove home the point that Growth strategies all have the same end goal, but the journey to those end goals is largely dependent on initial, local political, cultural and institutional conditions. There really isn’t no “size fits all” or perfect, fully integrated development strategy. I think Rodrik says it best with, “There is no unique correspondence between the functions that good institutions perform and the form that such institutions take”, so long as they deliver on the higher-order economic principles that they should.
I think that this paper aims and encourages flexibility when rolling out an economic policy aimed at development. Rodrik notes that almost all long-term, high-end growth comes when there are ordinary economic goals, such as protection of property rights, contract enforcement, market-based competition, that are achieved through sound institutions with unorthodox policies. The Washington Censuses is founded on sound economic logic, even with the additions made to it, the Washington Consensus is in no way comprehensive or without it’s basic external and internal assumptions. It lacks a certain flexibility, and without that flexibility or knowledge of initial conditions, it is a lacking development strategy.
I think that the most interesting part of this paper isn’t within the two main points made by Rodrik. I think that the most interesting part of this paper is in the use of the Martian Metaphor. It reminded me a lot of the Rawls’ use of the Veil of Ignorance or the Fetus in Space idea when trying to get objectively at ideas that are inherently political or biased. If the Martian looks objectively at the Washington Consensus, it saw how the polices from it were slapped on some countries ineffectively. It seems to me that Rodrik, through his use of the Martian metaphor, is trying to get at the fact that we all, including economists, but especially policymakers, carry certain biases and expectations to certain policies. Rodrik says it best saying, “reality has been unkind to our expectations. If Latin America was booming today and China and India were stagnating, we would have an easier time fitting the world to our policy framework. Instead, we are straining to explain why unorthodox, two-track, gradualist reform paths have done so much better than sure-fire adoption of the standard package”. We should all try to step away from our personal biases, especially the people who implement policy, and be more flexible by letting sound, empirical data show us what to do.

[Sofia G. Cuadra]

I really enjoyed this paper by Dani Rodrik that discussed growth strategies in regards to not only stimulating economic growth but also on sustaining economic growth. The reason why I found this paper so interesting was the repeated idea that cookie-cutter economic policy cannot work in every developing country and produce the exact same positive results that may have occurred in another developing country or even in a fully developed country. What worked in Brazil did not work in Argentina (ex. ISI). What worked in the U.S. may not work in China, or at least the means to the ends may not be the same. More specifically, I understand the reasoning behind the Washington Consensus and the potential of high growth it could stimulate, but however, as the paper points out, it is incorrect to assume that the Washington Consensus represents a “superior” capitalistic approach that should be preferred. China represents one of best case studies where extensive economic growth, as seen through property rights and macroeconomic stability (to name a couple) occurred because the country put in place unorthodox institutions. Essentially, China experienced high growth despite following experimental economic policies that went contrary to standard protocol at the time. As other east-asian countries showed high growth despite also following non-standard policies, the development proved common and, to me, hopeful. Not all is lost for developing countries, for they can initiate and sustain economic growth without being forced to replicate Western style institutions, as in the form of the Washington Consensus. They can achieve economic growth through alternative means that perhaps may be a better fit for their specific socio-political climate. In this way, the chance for achieving economic growth can reach a larger number of countries throughout the world.

However, I believe it remains important to highlight that following non-standard reforms does not exempt developing countries from dealing with some level of policy experimentation to initiate economic growth. Each developing country still has to take into account its own local knowledge to follow the most appropriate growth strategy. At the same time, these countries have to understand that success may or may not be immediate; policy failures may occur along the path to sustainable economic development.

[Danh Nguyen]

In “Growth Strategies”, Rodrick has done a good job in distinguishing between igniting growth and sustaining growth. Through his points, he also proved with an abundance of evidence that there is no one-size-fits-all regulation package for every country, and the regulation package also depends a lot on multiple factors, namely in the socioeconomic, political, and technological front.
It is so interesting to me how once-developing countries’ pathways to sustainable growth differ tremendously to one another. Through a lot of the classes I took, the general theme running throughout is that deregulation will encourage foreign investment and privatization will encourage internal economic development. However, this reading helps me realize that there is a bigger picture to be considered. Without sufficient technologies, innovative knowledge, and proper education, the majority of people in developing countries may not have the right capabilities to make the best decisions. For example, privatizing the land in the agricultural sector may prove to be problematic if the market for land keeps on increasing in demand, while the demand for crops remain relatively stable. The incentive for farmers to produce more can also be problematic for this reason. With the existence of a general governmental body that can regulate the amount of crop produced and the area of land allocated, the level of poverty in the agricultural sector can be controlled and resources can be allocated to other sectors.
Yet, although development policies for each country can vary greatly, a lot of internal problems must be solved before drastic changes can be made. A country cannot thrive if corruption still occurs in the political sector. As corruption plagues a political entity, resources are not allocated efficiently, and the lack of trust in leaders prevents savings for investment. It is crucial that the government establish trust in society and clears up any corruption that is going on if they hope to make great economic strides.
One takeaway that for me, was very interesting is that the role of the government when it comes to the economy is always of the utmost importance whether the economy is more private-based or more public-based. It has been argued that the market will regulate itself to generate what is deemed most desirable by the invisible hand. However, more growth and more trade should equal more protection. As the market starts expanding and trade starts to occur in both greater quantity and quality, regulations must be in place to make sure that small players are protected, and big players don’t make detrimental decisions that impact both himself and the economy. Trade barriers although looked down upon by many economists are the government’s way of regulating capital inflow and protecting their own people’s job security. Resource allocation to other sectors also cannot be expected to happen naturally. As a country industrializes, less resources are going to be allocated to agricultural sector, further exacerbating the problem of poverty in rural areas.

[Anne Riter]

In Dani Rodrik's "Growth Strategies" provided a clear point of view that not every economic policy or suggestion that works for the western world works everywhere else. Essentially, no single policy is the correct policy, instead policy-makers, economists, and analysts must focus on the individual countries of focus.

I think this was a good supplement to our discussion in class of how, throughout the years, there have been different suggestions about growth strategies. This paper also highlights the fact that neoclassical economics doesn't necessarily mean less government involvement; rather, it means that each situation must be analyzed as an independent situation. The economics of China aren't the same as the economics of Chile, thus they require different answers to their problems. I found it interesting that two countries could do the same thing but have different results, especially the Asian Tigers and the Latin American countries. South Korea, for example, relied heavily on public enterprises and used a series of industrial policies. According to the Washington Consensus, they did 5 out of 10 of the suggestions. South Korea experienced incredible growth. Argentina, however, did more liberalization, deregulation, and privatization than South Korea did. According to the Washington Consensus, they achieved a majority of the points. However, Latin America's growth rate is still below its pre-1980 level. This suggests to me that although the Washington Consensus provides a guideline for economic growth, it's not the end all be all. If a country does everything on the list, it doesn't guarantee success, or sustained success for that matter. I think it was a good starting point, since it provided a set of suggestions about the reforms needed to "establish property rights, put market incentives to work, and maintain macroeconomic stability" (7).

I think the main point of this article is that for any suggestions to work, there have to be prerequisites in place. Just because a set of policies was successful in one country or even one part of the world doesn't mean that that same set of policies will be successful anywhere else. It's important to be aware of local culture, knowledge, and customs because all of those things influence the success (or conversely, failure) of the policies implemented.

[EC Myers]

I keep going back and forth as to whether or not I find the paper set-up of "Growth Strategies" with the Martian to be helpful or not. On one hand, I can appreciate that the author, Dani Rodrik, desired to describe economies of different nations in a less biased manner. However, I don't think this was done very successfully. The numbers that the Martian chose seemed very arbitrary. While each one was explained by the state of that nation's economy that was being graded, there was not a point system, or anything similar, to have pulled these numbers from. The concept of a martian being somewhat foreign to economics as a whole did prove to be helpful for someone like me, whose understanding of basic economics is moderate at best. "The martian would also be led astray" certainly describes my feelings when reading papers about certain economies (5).

Moving on, I found this paper thoroughly interesting. He crammed a lot of examples of different types of growth (both successful and some unsuccessful approaches) in a relatively short, comprehensible paper. While it answered some questions, it left many remaining. Primarily, I don't understand how a country is supposed to go about choosing one (or a combination of) these strategies. While Rodrik acknowledges this in saying that the governments must be of a certain type and the current state of economy must be of a certain type, what do you do if that is not the case? And even if it is the case, which portions of policy should you utilize the orthodox point of view? And for which portions should you utilize unorthodox approaches? (considering a combination of them is what Rodrik declares can be successful. I'd love to talk about this more in class to hear other students' perspectives on orthodox vs unorthodox approaches.

[Prakriti Panthi]

We read about false paradigm for class on Tuesday and Dani Rodrik's 'Growth Strategy' really brought the concept to life. Rodrik discusses how economic development doesn't require one particular institution. He writes that growth is not only dependent on privatization and open market, there are other policies, other institutions, sometimes completely unorthodox, that can drive growth e.g. China. He brings forward a very important point that the developing countries should not be blindly replicating the institutions of the western world. Developing nations already have institutions set up. What needs to be done is that they need to be worked on. Without considering the historical, social and political context, we cannot say that a policy or institution framework that worked in one country will work in another and will not cause dire consequences. A country that is poor, like Nepal, is also very susceptible to political influence from other powerful countries, like China and India. I wonder how neighboring countries and adjoining power politics that comes with it has influenced countries like Nepal in the past to replicate/not replicate a policy/strategy.

Rodrik also distinguishes between igniting and sustaining growth. He says that sustaining growth is much harder than igniting because sustaining requires formation of institutions that 'maintain productive dynamism and generate resilience to external shocks'. Since we have been discussing in class how developing nations are stuck in a trap, I wonder if getting out of the trap implies that counties have found a way to sustain growth.

[Kristina Lozinskaya]

The “Growth Strategies” by Dani Rodrik intrigued me from the very beginning when he began the paper with two conflicting quotes of an American economist Arnold C. Harberger. What is striking about the quotes is not that they are contradicting each other since one states that countries have to follow the policy tenets of the “professionals” to succeed and another asserts that there in general aren’t that many great policies that are said to improve growth, but that they are made by the same person – only 18 years apart. “What could have changed his mind so drastically and so fast?” – was the first question that my initial confusion prompted, but then I drew a parallel with how in class we tried to wrap our heads around the tremendous diversity of theories of growth and development the evolution of which stimulated the emergence of more of the new theories with every decade, and I realized that in 18 years, a lot could have happened, so it shouldn’t be surprising that Harberger basically refuted his own statement from the past. People change their minds all the time, they give up stuff that makes no sense anymore and at the same time start believing something that they think is reasonable, and all of that depends on what’s happening around them, in other words, context. Keeping that in mind from the very beginning, Rodrik’s argument that even the simplest economic policy recommendations are “contingent on a large number of judgment calls about the economic and political context in which [they are] to be implemented” resonated with me because in life, our judgments are invariably based on the context (and if they are not, well, then they should be or else we are very limited in how just we can be). This paper thus opened my eyes to the fundamental challenge of development economics which is the incredible complexity of the existing economic, political, historical, and cultural context of every country that makes it so difficult to make generalizations and issue specific recommendations for the good of all. There is not really a much sought-for recipe for success: examples of the East Asian tigers’ policies, China and its TVEs, India’s gradualism, and even Mauritius’s export strategies that Rodrik explores in his work (which, by the way, in comparison seems to be much more comprehensive than the “Institutional Barriers…” paper that so superficially looked into most of those countries as well) and their deliberate departure from what used to be considered the rule-of-thumb practices of good economics as outlined in Washington Consensus prove that pursuing “non-standard practices in the service of sound economic principles” really works and works well if you tailor it to the specifics of a country. Just like that, Latin America’s “lost decade” and Sub-Saharan Africa’s collapse emphasize that playing by the good rules will not always let you yield the benefits.

Rodrik also makes a good point that emulating other states’ successful policies often fails (consider Soviet’s attempt at imitating China’s Household Responsibility System – the case that I would also like to learn more about). Why? Because so much depends on the context. And so the immediate implication, as Rodrik puts it, is that growth strategies require considerable local knowledge (very encouraging for economists to do their “homework”!) and a certain amount of policy experimentation. I would like to tie it with one of the comments that I made on the previous blog: after the Chilean “Chicago boys” story mentioned in “Institutional Barriers…”, I wondered if sending a bunch of talented economists into a country will help boost its economy, and if yes, then why don’t we just do it, especially since this paper also mentions that Chile was relatively more successful than other Latin American countries in that it also slightly departed from the orthodoxy of Washington Consensus. Adding to that, Rodrik’s mocking of an undoubtedly virtuous and well-intended economist’s reasoning in China and even the thought experiment with the Martian demonstrated to me that, once again, in order to make sound judgments, we need to study hard and pay as much attention to details as possible, and after we gain the knowledge, we should do our best to decide if conforming with the general “rules of good behavior” is worth it or not. Of course, “Chicago boys” in Chile managed to improve its economy. After all, there’s a lot of homework assigned in UChicago.

*I am extremely sorry that it is a very unnecessarily long comment, but I also wanted to share this really interesting and short article by The Atlantic that discusses how China soon might start having some serious economic problems because of the issues with demographics and the aging population. I was shook because the statistics look really gloomy! Considering how much we’ve talked about the progress that China is making, I thought it might be interesting for some to look at the flip side of it and what the future holds: https://www.theatlantic.com/magazine/archive/2016/06/chinas-twilight-years/480768/

[rrirwin]

Rodrick’s paper stresses that there is no singular approach in finding effective economic development policies. He defends the coordination of the public and private sectors to strike a balance in economic policy. Rodrick emphasizes how each country is unique and requires different strategies for growth.

I found this paper both parallels and contrasts Krugman’s “The Fall and Rise of Development Economics.” Assuming that liberalizing, deregulating or privatizing economic policy (the Washington Consensus) will automatically lead to growth, in any country, is similar to assuming that a model is a complete representation of an economic reality. Inevitably (and unfortunately), no economic model or policy can account for constantly changing exogenous variables. More often than not these variables will negatively affect what could’ve been a beneficial policy or a model. For example, Rodrick addresses how the investment climate in Latin America in the 1990s didn’t produce its anticipated growth. Avoiding the meticulous details when implementing policy creates a loss. This idea is also reflected in Krugman’s African map example. In other words, what’s loss in translation—i.e. a policy or a model—matters in some way or another. However, each author claims opposing viewpoints in regard to generalizations. Krugman identifies the dangers of avoiding models because of their assumptions and generalizations. Rodrick does the opposite. He warns against the use of generalizations in finding appropriate economic policies. He encourages a balance of government involvement and market liberalization, rather than generalizing that one is more sufficient than the other.

[MarkLamendola1]

After reading Dani Rodrick’s paper Growth Strategies, there were two related themes that stuck out to me, the patterns for successful growth and the means and policy by which this growth comes from. According to Rodrick and his insights on the growth data over the past 50 years, he argues there is in fact a broad recipe that stimulates growth; he describes some of these as property rights, market-oriented incentives, sound money, and fiscal solvency – all of which are ideas that stem from a more orthodox, neoclassical approach. To stimulate an economy to grow these are the things that traditional economists say need to happen and is also what is seen in the data. The theory and model match up to what is seen in the world. What Rodrick then goes on to say is that the means to carry these things out does not have to align with the principles of the classic “Washington Consensus”.
I find this point to be very interesting. There are seemingly infinite ways to carryout the broader orthodox needs for growth; many of these may fall under the policy strategies that do not align with the “Washington Consensus, but have been shown to be very effect at sustainable growth. Rodrick uses China as an example and their decision to give land rights based on family size and to pay farmers on the margin after they have met their obligatory yield to the government. To me that seemed like an ingenious idea, even though traditional economics would have prescribed something else. This perhaps gives some insight into the discipline of economics. We briefly mentioned in class how Sen was solution oriented and not affiliated with any political agenda. It could be that many economists and policy makers are too narrow focused on traditional and complex ideas rather than being open minded problem solvers looking for the simplest solution. I am not exactly sure what this tells us but I do think the short sightedness that strictly adheres to orthodox models can be harmful and we need to understand there are different ways to solve problems.

[TevinPanchal]

"Growth Strategies" was a very interesting read that I really enjoyed. What stuck out to me the most which has been a common theme I have been trying to explore is that their is no one right way for a country to just develop. Sure theyre are several blueprints of countries that have prospered and developed over the years but the strategy that they used may and probably wont work for other countries. Finding the way to develop is the problem because theyre is no set of steps that can just develop a country.
For example South Korea and Taiwan relied on public enterprises for their development when up until this point the key to development has been changing the country from the agricultural export front. Overall I just think theyre are so many different keys to developing a country and finding the perfect way to bring it all together to actually help the country develop is very hard.
Another thing that was interesting to me was the Household Responsibility System. Certain things like this that actually help a country like China would never work in other places because the people would not go for it. It seems like for big change to actually happen the changes have to come from policies and from the top of the government.
Development is something that does not have a concrete blueprint but theyre is a general path to follow, countries have to take individual steps along that path to actually prosper.

[Caroline Florence]

“Growth Strategies” by Dani Rodrik emphasizes that there is no single policy approach that will solve the world’s development problems. If there was, alleviating world poverty would be a lot easier. This made me think about how important it is to understand a place’s culture, history, size, government, and economic makeup before making policy prescriptions. China was a great example of this. Instead of following the Washington Consensus, China took a different approach and was very successful. They used non-standard practices to produce tremendous growth. Although a country cannot experience major growth without some sort of adherence to what Rodrik refers to as “high-order principles of sound economic governance,” there are many different ways of getting to this.

I think that we sometimes simplify policy solutions because they make logical sense in the neoclassical framework. In reality, the world is a lot more complicated and what works for one place might not work for another. I thought it was particularly interesting that Rodrik referred to reform as an “art” of choosing from “a potentially infinite menu of institutional designs.” I do think that neoclassical models give us useful insight about economics, but certain conditions must be met for these ideas to work. Before choosing a policy, it is important to look at the potential ceteris paribus violations that place might make a policy less effective in that place. Moving forward, I hope policymakers become more focused on this idea and less focused on results of a model.

[Lucas Flood]

Dani Rodrik’s “Growth Strategies” is, for the most part, an excellent analysis of various methods to economic development. I found Rodrik’s compare and contrast exercise between China and other East Asian nations in the context of non-standard practices to be interesting. Rodrik makes a persuasive argument about the unorthodox methods of achieving orthodox results. However, I was left unconvinced that China could not have been better off under a plan closer in nature to “best-practice” strategies. From a human capability perspective, the strategies adopted by South Korea, Japan, Hong Kong, and Taiwan certainly allowed individuals far more personal freedom than China’s strategy of limited property rights, very few political rights, and few opportunities for economic mobility. I find it concerning that Rodrik simply concludes that other strategies would not necessarily have worked better. While that is technically true, the argument is disingenuous, for the simple reason that it implies that China could not have done better. Between a failure to uphold human capability on a broad scale and China’s environmental problems, China certainly could have developed a better economic growth strategy. In Rodrik’s defense, he returns to the example of China when discussing the challenges of continuing economic growth, surmising that China will more than likely need to improve its institutions in order to guarantee future growth. Additionally, Rodrik’s conclusion is very persuasive. In true Econ 280 style, Rodrik concludes his article arguing against unconditional generalizations of economic policy. For Rodrik, the debate between central planning and laissez-faire approaches to economic development has a simple solution: it depends.