Couldn’t agree more Dani – again!

From Dani Rodrik’s weblog.

. . . As I was reading a paper by Raghu Rajan, for which I am the discussant in the annual meetings of the American Economics Association, I realized how much I had moved away from this kind of literature. Raghu’s paper is squarely in that “old” political-economy tradition: it asks why countries do not reform and why underdevelopment persists as a result. His answer is a twist on the traditional story: the problem is not so much a narrow set of elites that want to maintain their rents at the expense of development, but the non-elites who want to maintain theirs. . . .The reason I stopped writing this kind of papers is that I . . . became a lot less convinced that we had the right fix on what the requisite reforms were. If you think you know the answer to what every country needs to do, the interesting question becomes why everybody isn’t already doing it. But if you don’t, you are back struggling with the narrowly economic question of what countries ought to be doing.

In any case, I think the experience of the last quarter century renders the traditional rent-preservation explanation for why reforms are not undertaken difficult to believe. The most successful reforms of the recent past–those in China–were explicitly designed to preserve pre-existing rent streams. If you can get 9% growth while keeping entrenched interests happy, distributive concerns cannot possibly be the problem. And where reformers took on these rents–think of Pinochet’s attack on organized labor and protected industries–the economic result was typically a disaster.

So while traditional political economy accounts surely explain some of the pattern of policy making we observe, I don’t think they take us far in understanding why some countries grow and others don’t. In my book, there are lots of $100 bills left lying on the pavement. The purpose of political entrepreneurs is to pick them up, and that of economists to point out where they are.

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Nabakov
Nabakov
13 years ago

That was a good piece with some great lines

“In my book, there are lots of $100 bills left lying on the pavement. The purpose of political entrepreneurs is to pick them up, and that of economists to point out where they are.”

Yowsah!

but he could have gone further in pointing out the growing gap between political economy as applied to nation states who are all part of a globalised economy to one extent or another and so often find their centralised macro levers constrained and the rise of regions and city-states that can better work around and with these macro issues to harness local strengths in a way beyond how national economic doctrines and regimes are applied. Shanghai, Milan and LA probably have more in common with eachother thes days than they do with Gui Zhou province,Palermo or Bakersfield.

Francis Xavier Holden
13 years ago

Talking about Bakersfield. I just bought “Dwight Sings Buck” . Ain’t much wrong with the Bakersfield Sound that I can offer advice on.

Francis Xavier Holden
13 years ago

I certainly wouldn’t advise them to “Close Up The Honky Tonks”

observa
observa
13 years ago

The answers suggest multifactorial. Is it average IQ? Asia cf Africa, Israel cf Arabia, White Australia cf Black Australia? Is it tribalism? Does tribalism actually foster low IQ on average and resulting poor outcomes? Can the shortcomings of tribalism be overridden producing better outcomes overall? eg Rhodesia cf Zimbabwe. Still, we’d better not ask these questions because we really don’t want particular answers, as they get in the way of clarity.

observa
observa
13 years ago

Of course we Anglo Saxons were pretty tribal once upon a time and it’s interesting to speculate as to what makes a tribe develop from the mindset of ‘my tribe right or wrong’ to the mindset of ‘hey that other tribe has something to offer our tribe’ and hence the path to overall development. You mentioned the biggest modern tribe of all in China and clearly they’re going through the process of changing that mindset now. Mind boggling really. The size of the tribe doesn’t seem to matter, nor the place or time.