TYLER COWEN: Not long ago, a journalist called
me up and asked me, “Whose papers do you look forward to reading more than any others?”
My answer, without really hesitating, was Dani Rodrik. He’s our guest today. He’s arguably the
world’s leading and most important economist on trade, globalization, industrial policy,
and lately the prerequisites for liberal democracy. His new book, which I’ll mention again,
Economics Rules — that’s spelled R-U-L-E-S. Why should I not read my own blurb? Quote, “The best economists make the best
methodologists, and Dani Rodrik is both. His Economics Rules is the single best source
for explaining the strengths and weaknesses of economics to an outside audience.” On premature deindustrialization We’re
going to start this conversation with some questions about some of your recent papers
on this topic of premature deindustrialization. I find this one of the most interesting themes
in your work. The notion that a mix of automation and competitive trade with wealthier nations
might mean that poorer nations today will not be able to industrialize and follow the
path of South Korea or Taiwan or Singapore. Now, if this is the case, if a lot of economies
out there are deindustrializing prematurely, before they’ve built up a significant middle
class, what do you see happening, for instance, for the future of Africa? The parts of Africa
which do relatively well, but let’s say they do not industrialize. What does that
future look like in your vision? DANI RODRIK: I don’t think it means that
there is a very bleak future for the countries of sub-Saharan Africa. I just think that is
going to be very difficult, if not impossible, for them to replicate the very rapid convergence
experience of East and Southeast Asian countries. If you look throughout economic history, the
countries that have made that very rapid leap into middle income and beyond that advanced
country status, starting from the non-Western countries first, Japan from the late 19th
century onward, and then after the Second World War, South Korea, Taiwan, and then eventually,
of course, China, along with a number of countries that did more or less the same in the periphery
of Western Europe, closer to Western Europe. The one thing that’s common in all of them
is very rapid industrialization. With very rapid industrialization, you can get growth
rates on a per capita basis of 4 or 5 percent per year on an ongoing basis for decade after
decade. That’s sort of what’s made South Korea what it is today, in that kind of rapid
growth. But that’s, if you will, a very exceptional
kind of experience. I think if the possibilities of rapid industrialization are no longer there — as
you suggest, I think they are no longer there — what we’re going to get is slower growth. What I call growth is based much more on the
steady and hard work of accumulating basic capabilities, human capital, skills, institutional
improvement. All of those things that are required for the long run, but don’t produce
the kind of 4 percent, 5 percent growth on a per annum basis, as we’ve seen in those
rapid growth countries. COWEN: But say, let’s think of it from a
political economy point of view. South Korea has done very well exporting, and that created
for them a set of interest groups which were willing to fund that infrastructure, bring
the whole country together so to speak. You end up with a middle class being built
rapidly. That middle class is the foundation for a democracy. The special interest groups
behind the infrastructure, it’s clear who they are. They win almost every political
battle, even without a democracy. You see some version of the same in China. The countries that don’t industrialize,
could you imagine them having an ongoing kind of ramshackle existence where consumer goods
flood in at cheap prices? They grow at 4 percent instead of 10 percent. But Lagos, in a way, always looks a bit like
current Lagos and never looks like Seoul, South Korea. What’s even a developed country,
maybe, in some fundamental psychological sense, changes? RODRIK: I think what matters here is probably
less the quantitative side, how rapidly you’re growing, but the qualitative things that are
happening during the growth process. You have to bear in mind that there are archetypal,
successful industrialization growth, liberal democracy kind of countries in fact, never
experienced the kind of growth rate that Japan and South Korea or China did. In the aftermath
of the Industrial Revolution, Great Britain was growing at rates that we would scoff at
today for any emerging market. So, it wasn’t the growth itself that enabled
the development of the middle class and the emergence and the spread of liberal values
and the creating of the liberal democracy, but the transformation of the economy and
its social structure in a particular kind of way. If you will, the spread of bourgeois
liberal values, the restraints placed on the state in terms of how much it could do and
under what kind of circumstances. [I]t wasn’t the growth itself that enabled
the development of the middle class and the emergence and the spread of liberal values
and the creating of the liberal democracy, but the transformation of the economy and
its social structure in a particular kind of way. If you will, the spread of bourgeois
liberal values, the restraints placed on the state in terms of how much it could do and
under what kind of circumstances. You’re right that in countries like Nigeria
and many others, which have had very rapid population growth, where the urban areas have
swollen with people from the countryside. I think managing these kinds of tensions,
especially when you’re in a sort of open economy and the markets are being flooded
by cheap consumer goods from elsewhere, managing these transitions are very difficult, especially
since these countries, and Africa, of course, particularly so, are torn apart by a number
of additional cleavages of ethnic, language, regional, tribal, and so forth. Those are
all things that are making it very, very difficult for these countries. I’m not so sure that rapid growth would
necessarily have eliminated these kinds of problems. In some ways, it might even aggravate
them. Think, for example, that in the Arab Spring,
the kind of troubles and the riots that started the Arab Spring, arose not in those parts
of the Arab world which had had the least amount of development but, in fact, in those
countries like Tunisia and Egypt which had had the most rapid development. It wasn’t just GDP growth, per se. Tunisia
was always an exemplar of improvements in human and social development. COWEN: Civil society. RODRIK: Civil society, improvements in health,
improvements in education. Of course, it was an authoritarian regime, but you had the UN
development program, the World Bank touting the Tunisian example of in the Middle East
as an Arab country that had done very well. I think it’s less the rate of growth and
then what is happening underneath that in terms of the overall structure. There you
have many, many different paths that are possible. One of my favorite economists is Albert Hirschman.
For a while, two years, I occupied the chair that was named after him at the Institute
for Advanced Study. He coined the term of possibilism, which was
the notion that as much as in social science you think you want to generate theories that
are deterministic theories of . . . you have industrialization and then the urbanization
and then the bourgeoisie. That’s going to generate capitalist democracy and so forth. A lot of what happens is just maneuvering
around the constraints that geography and history have bequeathed and doing things that
otherwise might not have seemed possible. If 50 percent is driven by exogenous conditions,
50 percent is still basically in your hands is one way of looking at it. I always look for things in how you can manipulate
and maneuver the context in which you find yourself in. I think those possibilities always
exist. COWEN: Let me try to pin down a fundamental
aspect of your thought that I see running through a lot of different papers. That’s
the idea that there’s something special about manufacturing. As I understand you, if you do industrial
policy and you get the right kind of manufacturing that puts you on a better path. Your papers
on productivity convergence — once you’re started in manufacturing, according to your
data, you get bigger ongoing gains than you do an agriculture. Catch-up in agriculture
is especially slow. I find this intuitively plausible but if we
try to ask at the most foundational level, what is it exactly that’s the difference
between agriculture and manufacturing which accounts for this? What are the microfoundations
of where that comes from? RODRIK: I think a couple of things. One is
that manufacturing technology is much more easily transportable across international
borders. It’s much easier to adopt and adapt manufacturing technology. You can take a textile
and clothing plant. You still have to tinker with it, but it’s much easier to transplant,
unlike many agricultural technologies. We’ve seen that, for example, in the case
of the Green Revolution. It required a lot of on-the-ground adaptation because the weather
and soil conditions can be very different. If you will, the non-traded component of that
technology transfer is much greater in agriculture. For that matter, it’s also in services.
You can figure out how to run a hospital system or education system in an advanced country.
You’re never going to be able to just take that and transplant in a developing country
because, technically speaking, the non-traded component of that technology, or the latent
part of the technology that requires that adaptation to local contexts. COWEN: So it’s about the people and the
culture? RODRIK: I wouldn’t say it’s the culture.
In the case of agriculture, it’s the soil and the weather. I don’t want to say that
some people are lazy and, therefore, they’re culturally not predisposed to this. I’m
just saying . . . TYLER COWEN: That we see it in services suggest
the weather and soil may be part of it but they can’t be driving it. RODRIK: No, no. In services, I’m saying
a lot of services have been very difficult to transplant. For example, mobile telephony
has been very easy. It stands out as one area. But most services are basically figuring out
how to do education and health. . . COWEN: Or a good health care system. RODRIK: Exactly. COWEN: That seems to make it culture. RODRIK: If you want to talk about culture,
let’s open up a big parenthesis and get into that. I don’t know exactly where institutions
and organizations and incentives move into a domain where we start calling it culture. Culture is back in economics. I still have
to be convinced that it’s actually adding a significant amount to what we learn. Culture is back in economics. I still have
to be convinced that it’s actually adding a significant amount to what we learn. Let me get back to the question about manufacturing.
One thing I said is that it’s much easier to move technology. If you’ve seen the way
that Toyota manufactures cars in Japan or in the United States or in South Africa, it’s
more or less the same. That is possible. The second thing, which I think is the microeconomics
of why it is that manufacturing is so special is that manufacturing, standard, traditional
manufacturing like making cars or garments or toys or wigs, has the feature that you
can absorb a lot of very unskilled workers into that. Being a production worker, even
in an auto factory, certainly in a footwear factory, doesn’t take a whole lot of skill. That means that you can absorb a lot of people
off the countryside in a much more rapid way than you could in a lot of other activities
where technology and skill are actually highly complementary. I heard once a Chinese entrepreneur telling
me that she was running a footwear factory and she was hiring people from the countryside
when the industry was starting. Basically, the only skill that was required to get that
thing going was not whether they could read, not whether they were numerate, but basically
whether they could do this with their hands. Basic eye-hand coordination is all the skill
that was required. You could put thousands of people into these factories. The fact that
you can absorb a lot of people, you can increase their productivity threefold, fourfold off
the farm by putting them in these factories is an opportunity that very few other economic
sectors provide. A third, and I’ll just mention it. A third
thing, which is very important in manufacturing, is tradable. You don’t have to develop a
whole industrial complex. You can import inputs and then export the outputs. You don’t require domestic demand to take
off. You don’t require an economy-wide productivity revolution in order to have consumers to whom
you can sell your output. You can simply sell it on world markets. What that means is that it’s enough to develop
mastery in one segment of manufacturing at a time. That provides the kind of engine that
you need. Compare that with the kind of transformation
you need in services where most of the output has to be sold domestically. You need basically
everybody’s incomes to grow, every sector to experience a productivity increase so you
have a large enough market that you can sell. Otherwise, any service sector that is doing
really well eventually is going to experience very rapid terms of trade deterioration domestically. Those things, the transferability of the technology,
the fact that it can absorb a lot of unskilled workers — traditionally, this is what’s
changing — off the countryside, or out of informality and tradability I think is
what makes manufacturing, historically has made it special. COWEN: A question about industrial policy.
I think we would agree in a number of the East Asian Tigers, industrial policy has worked
out pretty well. But take the case now, there’s premature deindustrialization going on in
many countries. It might be hard to reverse. Richard Baldwin writes of the splitting up
of supply chains. So South Korea and Japan had relatively integrated supply chains. Now,
the supply chains are all around the globe. In a time like this, where manufacturing is
changing rapidly and policy itself is subject to a status quo bias, as we know from your
own writings, what do you think is the new role for industrial policy, if any? Should
we today, perhaps, not be more skeptical about it than we were, say, when Singapore started
it? RODRIK: I think the answer to your last question
is yes, although I wouldn’t say we should be more skeptical. I think we should expect
lower return to it, is what I like to say, simply because I think the possibilities of
industrialization in the sense that you could put, in the old days, 30, 35 percent of your
labor force into manufacturing — that is not going to happen. Sub-Saharan Africa
will not get there. What that means is that the returns to even successful industrial
policy these days are less. That has a couple of implications. One is
that, increasingly, I think we really need a different term. We shouldn’t say industrial
policy. Maybe we should talk about a structural transformation policy. Your perspective in
terms of how do you get to rapid transformation. You should move away a little bit at the margin
from manufacturing into other parts of the economy. I think you should be thinking more about
services, as well. A lot of services are tradable. To some extent, some of the advantages might
exist in tradable services, as well. The other thing which I think a lot of . . .
a common mistake in industrial policy that low- and middle-income countries do, which
is to look at industrial policy or criteria for success of industrial policy in terms
of output, exports, innovation, R&D, patents, and things like that. Whereas I would put
a lot more emphasis on actually employment. The question is, are you generating adequate
employment in these more productive industries that are oriented into world markets? Because
the kind of industrial policy that ends up generating profits and investment and R&D
in a low-to-middle-income country, but at the same time your employment is shrinking,
is not going to be the kind of high-return activity for the economy as a whole. I think you’re basically right. I go around
these days a lot less advocating for very forceful industrial policy, in large part
because I do think that the returns to it have fallen. I think also we need to think
through a lot more what it should look like in a world where in fact we are concerned
at least as much about services as manufacturing, even in the middle-income or low-income countries. On “trilemmas” around the world COWEN:
Let me introduce one of your best-known ideas. It’s sometimes called Rodrik’s trilemma
of the world economy. Here’s how one of my readers defined it. “According to this
theory, democracy, national sovereignty, and global economic integration are mutually incompatible.
We can combine any two of the three, but never have all three simultaneously and in full.” Given that, which I would agree with, if we
take the eurozone today, something clearly isn’t working. I don’t mean just Greece.
But every now and then we have of a nascent recovery, and the recovery’s over before
it really has even gotten underway. The eurozone is now sliding back to deflation. France,
Italy seem to be slow-growth countries permanently. Let’s say it’s up to you. Given Rodrik’s
trilemma, what should the eurozone do? RODRIK: Academically, it’s very easy to
give an answer. It’s what the trilemma suggests. That Europe or Europe’s policymakers should
decide whether they want . . . COWEN: But they ask you. We’re about to
decide, Professor Rodrik. Please tell us which one to give up. RODRIK: Tyler, as you know, we’re very good
about, our job is to lay out the tradeoffs, but not to decide where we want to be on those. COWEN: But you as a citizen. Say you’re
a European . . . RODRIK: I’ll tell you that too. Let me answer
the first question. The first question is I as somebody who cannot put my . . . if
I cannot put myself in the shoes of the European electorate, European citizenry, I say the
choice is very clear-cut — either more political integration or less economic integration. That’s the choice that . . . assuming
that we don’t want to give up on democracy. If we want to subject to the constraint that
we want Europe to remain, or regain its thriving democracy, then this is the inescapable choice
that the trilemma points to. Which is to say, you have to decide whether you’re going
to politically integrate, and if you’re not going to politically integrate, you have
to figure out a way of economically beginning at least some of this integration. That means
losing the monetary integration in particular. Now, you ask me which would be my preference.
My preference certainly would have been before this crisis or well into the crisis, a year
or two into the crisis, would have been this is the opportunity where you just basically
go to your electorates and say, “This is why we need to federalize Europe. This is
why we need to politically integrate. This is why we need not just banking integration,
but we also need a significant amount of fiscal integration, and the creation of pan-European
political space . . .” COWEN: That’s your first choice is full
steam ahead with integration. RODRIK: I would be full steam ahead with political
integration to back up the significant amount of economic integration that already exists. COWEN: But now, you’ve seen three or four
more years. We know one of Rodrik’s principles is economics is almost always about the 2nd,
3rd, or 17th best. What do you choose today? RODRIK: I’m afraid that, and I say this
very, very reluctantly, that I do think that for a number of countries at least, that a
loosening of the restraints of monetary integration, of a common currency. COWEN: So you’d create a graceful path out
of the euro for some nations. RODRIK: Well, of course, that’s the difficulty,
because it’s very difficult to figure out what that grace, if in fact that graceful
path exists. But yes. Laying that aside, those transitional costs aside, I think at this
point I just do not see the kind of . . . European integration was always an elite project.
European integration was never something that the people demanded, and then the leaders
said, “OK, we will do whatever you ask.” But it was always an elite project the governmental
leaders sold to their population, to their electorate. European integration was always an elite project.
European integration was never something that the people demanded, and then the leaders
said, “OK, we will do whatever you ask.” It was always an elite project the governmental
leaders sold to their population, to their electorate. I think what happened with the euro crisis
is that somebody like America, instead of going out and saying, “Look, this is not
a crisis of . . . it’s not a moral issue, that here you have a profligate country that
we need to discipline. But this is really a crisis of interdependence. That it was as
much a German problem or German banks that are the source of the problem as the Greeks
who borrowed, or the Spaniards who borrowed.” That line was never put forth to the German
population. It was always become the moralistic narrative of the North versus South. I think
that’s where the political elite failed in Europe. I think with that, it’s very
difficult to see now how you’re going to undo that in Europe, unfortunately. COWEN: Let’s say you’re China. You’re
on the ruling council. They haven’t even discarded democracy yet. Maybe they’re sitting
in Rodrik’s bilemma or dilemma, whatever it would be called, and they’re trying to
maintain capital controls. But there’s more phony invoicing all the
time, exports running through Hong Kong. A lot of chicanery, people trading money out
through bitcoin. A lot of leakage. In the last few months, they’ve spent three or
four hundred billion of reserves, that’s real money, trying to keep the value of their
currency up. It still doesn’t seem to be working. In the past, you’ve argued eloquently capital
controls often make a good deal of sense. Their capital controls now, should they double
down and defend the value of the yuan at all costs? Or should they let it go, open up the
capital account, and see what the new value of the currency will be? RODRIK: I don’t think this is . . . COWEN: You’re in charge, again. RODRIK: I would not do anything hasty on the
capital controls front at all. I don’t think that the Chinese have mismanaged this as badly
as often it is described in the financial press. COWEN: I agree with that. RODRIK: I think that there was a run up in
the stock market and then they were, they did a bunch of things to try to prop the bubble,
and eventually they did, and maybe it went a little bit too far. But they did more or less the right things
in this whole process. They’ve allowed the currency in the last few years to move more
freely. They’re true to their policy roots, which have paid off very handsomely over the
last three decades. I think the last thing that we outsiders should
do is second-guess the wisdom of Chinese economic policymaking. We’re talking about the country
that has engineered history’s most miraculous poverty reduction program ever. COWEN: Let’s say another $300 billion of
reserves go out the door to keep the peg. Your phone rings in Cambridge, Mass. . . . RODRIK: You’re starting from $300 billion.
It’s nothing. It’s just a drop in the bucket. Why did they accumulate those reserves
to begin with? Obviously, yeah, it’s not like they’re running out of reserves. That
is not the issue. If they weren’t losing some reserves, that’s part of the optimal
adjustment. If you ask me, “Tell me why I should be
worried about China?” I can give you real reasons why you should be worrying about China
relating to the fact that they in fact have both a huge political transformation ahead
of them, as well as a huge economic transformation. The political transformation being the one
of having to open up eventually, become more democratic, and we have no idea how they will
manage that. The economic transformation, which they have
not really gotten underway seriously — they’ve started, but it’s really, they are at the
very beginning — it’s hard to turn into more of a domestically consumer-oriented,
less investing, more consuming kind of economy, and less dependent on the world market. Those
are hugely challenging problems. Managing the currency right now, and the financials.
There’s the stock market, which is a tiny, tiny part of the Chinese economy. It pales,
I think, in comparison to those bigger issues. COWEN: Let’s take Milton Friedman’s dilemma,
which is in a way an early version of Rodrik’s trilemma. Friedman argued there was a natural
tension between high levels of immigration and the welfare state. You see this quite
sharply now in Western Europe. In some ways, you see it in the United States, even though
our immigration has not been up lately. But the tension is there. If politically it turned out that you had
to choose at the margin, cutting back immigration or cutting back the welfare state, you as
a citizen, the economist cannot say. But what are your thoughts on that? RODRIK: I start from the supposition that
borders matter. Borders have moral significance. I accept the notion that let’s say we as
a democracy or our citizens don’t necessarily put the same weight on somebody on the other
side of the border as they do somebody who’s their neighbor or share the same political
system. COWEN: But you can, if you choose to. RODRIK: But I can if I choose to. The question
I ask myself is this. Let’s suppose that the tradeoffs are, let’s suppose is as you’ve
put it. Which is that we can allow some people to come in, and those who are coming in are
going to be better off, potentially at the cost of some of my own conationals being worse
off. My answer is that, at the margin, this is
a relatively easy question to answer. Because I say, “OK, how much weight would I have
to place on somebody on the other side of the border, relative to somebody on my side
of the border, for me not to let that person in?” If you do the calculation, which I
have done recently, which is to say . . . Let me be clear about what I’m saying. I’m
asking the question, under what kind of weighting of outsiders would it be a bad idea for me
not to let some more people to come in? The answer is that I would have to put a weight
of less than one-fifth of somebody on the other side of the border compared to somebody
here. Then I say, look, I might understand that
it’s reasonable to say, “OK, maybe I care twice as much as somebody who’s my neighbor
as somebody who’s not,” but five times as much? I’m not so sure. That seems excessive. Given how restrictive and how high these barriers
are at the moment, at the margin, to me it’s a relatively easy answer. Which is to say,
yes, at this point, it makes sense for rich countries to take in more people from the
poor countries. Given how restrictive and how high these barriers
are at the moment, at the margin, to me it’s a relatively easy answer. Which is to say,
yes, at this point, it makes sense for rich countries to take in more people from the
poor countries. To put it in a somewhat, to draw an analogy
between the trade regime, what has happened in terms of trade liberalization and the migration
regime, the migration regime today is more or less where the trade regime was back in
the 1950s. Back in the 1950s, the global gains from further liberalizing of trade relative
to the income distributional costs within countries and so forth was relatively huge.* I think the migration regime is somehow back
there. We need to rationalize it and liberalize it a little bit more. I’m evading the tougher
question, of course, which is where would you stop? It’s easy for me to answer at
this point — the regulations are too restrictive. But where would you actually stop? I would
certainly stop at a point where the integrity of public institutions and the welfare systems
of the advanced countries would be seriously threatened. But I don’t know where that
is. COWEN: I would say today Germans are a relatively
cosmopolitan people on the world stage. How well will the absorption of 800,000-plus Syrians
go in Germany? What is your opinion? RODRIK: I think they have absorbed more Turks
over the 1960s and 1970s, and look at the German national team. COWEN: If you grade that on a scale of A to
F, how well has it gone, in your view? Turkish absorption into Germany? RODRIK: I think it’s gone actually remarkably
well. There’re certainly some lessons that could be drawn from that. I don’t know anybody
who would say that this has been a terrible mistake for Germany. I think they certainly
have enriched, leaving aside their economic contribution, they’ve enriched German life. I think that’s the most direct comparison
and analogue is what happened with the Turkish inflow of the ‘60s and ‘70s. That was
huge. I don’t remember offhand what the numbers are, but certainly it was huge, and
it’s worked quite well. On Turkey COWEN: You were born in Turkey,
you grew up in Turkey. I have so many questions about Turkey to ask you, but let me just try
two or three. Let’s take the Turkish city of Konya. I’ve been to Konya. Outsiders
sometimes call Konya the bible belt of Turkey. I’m not sure that’s a good comparison,
but it’s a more religious city than Istanbul. It’s a kind of heartland city in Turkey. Just a little simple question. I would put
it this way. Do you trust the median voter in Konya? If you think about Turkey’s troubles,
if Turkey were truly ruled by the median voter in Konya, to what extent would things be fine,
or to what extent is the problem it’s not really democratic enough? Do you see what
I’m asking? Because in some obvious ways, the current regime is not very democratic,
even though there are elections of a sort. But do you trust the median voter in Konya? RODRIK: I do trust the median voter in Konya,
as I would trust the median voter in any country. However, I think when you think about democracy,
it’s not just about the median voter. I think, and this is why I’m working on this
topic, on the question of liberal democracy. The things about democracy that we really
care about are just two-fold. One is that we want the median voter’s views to be reflected.
The second is we don’t want to allow the median voter to do whatever he or she wants
to the rest of the population. That’s why I think the constraints that
liberalism or liberal institutions, the rule of law, the constraints of non-discrimination
of minorities of ideological or ethnic or religious sort. Those are equally important
parts of well-functioning democracies. One thing that has happened in countries like
Turkey, which is actually a very widespread phenomenon around the world, is as the franchise
and elections have spread around the world, by the count of the Polity, which is this
group that keeps track of this, we have now more democracies than autocracies in the world. But they’re all electoral democracies. They’re
democracies precisely in the sense that you meant, which is that you have elections regularly
they’re generally free and fair. But what they do, however, is that they allow
the winners of those elections to more or less freely trample on the rights of those
who are not part of that winning majority. So the liberal element of that democracy is
really what’s missing. I’m all for empowering the median voter in Turkey or elsewhere, but
all in the context of rules and practices that ensure equal treatment of minorities
of all kind. That’s really the part that I think, for
example, the whole political economy literature on democracy has missed out on, because essentially
it’s just thinking about it in terms of elections and the median voter, not thinking
about it in terms of these restraints on what the median voter can do. COWEN: Thinking in terms of minorities, if
we go to the Eastern Mediterranean in times past, today’s İzmir was once Smyrna. It
was a fantastically cosmopolitan city. Greeks, Armenians, people from all over the Middle
East, Westerners lived there. It was for quite a while in harmony. The earlier Ottoman Empire
was quite a cosmopolitan place in many parts. Again, by its time, a fair degree of harmony. In the early part of the 20th century, that
changes very fundamentally. You have some very violent events, and it’s never gone
back. Do you think it’s possible for the Eastern Mediterranean to be an area where
these civil minorities have protection, or do you think the more monoglot version, Turks
plus Kurds, now plus refugees, is simply what we’re going to have? How do you think about that whole change?
A great, terrible, unfortunate development, or somehow, it’s a bit like the European
17th century. Great human tragedy, but a clearing out that enabled nation-states to in some
way move forward? RODRIK: The big change, of course, was nationalism
and the creation of the nation-state. I don’t think that the old order was a particularly
desirable one. It is one that of course significantly circumscribed what the Greeks or the Armenians
or the Jews or the other minorities were allowed to do in these multinational empires. It’s
not like this wonderful Ancien Régime that we can’t resuscitate. Of course, the forces of nationalism and the
creation of the nation-state moved us into this new world where I think what happened
in the Eastern Mediterranean as in so many other parts of the world was that you had
mobilization of the masses under a nationalist rubric relatively early in terms of historical
development compared to Western European countries. For example, in Western Europe you had liberal
ideas developed before the franchise became a mass franchise. In fact in Britain and Western
Europe, the liberals didn’t want — liberalism existed before democracy came into being. Whereas, of course, in the Eastern Mediterranean
and places like Turkey we’re trying to create liberalism, after you had a nationalist mobilization
and the creation of democratic-like regimes based on the mass franchise. It’s harder
to bring those ideas of tolerance, the separation of powers, the rule of law and so forth relatively
later in the game. That’s what’s happening. But it is not impossible. One of the places
that I like to talk about, in fact I talk about this in my latest paper on liberal democracy,
is the case of Lebanon in the Eastern Mediterranean. Lebanon until 1975 was a fascinating example
of — it wasn’t exactly a liberal democracy because it was based on these different groups.
They each had their shares in power and constitutionally they were each allocated . . . [crosstalk] RODRIK: But it was, political scientists writing
about Lebanon in the ’60s and ’70s talked about it as a liberal democracy. The reason
was because you had so many different groups, so many cross-cutting cleavages. You had the
Muslims and Christians, the Christians were between the Greek Orthodox and the Muslims
were between the Shia and the Sunni. There were so many of these cross-cutting
cleavages that they essentially had reached a modus operandi that no individual group
had this notion that if simply they could prevail, then they could rule forever. When
you don’t have that expectation, then you work out bargains with alternatives. Because
you are afraid of what the other side is going to do to you when they come to power, if they
have a chance of doing that. Of course, how that system came to an end
is also interesting, because once you had the massive influx of Palestinian refugees
from Jordan, that balance was upset. You now have one group that can, has potentially,
can see itself as having a majority for an indefinite period time, so no longer has to
essentially keep on with that basic compromise. That’s how the Lebanese consociational system
came to an end after 1975 with the civil war. But at least that gives you an idea of the
possibilities that this, I don’t think is cultural. I don’t think this has anything
to do necessarily with Islam. It’s not in the water. These things can happen. But you need this experience of learning to
compromise and to think that you need to be moderate in your policies because it might
be that some other group will rule after you. So that you have this, if you will, these
repeated game incentives to basically not discriminate against those not in power very
much. I can certainly come up with scenarios for
Turkey where this might have developed over time. I would have to blame successive mistakes
made by political leaderships at different times as to why this process has so often
been short-circuited. First, of course, the military by intervening
repeatedly and, therefore, short-circuiting this process of building up these habits of
regular change in power and therefore moderation and compromise developing. Of course, these
days with the government of Erdoğan, who basically has just chosen the tactic that
he’ll do anything to remain in power, including aggravate all the cleavages on the basis of
sect, on the basis of nationality, and so forth. COWEN: What then is the equilibrium with the
Kurds? They’re scattered across several nations. It’s a burning issue in Turkey.
Even with Kurdish circles there are multiple languages and different points of view. Do you see that is headed toward something
like Lebanon in its more vital, feistier time? Or do you see it going very badly wrong? The
Kurds, Turkey, and to some extent Kurds and Iraq. Will there be a Kurdish state, and is
there any equilibrium at all? RODRIK: I think it’s very unlikely that
there will be redrawing of the borders, formally. I see that as a very remote possibility. I
think there was a possibility that the Turkish government would have reached a modus vivendi
with the Kurds and some kind of resolution in the same way that the Basque problem in
Spain was resolved. COWEN: Is that resolved? RODRIK: They’re not asking for independence.
There’s not terrorism in the streets every day. I think in that way, I think, it’s
been . . . in that sense it’s been resolved. Whereas the Kurdish problem right now in Turkey
is terrible. Violence has flared up again and so forth. We’re back to some of the
worst kind of conflict. But I don’t think that there is something
deeply structural that prevents the kind of compromise. I think the Kurdish nationalists
are, in Turkey at least, are very clear-sighted in understanding that full independence is
neither in their interests nor something that they are likely to get. The kinds of things that they do want realistically
are not things that the Turkish national government could not give up. There’s no fundamental
problem as to why that cannot be resolved. If it not being exploited for political reasons.
Right now, for example, what’s happening is that Erdoğan is exploiting the Kurdish
problem as a way of building up his own nationalist base. That’s being used, that particular
cleavage is being used for a political purpose. But one can imagine other political strategies,
other winning strategies that would involve compromise. COWEN: Orhan Pamuk, by far the most famous
Turkish author today. Overrated or underrated? What’s your take? RODRIK: I have to say, I have never been able
to finish one of his books. [laughter] RODRIK: This is not true. There’s one that
I finished, but this actually wasn’t fiction. It was his memoirs of Istanbul. I did finish
that because he grew up in a part of town which is very close to where I grew up too,
so it was, I could associate. But his novels, I have to say, are, I find
convoluted and going around and around and around in circles. I’m not a big Orhan Pamuk
fan. I love his older brother, by the way, who’s an economic historian, who’s a very
distinguished economic historian, Şevket Pamuk, and I finished a lot of his books. [laughter] COWEN: So who’s your favorite novelist? RODRIK: I love John le Carré. I think I’ve
read probably every one of his novels. I like Ian McEwan a lot. I’m reading Jonathan Franzen’s
book, Purity, right now, which I enjoy. He draws you in. COWEN: If we take le Carré’s vision of
how a spy agency works, is that Rodrik-esque political economy? Or does it force you to
revise your views of politics? RODRIK: No, no. It’s very human, right?
It’s just the mundane and the small things that happen. It’s a very good way of actually
putting it. I had not thought of this until you said it, Tyler. It’s a great point,
that there’s a lot of lot of political economy in John le Carré’s description of how these
bureaucracies operate and the personal relationships and so forth. I have to think about it. I’ve never had this starry-eyed view of
how government agencies operate. It’s not one that is jarring with respect to my own
worldview. I’ve never had this starry-eyed view of
how government agencies operate. It’s not one that is jarring with respect to my own
worldview. COWEN: If I think of your work as a whole,
I always like to ask this question about thinkers. What’s the underlying current which ties
a lot of the different parts together? One thing that struck me going through your work.
By the way, this pile is a small fraction of your work, and I feel sorry for my assistant
who had to print it all out. But even a lot of your papers that don’t
mention Turkey at all, I guess personally, I read them as asking the question, “why
hasn’t Turkey become a fully free and modern society?” Even if I think of your work on
premature deindustrialization, if I think of Turkey in the 19th century, a big theme
from my understanding is that Turkey is then prematurely industrializing, and that’s
why the Ottoman Empire becomes the sick man of Europe. I read a lot of your papers as looking at
this elephant from different sides, even if not about Turkey at all. Would you respond
to that? Do you think that’s a fair characterization? RODRIK: I think that’s very perceptive.
I think from my first foray into social science, I think that has been the question that I’ve
been motivated by. Just to back up a little bit, when I was growing up in Turkey, in high
school, of course social science was probably the last thing on my mind, just because of
the way that social science is taught in Turkish schools — rote memorization and so forth.
That wasn’t fun. Like all Turkish kids of my generation with
some academic pretensions or at least relatively good in school, my goal was to do engineering.
So I came to Harvard as an undergraduate to study engineering, only to find out that there’s
actually no engineering major at Harvard. COWEN: Not yet. RODRIK: Then I discovered the library and
the books, and the fact that they had more books in Turkish, on Turkey and Turkish history
in Widener Library than I could ever possibly find in Turkey. Then I started taking courses
in political science and economics, and it just opened up to me what it meant to be thinking
about these social, economic, and political questions. But the one thing that motivated me always
was this question of why was Turkey relatively poor and not developed, and the rest of the
world, and the United States or Western Europe developed. COWEN: Given this motivation, let me ask you
for the simplest, crudest version of your answer. We all know boiling things down to
a sentence is a horrible oversimplification, and you above virtually all other economists
are about the complex and the multifaceted. But nonetheless, if you had to give us the
super boiled down version of why hasn’t Turkey become a, more or less, fully free
and modernized society, what would it be? COWEN: And you’ll be allowed some follow-up.
Give us the super short and then we’ll give you follow-up. RODRIK: I’ll give you the general answer
to that question, not for Turkey, but for countries like Turkey, and my general sort
of question would be 50 percent structure, 50 percent agency, which is to say you start
with a lot of initial conditions that aren’t very favorable. Going back to the 19th century,
you start on the wrong end of the global division of labor. Everybody else is industrialized
and you’re not, plus, then, the British come and they open up your trade regime and
all the craft industries you have in the18th century are just decimated because of imports
from Britain and other Western Europeans. Then you get defeated in a world war. You
start in very inauspicious circumstances. Then agency. What happened, for example, under
Mustafa Kemal Atatürk, who was the leader who made Turkey, who took Turkey from the
ashes of the Ottoman Empire, erected the Turkish republic on top of that. He did a lot of very
good things and a lot of very silly things, and we’re still living with the consequences
of many of those things, including the good things. The fact that Turkey is a relatively secular
country with a large middle class to a large extent is the result of his top-down, extremely
brutal, extremely narrow-minded view of what it meant to be a modern nation-state — basically
take the Swiss civil code and the French criminal code and German commercial code and just apply
it. The fact that Turkey is a relatively secular
country with a large middle class to a large extent is the result of [Atatürk’s] top-down,
extremely brutal, extremely narrow-minded view of what it meant to be a modern nation-state — basically
take the Swiss civil code and the French criminal code and German commercial code and just apply
it. But also a lot of the problems that we are
having are also the residue of the fact that in that rigid view of how to modernize, he
pushed out a lot of the people who need to be included back into the Turkish polity,
including the conservatives, the religious conservatives, and a lot of others, and the
Kurds. COWEN: But if I look at Europe as a whole,
there seems to be a line somewhere, maybe it’s at Slovenia or Croatia. You can debate
where the line is. But east of that line, you don’t see full development. That at
least suggests to me, it’s not mostly agency. There’s something structural. Because to
think the leaders or the citizens in these different countries all made the same mistake,
it doesn’t quite fit my other views about the world. If you’re comparing Eastern and Western
Europe, again, this isn’t only about Turkey. It’s not about Atatürk. You could say the
same about most of Eastern Europe, except possibly Poland. What’s that fundamental
difference between West and East that is giving rise structurally to whatever percent of the
explanation you want to assign to structural forces? RODRIK: You know, I would go back to people
like Barrington Moore, who tried to explain why is it that Western Europe, Britain developed
democratic institutions and it became very difficult elsewhere in Central Europe to do
the same. I think a lot of what he said had to do with
the nature of, how did market forces and social structures interact? In particular, what was
the mode of commercialization of agriculture? If you started out with sort of peasant agriculture,
small scale farms and landlords that weren’t interested in labor-repressive agriculture,
who diversified into commercial businesses in urban areas, as in Britain, you got a very
different kind of path of industrialization and political development. Where you got large commercial estates, large
landlords, absentee or not, interested in labor-repressive methods of farming, who did
not diversify to a large extent into industry, into commercial enterprises, allied themselves
with the state, so as to be able to continue their repression of the agrarian sector. COWEN: So your three-word answer would be
structure of agriculture, if we had to boil it down? RODRIK: Yeah, I mean it has to be agriculture,
because that’s where everything started. That’s where everybody was. That’s where
the wealth was. If you go back . . . COWEN: But not ideology? So, you’re an economic
structuralist? RODRIK: No. . . . Let me put it this way.
If France was not in Western Europe but in Eastern Europe, I don’t think it would be
the kind of democracy or the kind of industrial economy it came to be. I think having the Netherlands in the North
and Britain to the West, I think both the competition, the benchmarking, and the ideas,
I think in that way geography made a difference. But geography, it sort of enables the transfer
of ideas and who are you looking at as what kind of a country you want to be. In many ways, France had the initial conditions
that would have made it look more like a Central or Eastern European country than a Western
European one. But the fact that it’s part of Western Europe I think has to do that it
was it was so much closer to Britain. I think you see the same about why is it that
Vietnam has developed in the way that it has after it opened up its economy. I think if
Vietnam was located in Latin America or Central America, I don’t think it would have been
half the miracle that it was. COWEN: Keep in mind, Vietnam is still poorer
than Bolivia, which is the poorest country in South America. So, Vietnam has yet to show
it’s a success. RODRIK: Wouldn’t you bet in 10 years it
won’t be? COWEN: No, I wouldn’t bet. I’d say it’s
an even money bet. RODRIK: [laughs] OK. On things under- and overrated COWEN: Let’s
go to a short question and answer part of the talk. I’m going to shout something out,
ask you if it’s overrated or underrated. You give me a short answer. You’re free
to pass if you want to. As an economic method, going back to your
book, this book Economic Rules, randomized control trials as an economic method. Overrated
or underrated? RODRIK: Today, overrated. COWEN: Give us a quick why. RODRIK: That’s the only thing that students
do these days. I think that’s not the only way we’ll learn. So, it’s crowding out
a lot. I think it was a fantastic contribution to the economics literature. The way that I think about it is internal
validity is not the only thing. The good thing about all these RCTs is they’re very good
about being able to identify causal effects. But they’re very poor about being able to
say anything about why is it that we get these effects or in fact whether the same effects
would occur in other contexts elsewhere. So, it worked here. We don’t know if it’s
going to work somewhere else. It’s crowding out the kind of work that . . . The good thing about all these RCTs is they’re
very good about being able to identify causal effects. But they’re very poor about being
able to say anything about why is it that we get these effects or in fact whether the
same effects would occur in other contexts elsewhere. COWEN: Political economy, because it’s hard
to do an RCT on political economy. RODRIK: But even in micro things. I think
even in the kinds of things where we’ve applied RCTs, I think we should be thinking
a lot harder conceptually and theoretically. There was a time, when I came out of graduate
school, if you were doing development economics and you were doing something empirical, you
could never get a job. Probably in development economics at the time, you couldn’t get
a job period. But the point was, doing empirical economics would not make you sort of rise
up. I think that was terrible, and I we’ve now
basically moved all the way to the other extreme, where empirical work also means doing something
where you put 100 percent weight on internal validity, but very little thought into issues
of external validity or the basic theory. I think we just have to correct some of that
balance. COWEN: Rumi, the 13th century Persian poet
and his Sufi mysticism. As you know, he wrote some in Turkish. Overrated or underrated? RODRIK: Not enough known. COWEN: Nâzım Hikmet, Turkish poet, famous
left wing figure, flirted with the Soviet Union. RODRIK: Fantastic poet. COWEN: So underrated? RODRIK: Underrated. COWEN: Underrated. The Iran nuclear deal.
Overrated or underrated? [laughter] RODRIK: I think it’s just right. COWEN: Just right. The idea of an independent
Catalonia? RODRIK: A lot of my friends will hate me for
saying this, but overrated. TYLER COWEN: And why? RODRIK: Again, my Catalonian friends are going
to hate me for this, but when I ask what is it that they want to get out of independence,
it seems that basically it’s just very much a sense of having been treated very badly
by Madrid. It’s almost like a very sort of 19th century
sense of nationalism that is driving it. I sort of think that we should be beyond that.
I think that in a thriving European Union, hopefully, if we get there, that basically
a lot of regions can do a lot more things than they can do on their own. I think the right evolution of political authority
is up for grabs. Breaking up Spain I don’t think is going to really help that bigger
goal of having a politically richer and deeply democratic Europe. I don’t see what the upside really is except
for this deep sense of 19th century ressentiment. COWEN: What’s a country right now investors
are underrating and a country they’re overrating in today’s world, given your understanding. RODRIK: Brazil, I think, is deeply underrated
right now. I think that when you look at what’s happening, on the one hand, in Brazil it shocks
you that there is all this widespread corruption with Petrobras that seems to go all the way
up. On the other hand, when you look at how they’re
dealing with this situation it’s incredibly impressive. It’s something that even in
an advanced country you wouldn’t think would happen, that there you have these prosecutors
and judges who are actually following the rule of the law. COWEN: Real accountability. RODRIK: Real accountability. This is not being
used to settle political scores in the way that it would happen anywhere, if it was happening
at all. COWEN: They have industrial policies. RODRIK: Their industrial policy isn’t great
but they at least are trying to do something about it. That’s a somewhat separate issue. To me, when I look at Brazil, they’re demonstrating
a political maturity in the way that their system operates that is decades ahead of even
the advanced industrial countries. I think the fact that they’re dealing with this
and are going to have it behind them five years from now, eventually, it’s going to
put them . . . I would put in the long play for Brazil. When I look at Brazil, they’re demonstrating
a political maturity in the way that their system operates that is decades ahead of even
the advanced industrial countries. COWEN: Overrated. RODRIK: I think India, because I think the
kind of growth that India has had, I don’t think it’s sustainable. Partly going back
to our earlier discussion about premature deindustrialization. I think they have these
plans to significantly strengthen their manufacturing base. I just don’t see it happening. I think India can grow at 4, 5 percent per
year on a sustainable basis. I don’t think it’s going to be 8 or 9 percent. When this
sinks in, I think there’s going to be a negative overreaction, would be my fear. On the need for gap years in graduate economics
COWEN: Last question before we turn to the audience. This, again, is getting back to
your book. A reader wrote to me, “Rodrik was the Albert Hirschman professor at Princeton.
Before that he received an Albert Hirschman Prize. Both Hirschman and Rodrik are economists
who look at the same facts as everyone else but they see what nobody else has seen. If you were allowed to make one change in
the economics profession or academia — ” this is an institutional change or rules change,
not an attitudinal change, but an actual change in how things are done, a change in a graduate
program. “If you could make one change to help produce
more Dani Rodriks for all the rest of us, what would that be?” RODRIK: I wish I had a very quick and good
answer to this but it’s not a great answer but it probably would help. I was helped a
lot by going into economics after having done political science. I think a lot of what’s
wrong in economics is that it’s so much driven by people who first do engineering
or math before they go into economics. And so, it’s relatively late that they get immersed
into the real world. I think anything that would get them a little
bit more cognizant of the problems of the real world. I would say that there are parts
of political science that have become even worse than economics right now. I’m not
sure that that would work. I don’t know. Maybe a gap year, spending
a year in a developing country between your first and second year? COWEN: That’s actually my idea, as well.
I’m glad to hear you say that. RODRIK: There we go. We just now have to find
somebody to finance it. Q&A COWEN: We now open up to the audience.
There are two mics. Please get in line. I will alternate. Please note — these
are questions for our guest, not lengthy statements. If you start making a lengthy statement I
will cut you off. Please head up to the mics with your questions
and I will call on you and you will hear responses. At the mic over here. Please just announce
your name, also. AUDIENCE MEMBER: Hi. I’m a master’s student
here. I’m actually considering spending the summer in a developing country. What one
would you recommend? [laughter] RODRIK: One that you have not been to before
or one in a continent that you haven’t been to before. I always tell my students that they should
always go to a country, when they have that chance to spend a summer or a year, to go
somewhere which is as different from where they have some experience as possible. That comparative . . . there are so many
things you take for granted that you don’t even understand are things to be questioned.
It’s only when you see another country that’s so different, then you start asking, “But
how come that is working there? It’s not working here?” For that, as many opportunities as you have
to be asking that question, which is as different a place you can imagine from where you’ve
been to. AUDIENCE MEMBER: Given that I’ve only been
in America and Mexico and I only have one summer, what would be the top of the list?
I’m looking for specifics. RODRIK: Go to India and travel. You will have
seen so much diversity and variety. COWEN: On this side. AUDIENCE MEMBER: Thank you. I’m a teacher
here. I have my class here, in fact, today. We are at the moment studying systems that
produce structural conflicts. It makes me want to ask you, when you talk about premature
deindustrialization, we’re in the middle of looking at Rosa Luxemburg’s work. I wondered what your explanation is for whether
there are structural causes for premature deindustrialization. If Luxemburg were here
she would be talking about the effects of imperialism. I wonder how you would explain
it. RODRIK: Of course, in the 19th century, it
was formal and informal empire. The so-called unequal trade treaties and so forth. You had
India and China and the Ottoman Empire, all these nascent textile industries being decimated
by imports from Britain. But, of course, we also have cases like Japan,
which in the late 19th century, despite having very low tariffs, being able to develop its
own domestic industry. We have at least one exception, even back then, of a country that
could industrialize despite those circumstances. The late 20th and 21st century analogue of
that imperialism, if you will, is China because it’s been China that has been essentially
swamping the world with manufactured goods. You go to a country like Ethiopia today in
Africa and basically everything is imported from China. Fifty years ago, a country like Ethiopia would
be manufacturing very simple things, from footwear to tables and chairs to cardboard
boxes. But now, everything is coming from China. The fact that we moved to a stage of the world
where a country like China is able to exert such strong effect on world markets in manufacturing
means that the opportunities for import substitution in manufacturing is significantly less today
in the low income countries that have opened themselves up. It’s not, obviously, imperialism but it’s
sort of like, if you will, the imperialism of free trade might be one way of putting
it for our current experience. That’s clearly one. It’s also, in terms
of the fact that earlier I was saying that traditionally manufacturing has had the ability
to absorb a lot of unskilled labor. Manufacturing has become more and more capital-intensive
over time. That means that now even garments or textiles, footwear, they’ve become fairly
skill-intensive activities. The Chinese entrepreneur I mentioned, when
she goes to Ethiopia and opens up a footwear plant, she’s using a very different kind
of labor. University graduates and many, many fewer of them compared to what the Chinese
experience was. I think changes in technology and globalization
have been, I think, the two structural factors behind pushing for premature deindustrialization. AUDIENCE MEMBER: Thank you. COWEN: On this side. AUDIENCE MEMBER: When referring to the past
political situation in Lebanon, you characterized it as preferable to the current, more autocratic,
situation of today inasmuch as a large number of crosscutting cleavages and the mutual understanding
among them to the effect that once in power it’s not necessarily guaranteed in the future,
or something like the mutual fear of what the other will do, effectively necessitated
deal-making and compromise. Given this, what would be your position on
nuclear proliferation? Aren’t you, by virtue of this, beholden to the position that the
more countries with nukes, the more crosscutting there would be and the more effective, better
functioning democracy? COWEN: And when will Turkey have nuclear weapons?
Want to discuss that? [laughter] RODRIK: You’re really pushing me to my areas
of incompetency. I have no idea for that question. I have no inside knowledge of that to share. I think the question you were asking is extending
the notion that more crosscutting cleavages imply greater political stability and tolerance
and moderation. Can we take that idea to the international sphere, in particular apply
it to nuclear proliferation? If more states have nuclear weapons, would that make the
world safer? I’m not quite sure about the analogy, the
way that you’ve taken that idea and extended it to the global sphere because the notion
of crosscutting cleavages has to do with when you’re operating not in a state of anarchy,
so to speak, but when you’re operating in a well-ordered polity. I’m not sure that that analogy carries to
what is effectively the state of anarchy at the global level, where there is no global
government so the nature of competition is very different. The idea of nuclear proliferation globally
greatly worries me. Not because I think that the marginal country is going to be less responsible
than the countries that already have nuclear weapons, but just because the more countries
that have them, the greater the chance that at least one of them will be irresponsible
rises. I think just probabilistically that makes
me very, very nervous. The analogy, I don’t think really quite applies. AUDIENCE MEMBER: That’s fair. COWEN: Next question. AUDIENCE MEMBER: Thank you. I’m Brazilian.
I have developing country experience that is more than enough, probably. Thank you for
your words of hope on what’s going on down there. Still, beside your words of hope, crony capitalism
and draconian regulations are more the rule than the exception in Brazil. I would like
to know if you believe that Brazil — is there a way of Brazil ever overcoming that
in those five, six years that you said? Or, putting it in another way, do those issues
actually matter? RODRIK: Maybe it’s easier to say — look,
I come to Brazil as a Turk. I watch what’s happening in Brazil. I compare it to what
is happening to Turkey. It’s not like Turkey has had an easy time
economically but the way that the financial markets have treated Turkey is incomparable
to how badly Brazil has been treated. I look at crony capitalism. I see at least
that in Brazil, we have a system that’s actually dealing with it, and they’re dealing
with it in a way that’s as clean as one could hope for. What’s happening in Turkey? What’s happening
in Turkey is that the extent of corruption and crony capitalism, the part of it that
we have already seen, is vastly superior than anything that has come out in Brazil. We know
that the president and his immediate family have been greatly implicated in vast amounts
of corruption. We know that. It’s the kind of thing that Dilma could
be guilty of pales in comparison. The fact that anything in Turkey, in terms of trying
to delete the judiciary when it went into trying to clean this system up, it did it
in a way that was explicitly politically motivated. Therefore, it made it much easier for Erdoğan
to clamp down on it because it was clear that it was a politically motivated attack on him,
which makes neither side really right. This essentially means that in a country like
Turkey, basically you’re postponing all these problems into the future. They’re
going to hamper your development, hamper your politics for decades to come. At least in Brazil, you’re dealing with
these things. You’re trying to overcome them. Maybe it won’t be five years. Maybe
you’ll find other things that are happening. My recommendation to you is at least take
pride that you have a system that is actually trying to clean it up. That’s really rare.
It’s not happening in Turkey. It’s not happening in Thailand. It’s not happening
in most developing countries that I know of. I think, in that way, Brazil is exemplary. AUDIENCE MEMBER: Thank you very much. RODRIK: Next question. AUDIENCE MEMBER: I read a small excerpt about
your new book, and I know that it’s about economic models. I was wondering how do you
factor in best practice institutions when you consider economic models. Is there room
to factor in, say, in your own words, second best institutions, and how effective would
that be in the ultimate analysis of a country or a model? RODRIK: I’ve said this before. I hate the
notion of best practice. I think this is probably a very harmful notion. I was a student of
Avinash Dixit, who was a great economist at Princeton. He likes to say, “The world is
second best at best.” I hate the notion of best practice. I think
this is probably a very harmful notion. I was a student of Avinash Dixit, who was a
great economist at Princeton. He likes to say, “The world is second best at best.” You always have to think in those terms. The
notion of a best practice is based on the idea that you can simply just have something
that worked somewhere and take it and copy it and apply it somewhere else. Not only does that not work in general, it
gives us a very lazy frame of mind. We end up developing all these World Economic Forum
scorecards where we have all these checklists of the business environment rankings, or even
the sustainable development goals. I think to some extent, these things can be
important as public relations, as PR for it. But you look at all successful countries and
what you’ll see is that you’ve had their societies and leaders who have always distilled
experience from elsewhere from the lens of their own local knowledge. I think that when you get that combination
is really when things work. A best practice mindset, I think, is an enemy of that. COWEN: Question here. Last question. AUDIENCE MEMBER: Given that industrial policy
largely failed in post-independence India to a great extent, do you advise the present
Indian government to go ahead with the conventional industrial policy of picking winners and losers
or should they, instead, liberalize factors and focus on expanding access to capital? The second part, if they do go ahead with
the strategy, do you think global demand right now is strong enough to sustain an export-based
growth strategy or will it largely fail? COWEN: You have three minutes to answer for
a billion people. [laughter] RODRIK: First, I would never recommend a country
to do anything unconventional. I think it relates to some of the things that
we were discussing. Yes, I think the returns to industrial policy are lower now. The returns
to any export-oriented strategy are also lower now. We haven’t talked about this but I think
there’s a sense in which the world economy isn’t going to be as much of an engine for
growth for developing and emerging markets in the future as it has been until now. As
will manufacturing industry will not be that. I don’t see this trade off between fundamentals
versus a more proactive government policy that’s trying to generate new industries,
not just manufacturing but also services. What I always look for is a very pragmatic
kind of attitude towards the private sector and the business sector, which is a government
that’s sort of saying, “What is it that we can do to unlock possibilities?” and
keep an open mind on that. It doesn’t mean you’re going to be picking
winners but it does mean that you’re going to be willing to get activity started that
might not have started otherwise. Some of them will fail. That’s in the nature of
things. I think having tried and failed is better
often than not having tried at all. There’s no trade-off, really. You can do that and
also work on your fundamentals, on your skills, and your capital base, and your infrastructure,
certainly as India has to do. Indian economic policy has very much moved
in that direction. I think that’s fairly consistent with what the government is already
doing except that I think they exaggerate how much growth and how much industrialization
they can really get. COWEN: Thank you so much for all of the stimulating
words. [applause] COWEN: There will be a book signing out front
with Dani, Economics Rules, it is out this October. All of you here should buy and read
it. Thank you again. RODRIK: Thank you. Thank you, Tyler.
