Arnold Kling  

Losing to Dani Rodrik

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After reading his book One Economics, Many Recipes, I keep imagining myself debating Dani Rodrik...and losing.


Kling: I favor limited government.

Rodrik: I favor right-sized, adaptive government. Government must select policies and regulations that take into account local history and conditions. Government must experiment and correct its own mistakes.

Kling: Adaptive government is an oxymoron. In reality, you never observe adaptive government.

Rodrik: The same could be said of limited government.

Kling: [burble]

He says on p. 2:


All this diverse experience with growth [some countries fast, others intermittent, others not at all] has happened in an era of rapid globalization, during which countries have become increasingly open to forces emanating outside their borders. The fact that they have responded so differently is evidence enough--if any is needed--that national policy choices are the ultimate determinant of economic growth.

Does that mean that if we studied countries (I have India in mind) and found enormous variations in growth across regions or social groupings that national policy choices may not be the dominant factor, that we must look to cultural determinants?

On p. 5:


economists are an arrogant bunch, with very little to be arrogant about. I hope the reader will agree that the essays in this book are different

I do agree. Reading this book is nothing like listening to, say, Joseph Stiglitz. Stiglitz without arrogance would be like Hamlet without the prince.

p. 38:


In the vast majority of cases...the "shocks" (policy or otherwise) that produced growth spurts were apparently quite mild...not much reform was actually taking place...Apparently, small changes in the background environment can yield a significant increase in economic activity.

p. 49-50:

It is nonetheless true that the implementation of the market failure approach requires a reasonably competent and noncorrupt government. For every South Korea, there are many Zaires where policy activism is an excuse for politicians to steal and plunder.

p. 51:

economic history in today's rich countries can be interpreted as an ongoing process of learning how to render capitalism more productive by [implementing] meritocratic public bureaucracies, independent judiciaries, central banking, stabilizing fiscal policy, antitrust and regulation, financial supervision, social insurance, political democracy. Just as it is silly to think of these as the prerequisites of economic growth...it is equally silly not to recognize that such institutions eventually become necessary

p. 85:

The central economic paradox of our time is that "development" is working while "development policy" is not.

p. 101:

the right way of thinking of industrial policy is as a discovery process--one where firms and the government learn about underlying costs and opportunities and engage in strategic coordination.

You thought I was exaggerating when when I wrote "industrial policy with an Austrian slant"?

p. 111:


A first-best policy in the wrong institutional setting will do considerably less good than a second-best policy in an appropriate institutional setting.

It's probably hard to get the meaning of this quote when I take it out of context. But it reminds me of my view of corporate strategies and corporate re-organization. I would rather see a second-best strategy or a sub-optimal organization chart (they're all sub-optimal, really, due to trade-offs) implemented in a way that compensates for its flaws than a first-best strategy or org chart that is implemented less carefully.

p. 150-151:


There is no shortage of arguments against industrial policy...[e.g.] Developing countries lack the competent bureaucracies to render it effective...[but] The standard market-oriented package hardly economizes on bureaucratic competence

I don't have any representative quotes from chapter five, on building institutions for growth, but it is an important chapter. We free-market types tend to complain that anti-market types take capitalist prosperity for granted and harp on its failures. Rodrik probably would say that we in turn take good government for granted and harp on its failures.

Much of this chapter continues what I call his "Austrian slant" on government. He criticizes "one size fits all" blueprints for government institutions. In contrast, he argues for government evolution that is based on "local knowledge," "tacit knowledge," and the like.

The latter part of the chapter degenerates into the presentation of some very ill-fitting cross-country linear relationships, purportedly showing things like a significant relationship between, say, democracy and economic growth. In order to appreciate this section, you have to approve of this methodology, and I don't.

The misleadingly-titled chapter 6 has a neat, short critique of some papers where economists used instrumental variables and then interpreted the instruments as causal variables. To really appreciate it, you have to (a) understand his point (which I do) and (b) have some investment in the papers that he criticizes (which I don't).

The latter part of the book is on globalization. Rodrik does some barrel-fishing by pointing out the empirical contradictions to Thomas Friedman's "the world is flat" claim.

He then claims that there is an impossible trilemma for international political economy: international economic integration, the nation-state, and mass politics. He argues that we can have any two, but not all three. For example, if you want to have participatory politics and economic integration, then you have to give up the nation-state and instead have global federalism. The way I would put this is that in order to have economic integration, we have to Lose the we.

The potential benefits and pitfalls of global federalism are worth thinking about. I think that Rodrik has barely begun to scratch the surface on that one.

Overall, what strikes me after reading the book is how similar Rodrik and I are in terms of outlook and temperament, and yet how differently we seem to come down on important issues. I circle back to my concern that I might not be able to emerge from a debate with Rodrik with an unchanged mind.


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The author at Knowledge Problem in a related article titled Arnold Kling Imagines writes:
    Michael Giberson Arnold Kling writes, "After reading his book One Economics, Many Recipes, I keep imagining myself debating Dani Rodrik...and losing." Among other things, Kling suggests Rodrik offers "industrial policy with an Austrian slant" -- he quo... [Tracked on October 19, 2007 10:21 PM]
COMMENTS (12 to date)
Buzzcut writes:

You know, it's not just "developing nations" that live or die by their institutions.

Why is Detroit a basket case? Why are some suburbs of Detroit, just mere miles away, so much better off?

I live in Northwest Indiana, hard up against the Southside of Chicago. You go across the border from my county to Chicago, and the median income increases by 40%. 40%! And it isn't like Chicago has the best institutions. But compared to, say, Gary, they're very well run.

Jody writes:

You may come into agreement with Rodrik, but I imagine that will only harden your position against Klein...

Eric Hanneken` writes:
Kling: Adaptive government is an oxymoron. In reality, you never observe adaptive government.

Rodrik: The same could be said of limited government.

The conclusion I draw is that government is a lost cause; no one can make government do what he thinks it ought to do, nor can he make it (or "the people") set up the right institutions. In Tyler Cowen's mind, I suppose that makes me guilty of "the libertarian vice."

General Specific writes:

"Stiglitz without arrogance"

I don't think he's just speaking about Stiglitz. Any economist who starts sentences with "As an economist" as a means to imply "What I'm about to say is unbiased truth" ought to consider his or her own arrogance.

Economics is interesting and important. But when I first approached it, I found the level of arrogance and ideology off-putting.

sourcreamus writes:

Debating whether limited government is better than adaptive government is like debating who would win in a fight between unicorns and leprechauns. The question is whether movement is possible toward adaptability or limitedness, and in whether the possible movement will be an improvement over the status quo.

ed writes:

The U.S. Constitution enshrines a form of "limited government." It may not be as limited as it used to be, or limited in all the ways you might like, but it's limited nonetheless. Overall, I'd say it's been a great success.

TGGP writes:

I'd go for ditching mass politics.

Fundamentalist writes:

ed: The U.S. Constitution enshrines a form of "limited government."

You're exactly right! We DO have examples of limited government and adaptive government. The Dutch Republic of the 17th & 18th centuries and the US in the 19th century are excellent examples of limited government. Colbert's France, all socialist countries and the US since the 1920's are good examples of adaptive governments.

The review on Prineton's site wrote: "To most proglobalizers, globalization is a source of economic salvation..."

Some great economist has written that trade is an effect of economic growth, not a cause. I think he is closer to the truth than anyone.

Dani Rodrik writes:

Thanks very much for the gracious review and your humility, which greatly exceeds mine in this instance.

wjd123 writes:
Governments lay claim to legal authority to collect taxes or impose restrictions on trade across borders. But there is no moral significance to a border. If John, Mary, and Sam all lived within the same country, the question of whether free trade is good for "us" would never arise. John's right to trade with Mary without interference on behalf of Sam would not be questioned. It is hard to see how moving Mary across a border changes the situation from a moral or economic standpoint.--Arnold Kling

Yet governments have rules and regulations governing the economy, I like to call it economic morality. In a democracy those rules and regulations don't eminate out of the government but out of different social groups. They are social in orgin not governmental.

The rules and regulations governing the American political economy are different than those governing the Mexican or Chinese political economy. There is also the question of how well institutions--if they are even in existance--can enforce the rules and how much money it takes to do so effectively.

So considering that countries have different political economies along with different levels of institutional and material capital, trading across borders isn't the same as within ones own country.

For instance the financial crises caused by sub-prime loans here has spilled over onto European investors. Part of the reason is that we have poor regulations on the financial industry. Now as the New York Times writes the "Calls Grow for Foreigners to Have a Say on U.S. Market Rules."

Sorry, Professor Kling I don't think that Masonomist are the wave of the future. The evidence points to greater intergration and intervention.

Tom Myers writes:

I felt much the same way (as a non-economist who has been reading development-economics books lately). But I was and am bothered by the opening to Rodrik's book in which he talks about a finance minister who described having done "all the reforms" without getting economic growth in exchange. The reforms as described had nothing to do with corruption/transparency, so far as I can see, and when I look at Transparency International's maps, it really doesn't look like Latin America is a lot better that way than I remember it from growing up there -- except for Chile. All the reforms, except for reform? Now, the book does scatter phrases such as the "noncorrupt" you quote above...but I'm still feeling an unresolved tension from that first page. (And just went on and on about it at my own blog. Whatever.)

Gil Stange writes:
Much of this chapter continues what I call his "Austrian slant" on government. He criticizes "one size fits all" blueprints for government institutions. In contrast, he argues for government evolution that is based on "local knowledge," "tacit knowledge," and the like.

Sounds a bit like Oakeshott on Rationalism, too.

[Quote display fixed--Econlib Ed.]

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