Can Dani Rodrik “Make Globalization Work for Development”? – Not so sure

January 31, 2007

Both Ben Muse and Fredrik Erixon drew my attention to an article published yesterday by te New York Times on the famous trade economist Dani Rodrik.

Author of a book that has had a lot of impact, Has Globalization Gone Too Far? and academic who made the convincing case that trade openness goes with big government – contrary to what your average globophobe would think – Dani Rodrik tends to displease liberals and socialists alike. Rodrik has a “flexible approach to trade. He has built a reputation among mainstream economists and policy makers for favoring eclectic solutions that mix government and the private sector in pragmatic ways”, so the NYT. Quoting Rodrik, the newpaper writes: “The movement across borders of goods, services, capital and production, he said, is “open enough as it is.” He would concentrate instead on building public awareness that social insurance and free trade are “two sides of the same coin,” a concept entrenched in Europe but not in the United States.”

More than a year ago I attended a public lecture held by Rodrik at the London School of Economics – the presentation is still online – on the topic of “Making Globalization Work for Development”. Rodrik is a brilliant and charismatic speaker, with a flurry of convincing arguments supported by graphs and facts, on many topics. During that lecture, he proposed “10 reforms that would make the world more conducive to development”. These are:

1. A temporary work permit scheme that allows workers from developing nations to spend 3-5 years in the advanced countries. (Revolving pool of workers; low and high skill; return important)

2. A multilateral agreement that bans the subsidization of DFI. (The only significant form of industrial policy that (a) is not banned; and (b) clearly transfers resources from developing to developed countries.)

3. A “development box” in the WTO that legitimizes the use of trade and industrial incentives (including export subsidies) for developmental purposes (with burden of proof on those that argue the intervention is not developmental.)

4. Willingness to share information with LDC governments on Northern bank accounts held by LDC residents.

5. A 0.10% financial transaction tax on foreign currency transactions, with proceeds spent on global public goods.

6. A recognition by the US, in particular, that prudential restrictions on capital flows (“capital account management”) in the developing world is an integral part of a development agenda.

7. Adoption of the “odious debt” notion, whereby debt contracts signed by oppressive regimes are no longer enforceable in Northern courts.

8. Preparation of a “developmental impact statement” as a necessary requirement for any international agreement (including the costing out of the financial implications for LDCs, and laying out the modalities of how these will be financed).

9. Ending the monopoly of the World Bank in generating and disseminating policy ideas, particularly in the lowest income countries, by breaking it up into a number of competing agencies.

10. Moving the IMF’s Policy Development and Review (PDR) Department (and its staff) to a developing country, and rotating it in, say, among different African capitals every five years.

A few comments:

  • How is this going to work?
  • This is a grab-bag of many things – all interesting, all highly debatable. No time to go into detail, here.
  • On point number 1, however: He rightly argued all along that lecture that temporary migration of workers is good for poverty alleviation and development, i.e.: higher incomes from the migrants and their families who receive remittances, migrants acquire skills, and when they go home bring them back with them…. Asked how the temporary work permit scheme would look like he did not go into details. But it sounded like an awful administrative, bureaucratic machinery where workers would sign up for temporary contracts and would have to accept coercion if they do not go back to their home countries after the agreed time. Yeah, but who believes migrants want to go back?  Especially since we “need them”, like Philippe Legrain says. The scheme sounded quite horrible. Imagine the thing when you try to put it to… work. Forcing people onto flights, separating families, sending people to prison….And who would administer such a scheme: the WTO? (No gracias), The EU? (horror film number 1), Nicolas Sarkozy? (horror film number 2), the US? (horror film number 3), Lybia (at this point, I already died of terror). It made me feel like pulling out my good old Hayek’s “The Road to Serfdom” and shouting: let migrants be free!

One Response to “Can Dani Rodrik “Make Globalization Work for Development”? – Not so sure”

  1. bob Says:

    what can i say 🙂

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