One of the reasons for me being late is that I am reading history books. So I am currently more in the past than in the present. In one of them, Jeffry Frieden’s Global Capitalism (a must-read!), I fell again upon John Maynard Keynes’ famous comment made in 1923 on “classic liberal” economists of the time who wanted to restore the Gold Standard for long run welfare considerations: “In the long run, we are all dead”. Attempts to restore the Gold Standard in the interwar period have famously had catastrophic consequences, so Keynes had a point.
I find that Dani Rodrik’s approach to trade and development is a bit one of these. He criticises classic liberals who want pure free trade, total respect of comparative advantages, and zero government intervention to foster domestic economic development. This is, according to our global free traders, the only way to achieve optimal welfare, in the long run, although short-term adjustments might be costly. Rodrik on the other hand is more on the side of defenders of industrial policies, of selective government protection, of shorter-term government intervention and policy breathing space unhindered by WTO or other restrictions. Personally, though a big admirer of his work and his intellect, I have grown increasingly critical of his recent views. In my modest knowledge of developing countries since my childhood and recent professional dealings with emerging markets, in particular in the former Soviet Union, I am increasingly convinced of the following: government intervention, especially where institutions are very weak, i.e., the entire developing and emerging world, breeds corruption. Corruption hinders development and undermines democracy. While these countries’ governments are not clever, their people, on the contrary, tend to be. They are hard-working, and more business-savvy and able to seize opportunities that lie at hand, than we spoilt children of the rich West. One has to give as much leeway as possible for these individual entrepreneurial initiatives, reduce barriers, reduce taxes, reduce the need to bribe officials to get things done, open markets at home and internationally for the product of their work be rewarded by its merit. The better these people are educated, the less one has to take care of them, the more they will know how to take care of themselves, and the more they will be able to be successful participants in markets. Tariff protection on the other hand, means more bribing money in the pockets of customs officials, industrial policy tends to end with inefficient factories in geographic locations that do not necessarily make sense, and that pollute more, whilst their bosses spend more time lobbying and bribing officials than running a business that produces the things that people really want to buy.
Yet Dani Rodrik has lots of things to say, and at least his views are a very useful reminder of the fact that, “in the long-run we all are dead“, and that we need governments, good governments, and more than just the Thatcherian night-watching variant of government models. I am awaiting with impatience his new book to come out soon: One Economics, Many Recipes: Globalization, Institutions, and Economic Growth (forthcoming from the Princeton University Press).