by Dani Rodrik (Princeton, £23.95)
Development, Dani Rodrik writes, has been a success, although development policy has not. In the last decade, more people have escaped poverty than in any previous decade of history. Most of them live in China, India and other countries in south and east Asia. Elsewhere—in Latin America, Africa, the middle east—there have been as many steps back as forward.
In surveying this diverse international experience, Rodrik cites with approval Larry Summers's assessment: "The rate at which countries grow is substantially determined by three things: their ability to integrate with the global economy through trade and investment; their capacity to maintain sustainable government finances and social money; their ability to put in place an institutional environment in which contracts can be enforced and property rights can be established." This sounds conventional. But the subtlety of Summers's description, as Rodrik explains, is that what matters is not individual policies as such but the effect of all policies taken together.
There are many paths to development. China and India, South Korea and Botswana have achieved growth not by following a standard template but by developing their own institutions in a specific political and cultural context. There are no examples of sustained growth resulting from autarchic strategies: in this sense, there is no escaping globalisation. But it does not follow that free trade and capital flows are necessary or sufficient for impressive growth rates. Rodrik makes a telling comparison between Haiti, whose policies have followed the prescriptions of the Washington consensus, and Vietnam, which retains a plethora of state controls. Haiti is still one of the world's poorest countries, while Vietnam is growing fast.
In Rodrik's view, abilities and capacities are established by local businesses and political entrepreneurs responding to local circumstances. The creation of such capacities is a product of experiment. Here—in perhaps the only part of the book where what Rodrik wants to believe conditions his interpretation of the data—Rodrik argues that democratic institutions best secure this matching of institutions to needs. If the data is not unequivocal on that, it does support his claim that authoritarianism produces a wide range of good and bad outcomes. Democracy is less risky.
Rodrik devotes a lot of space to the failures of liberalisation in Latin America and to the varieties of state involvement in Asia. He does not challenge a central role for trade in promoting development, nor does he support state planning as an alternative to markets. But he does say that integration into global markets should not be equated with free trade, nor markets equated with privatisation and deregulation.
Rodrik has little to say about Africa, and nothing to say about aid. His thesis leaves little role for the breastbeating of moralists who want to hold colonialism, multinationals or unfair trading arrangements responsible for third world poverty. Countries find and create their own destinies. Nor does he have time for the visiting expert with a chequebook and a sense of mission. Rodrik's heroes are not the framers of the millennium development goals, but the people who establish cut-flower nurseries in Colombia, football production lines in Pakistan and bicycle factories in Taiwan. Development, he argues, is a process of self-discovery.
So Rodrik also disputes another conventional prescription—that the most useful thing we can do for poor countries is to reduce our own protectionism. Rodrik illustrates quantitatively how small the impact of a successful completion of the Doha round would be for anyone—in rich countries or poor—and observes that the largest beneficiaries from the dismantling of agricultural protection would be European taxpayers. International trade negotiation is in practice a forum for bargaining between producer interest groups in which neither consumer welfare nor economic growth plays a significant role.
Instead, Rodrik proposes a reform of the WTO that would make clear that its priority was development and that the promotion of trade is a means to an end, not an end in itself. At this point there is a danger that Rodrik may seem to be giving support to anti-globalisers who see trade with and investment in poor countries by the west as a form of exploitation. This is not what he intends. The real debate, he stresses, is not over whether integration is good or bad, but over policy and priorities.
In this spirit, Rodrik proposes that politicians in the west should use some of the political capital they now expend securing market access for developing countries to seek liberal policies towards immigration from the same countries. Both free trade and immigration are, he observes, good for poor countries and unpopular in rich. Not only does immigration allow the flow of remittances to the country of origin, it also—when it is temporary and non-renewable—stimulates skills and entrepreneurial capabilities and ensures that they are repatriated.
At various points, Rodrik is anxious to say, "I am a mainstream economist." His credo is that "social phenomena can best be understood by considering them to be an aggregation of purposeful behaviour by individuals interacting with each other and acting under the constraints that their environment imposes." There is certainly truth in the claim that this belief is at the core of neo-classical economics. But neoclassical economics, as typically practised, imposes a particular concept of rationality on that description—in terms of the consistent pursuit of individualist goals—and makes a variety of other assumptions about the nature of markets and of property rights. These assumptions preclude a proper examination of the institutional constraints and uncertain environment which are such an important part of Rodrik's schema.
But then so much the worse for the mainstream. This book is certainly among the best of the many works on development economics recently published—only Paul Collier's The Bottom Billion comes close. One Economics, Many Recipes is also a model of how applied economics should be done. The book uses models without falling into the trap of believing that any particular model offers a true representation of the world, or that policy conclusions can be derived algebraically. Rodrik uses data, but sceptically: it seems obvious that a data set which rates Canada worst and Rwanda near-best for absence of ethnic fragmentation has something wrong with it, and it is reassuring (though much less common than you might hope) to have an author who notices.
As a result, this book can identify no panaceas and, indeed, offers only a few modest pointers to development. But how to make poor countries rich is the toughest problem in economics, and only a less thoughtful author than Rodrik would offer more confident solutions.
