Latest / The Capitalism and Freedom in the Twenty-First Century Podcast / Dani Rodrik (Harvard Kennedy School Economics Professor) on Industrial Policy, Globalization and His Career

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Dani Rodrik (Harvard Kennedy School Economics Professor) on Industrial Policy, Globalization and His Career · The Capitalism and Freedom in the Twenty-First Century Podcast

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>> Male Speaker 2: Welcome to the new Books Network.
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[MUSIC]
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>> John Hartley: This is the capitalism and freedom in the 21st Century podcast,
1:08
where we talk about economics, markets and public policy.
1:11
I'm John Hartley, your host.
1:12
Today, my guest is Dani Rodrik, who is the Ford foundation professor of international
1:16
political economy at Harvard University's JFK School of Government.
1:20
Danny is a leading scholar in international economics,
1:22
development economics and political economy, as well as one of the most
1:26
prominent advocates in the world for industrial policy.
1:28
And is a longstanding critic of globalization,
1:30
highlighting its labor market consequences.
1:33
Today, I'm gonna ask Dani all about the case for and against industrial policy,
1:37
as well as what his ideal vision for a new economic policy paradigm would look like.
1:42
Welcome, Dani.
1:43
>> Dani Rodrik: Thank you, John.
1:44
Nice to be talking to you.
1:45
>> John Hartley: So I wanna start by getting into your background.
1:48
You grew up in Turkey and came to the US, where you did your undergraduate work at
1:52
Harvard and you did your economics PhD at Princeton.
1:55
How did you first become interested in economics?
1:57
>> Dani Rodrik: It was a kind of a roundabout process, actually.
2:00
I was more interested in history and political science.
2:05
At Harvard, I majored in government,
2:07
which was sort of the way what political science is called at Harvard.
2:12
And my father was a businessman,
2:15
convinced me that I should be more interested in economics.
2:19
So just to please him, I minor in economics and
2:23
I wasn't sure that I wanted to do a PhD or
2:27
I should do a PhD because I don't come from an academic family.
2:33
Neither of my parents went to university, so it took a while.
2:41
And eventually, when I was doing my masters at Princeton in
2:45
the School of Public and International Affairs,
2:49
I discovered I have finally reached the conclusion that I wanted to do a PhD.
2:56
But I was still not sure [LAUGH] whether it would be in political science or
3:00
in economics.
3:01
And then I remember walking into the the library and
3:05
I picked up a copy of the American Economic Review and
3:09
then a copy of the American Political Science Review.
3:13
And I looked at each of them, and then sort of, I had an epiphany that
3:19
if I did a PhD in economics, I would still be able to read the APSR.
3:24
If I were to do a PhD in political science, given the way that political
3:27
science was taught at the time, I probably would not have been able to read the AER.
3:31
So [LAUGH] it made sense to do the PhD in economics and
3:36
still keep my interest in other social sciences.
3:40
>> John Hartley: It's fascinating.
3:41
All these years later, it seems like now political science is very much
3:46
trying to model itself in economics and doing very much applied micro type work,
3:52
trying to answer more political science type questions.
3:56
>> Dani Rodrik: That's absolutely true.
3:57
I mean, that's why I need to be clear when I tell the story that this goes back
4:02
quite a few decades, and political science certainly compared to politics,
4:06
political economy, some parts of international relations.
4:10
Certainly American politics, they've all become much more sort of analytical and
4:15
much more like applied micro.
4:17
The story that I just, Paul should probably should not be a guide to
4:22
anybody who's deciding to do PhD in one or the other today.
4:26
>> John Hartley: I'm sure that political theory is probably more dominant back then
4:30
in political science departments as well and interesting.
4:33
I'm sure John Rawls was around Harvard at that time as well, but
4:36
I think he was in the philosophy department.
4:38
It's absolutely fascinating.
4:40
So you then went on to spend a lot of your academic career at Harvard,
4:44
as well as Princeton, Columbia, and the Institute for Advanced Studies.
4:49
I'm curious,
4:50
what was the academic environment like at all these places while you were there,
4:55
while also being publicly a vocal critic of globalization during this time.
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Were there any colleagues who vehemently didn't like you or what you were saying?
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This is sort of at the height of globalization, or
5:08
what some people might call neoliberalism.
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Did you have any adversaries,
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say at the famously free market University of Chicago?
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And who were those who were most supportive during your career, even if
5:21
they maybe disagreed with you or were open minded and helpful to you along the way?
5:26
>> Dani Rodrik: With hindsight, the reason that I gravitated towards
5:31
multidisciplinary environments rather than a department of economics is that.
5:38
I found that the kind of work that I do and
5:42
the kinds of ideas that I have tend to generate less open
5:47
hostility in such multidisciplinary environments.
5:53
And so, I mean, most of my academic career has been at the Kennedy school.
5:57
I've left a couple of times, and
5:59
each time [LAUGH] I decided to come back because it's the most congenial.
6:04
And in the Kennedy School proper, I have to say, I was always welcome.
6:10
Even the economists in the Kennedy School,
6:12
I think they have their legs, their feet firmly planted in the ground.
6:16
And I think even when we disagree on policy debates, I've never felt like
6:21
that my ideas were not welcome, or they thought that I was doing something crazy.
6:27
Occasionally, with people in economics departments, it's been different.
6:31
When I was at Columbia for about four years, I had a joint appointment with
6:35
the economics department and the school of international and public affairs.
6:38
So again, I had one leg in the sort of more multidisciplinary policy school, but
6:43
the economics department wasn't always comfortable.
6:46
Then, of course, [LAUGH] I had these amazing conversations with
6:51
Jagdish Bhagwati, who was, of course,
6:54
a very distinguished trade theorist and also very much a pro free trade.
7:00
And I think he always thought that I was a kind of somebody who was doing
7:05
a lot of damage to the profession.
7:07
So we got along very well at a personal level but
7:11
I think he really hated the work that I was doing here at Harvard.
7:16
In the economics department,
7:18
I've had people have always uneasy relationships with certain people.
7:24
I won't name names because they're sort of colleagues.
7:28
But I remember giving a talk in the economics department on why some of
7:32
the growth benefits of international trade integration
7:37
may have been inflated in the empirical literature to that.
7:41
And amidst the usual technical discussion about the issues of theory and
7:46
measurement and so forth.
7:47
A senior faculty member raised his hand and basically said, Dani,
7:52
why are you doing this?
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As if it was a kind of an ulterior motive that I had to sort of justify myself
7:58
because I was arriving at a conclusion that was quite different from what
8:03
was then fashionable in the profession.
8:05
I have another senior colleague in the economics department that anytime I ran
8:09
into him in the Harvard yard, he would just give me a smirk and say, so
8:13
how's the revolution going, Dani?
8:15
Then at some point, I sort of began to tell him, well, don't you realize I won.
8:21
And sort of that stopped [LAUGH] because the climate had changed quite a bit.
8:26
And there's a sense in which I feel so much more mainstream these days because
8:30
the nature of the conversation has changed.
8:32
So, I encounter much less of that these days.
8:35
>> John Hartley: That's fascinating.
8:36
Did you ever do a job market talk at the University of Chicago or
8:39
anything like that?
8:40
Did you ever have any interactions with-.
8:43
>> Dani Rodrik: Yeah, actually I mean, I think when I finished
8:48
my PhD at Princeton, that was back in 1985,
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and then sort of went on the job market.
8:58
The two offers that I considered most seriously were one from,
9:01
of course, the Kennedy School, which I ended up taking, but
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the other one was from the School of Graduate of Business at Chicago.
9:08
But the job talk that I gave there at Chicago was [LAUGH]
9:12
probably the most unpleasant experience I've ever had.
9:16
And the bit of it that stands very clearly is literally
9:20
within three minutes of my introduction.
9:24
I got interrupted by Lester Telser in a very,
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very rude way by sort of who just turned to me and said,
9:32
do you know even what a tariff schedule looks like?
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And that was this question to me, sort of implying that
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what I was talking about had no bearing on reality.
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And luckily, I had spent a year at UNCTAD in Geneva [LAUGH]
9:50
looking at tariff schedules, [LAUGH] so I could answer,
9:55
yes, but I don't think it quite overcame his skepticism.
10:00
But so I don't think I would ever have gotten an offer from the economics
10:05
department and
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I don't know how it is that I got an offer from the business school there.
10:11
But eventually, I felt that Kennedy School,
10:14
being sort of more of a policy place, was much more to my liking.
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>> John Hartley: That's fascinating.
10:19
And it sounds very apropos for
10:21
what the University of Chicago economics department was like in the late 80s.
10:26
And also fantastic to hear about how welcoming and supportive and
10:30
open-minded the Kennedy School economics department.
10:34
As a graduate of it, myself, as an MPP graduate,
10:37
totally understand that ethos and how open-minded I think a lot
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of those in the economics department at the Kennedy School are.
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I'm curious, so, you've done a lot of work in political economy, development, and
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international economics, and before sort of getting into your views and
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thoughts on these topics.
10:55
I'm just curious, what led you to political economy,
10:58
development, international economics?
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Did growing up abroad kind of influence you in any way to study these subjects?
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I know you mentioned you're in the library and you're sort of opening up the APSR and
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AER, and that being a government undergrad was influential in some way.
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But I guess what I find living in the US now and
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having grown up in Canada is that when I grew up in Canada in general,
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it's focused on what else was happening around the world.
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And for example,
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a lot of very famous international economists happen to be Canadian.
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And I think a lot of international in development economists in general tend to
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hail from outside the US, at least relative to other fields.
11:38
Was there anything in, I guess, your own upbringing or
11:40
growing up abroad that got you interested in studying political economy,
11:44
development, international economics, studying countries beyond just the US?
11:48
>> Dani Rodrik: I think it definitely played a key role.
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I think I came from Turkey to US in 1975 at 18,
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and I hadn't done a whole lot of.
12:01
This was my first time in the US.
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I'd been in Europe, Western Europe, for a little bit.
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But I mean, the contrast, I mean the level, I mean,
12:09
the development gap is something that, of course, you've read about before.
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When you were growing up in Turkey,
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you were always conscious of this gap you had somehow lagged behind.
12:23
The Ottoman Empire was on top of the world.
12:26
You ruled much of Europe and North Africa and
12:30
the Middle East in the 16th and 17th centuries.
12:35
So, this notion of somehow having fallen behind and
12:40
figuring out what the reasons for
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that were just sort of very much burning questions.
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And I mean, at the time I started getting engaged with these
12:52
questions more seriously, I guess in the early 80s and so forth.
12:57
We knew what were the right policies that countries like Turkey had to do.
13:03
So there was a general, what later came to be called the Washington consensus,
13:09
a sense of let markets work.
13:11
Join the world economy, open up your economy to international trade and
13:17
investment, make sure you run your macroeconomy sensibly.
13:21
And so the big questions weren't really what to do.
13:24
The big questions were, how come they don't get done?
13:28
And so I think the reason that I got interested in political economy early on,
13:33
was that the important questions really seem to be about,
13:37
why is it that the policies that generally convinced.
13:40
It should be the right ones aren't the ones
13:43
that policymakers in lower-income countries adopt?
13:47
And so what are the political reasons?
13:48
What are the structural reasons?
13:49
So that was one strand of and
13:51
that was sort of why eventually I got more interested in political economy.
13:57
But I was also a little bit always having started asking these questions from
14:01
somewhat different domains of political science and history.
14:05
And having sort of a sense that different countries have prospered
14:09
with very different type of institutional arrangements,
14:12
very different types of policies.
14:14
The whole experience of Japan with catching up with the West through
14:20
its policies of promoting its industries and, of course,
14:24
South Korea and Taiwan, extensive use of industrial policies.
14:29
I was always a little bit skeptical about the Washington consensus recipe.
14:34
Another track that my research was on was really sort of saying,
14:39
okay, let's use the tools of economics as we understand it,
14:43
which is sort of our formal models and our tools of empirical analysis.
14:48
But let's sort of broaden, let's see how we can broaden to also understand why is
14:53
it that South Korea's interventionism worked,
14:56
whereas it might not have worked somewhere else.
14:58
So, broadening this range of policy implications of our existing
15:03
tools was kind of agenda that I was engaged in.
15:06
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>> John Hartley: Well, you've written quite a few papers, and
15:39
quite a few would be an understatement.
15:41
You've written a whole number of very, very influential papers in development,
15:45
international economics too many to discuss here.
15:48
But I guess I'm just curious as you mentioned, you've for
15:52
long been a skeptic of globalization as sort of a panacea,
15:56
as well as what some people call neoliberalism.
15:59
And sort of a long been an advocate of industrial policy and
16:03
active labor market policies.
16:06
Obviously, industrial policy is a very hot topic right now, and
16:10
for a number of reasons, some being more non economic national
16:15
security related reasons, with sort of decoupling from China.
16:19
And others being more economic related, and sort of how to
16:23
respond to deindustrialization and the China shock domestically.
16:28
I'm curious, you've been a long time critic.
16:31
What is your vision for a new economic paradigm?
16:35
I know you talk a lot about good jobs over sort of a welfare state with transfers
16:40
to compensate people for, say, those who are left behind from globalization.
16:46
I'm curious, what is your vision for a new economic paradigm?
16:50
>> Dani Rodrik: First, lemme say that I think in terms of my views on
16:54
globalization and the role that I played in those debates, I've always
16:59
seen myself as kind of somebody was trying to lean against the wind.
17:04
Because I thought that the consensus view had departed so much from any
17:09
sensible take off policy that the evidence or history would sustain.
17:14
So, I think when I was writing sort of my more skeptical pieces on globalization or
17:21
trade in the latter part of the 1990s or the 2000s,
17:25
I mean, the consensus in the economics profession had.
17:30
And also in the policy world,
17:32
in the sort of the world of economic policy technocracy just moved so much in
17:37
a direction that I think was really quite divorced from the evidence where basically
17:42
joining the world economy became the development strategy for countries.
17:47
That all you had to do was essentially lower your trade barriers,
17:52
integrate into the world economy, and that would be your growth strategy.
17:56
Whereas when I looked at countries that had done well both concurrently and
18:02
also in history, those were always countries that had combined
18:07
a strategy of using the world economy for getting the technology for
18:12
selling their exports and getting foreign capital in.
18:16
They've always sort of leveraged the world economy and
18:20
combined it with a sort of domestic investment strategy,
18:24
domestic strategy of structural transformation.
18:27
That was true of Japan, that was true of South Korea.
18:31
It was true of Singapore, it was true of Taiwan.
18:33
Of course, it became increasingly clear that was also going to be true of China,
18:38
which is, of course, what they did.
18:41
So my interest in industrial policy, in trying to understand it,
18:45
was because it was so ubiquitous in South Korea and Taiwan, which was these
18:51
two critical countries that did so well in the period after the early 1960s.
18:56
And you couldn't get away from the conclusion that industrial policy had
19:00
played a very key role.
19:01
I think the notion that was prevalent in the times that I was engaging in these
19:06
debates on trade and
19:07
globalization, industrial policy in the late 90s and early 2000s.
19:12
That these countries had done well, that Japan and South Korea and
19:16
Taiwan had done well despite their industrial policies,
19:19
rather than because they always seemed to be so preposterous.
19:23
And so that was, I got interested in that because I was trying to understand
19:28
exactly what they did, how they did, and how that might have been different
19:33
in other countries that also tried to replicate many of these same policies,
19:38
but that didn't work.
19:40
So that eventually would lead to another strand of my work, which is to try to
19:44
understand why economic policies don't travel, why context matters.
19:48
And trying to do what we came to call growth diagnostics,
19:51
which is to figure out what the binding constraints or economic activity or
19:55
growth might be different in different contexts.
19:58
But I mean, that early work on industrial policy then, of course, now, as you say,
20:03
all of a sudden becomes very, very topical because every country is now doing
20:07
industrial policy and doing it self consciously.
20:10
I think that's the main real difference is not that industrial policy is back.
20:14
It's that it's back self consciously, that it's governments are not afraid to shout
20:19
it from the rooftops that that's what they're doing.
20:21
In reality, it never disappeared, but
20:23
now they're sort of proudly proclaiming that they're doing it.
20:27
So in the spirit of going back to where I started, of leaning against the wind, now,
20:31
these days I sometimes worry that it might go too far,
20:34
[LAUGH] are it might be in the wrong direction.
20:36
So sometimes you'll find me sort of being a little bit skeptical that the kinds
20:42
of industrial policies that we have today, whether it's CHIPS or IRA, can
20:47
achieve all the objectives that the Biden administration has set for these things.
20:53
So those, it's really sort of might come back to industrial policy.
20:58
But later, lemme say a few words about the big question you asked about my vision for
21:05
the next set of economic policies in the future.
21:09
I think I see a lot of our economic and
21:11
political malfunction as being the result of the various labor market
21:17
dislocations of the last few decades through automation, skill bias,
21:22
technological change, globalization, the austerity policies.
21:27
The deregulation of labor markets, weakening of unions and so
21:32
forth, really weakened the foundations of the middle class both
21:37
in the United States and Europe.
21:39
And the disappearance and the scarcity of good jobs that in
21:44
turn has provided fodder for the rise of populist movements and
21:48
the weakening of democracy, the rise of authoritarian values and so forth.
21:54
So these divisions of society, this polarization,
21:57
the political polarization that we have is in many ways a product of the labor
22:02
market polarization that we have experienced during that neoliberal era.
22:07
So I think it's fundamental to repair those labor market fissures.
22:12
And the main idea that I'm trying to get across is that we can't do it by going
22:16
back to the policies of the 60s and 70s.
22:19
These manufacturing jobs,
22:21
which were the foundation of the middle class, are not going to come back.
22:26
The jobs of the future are going to be in services.
22:29
So we need to think about how to increase productivity in labor
22:34
absorbing services, whether it's care, whether it's retail,
22:39
whether it's education, personal services, and so forth.
22:44
So this is an entirely very new domain of thinking about economic policy
22:49
that focuses on how can we increase productivity in the services sector.
22:54
I sometimes call it kind of an industrial policy for
22:57
services, although there's a kind of a contradiction in terms there.
23:01
But that's really the kind of thing that we need to do,
23:05
sometimes I've called this a productivist approach, which is trying to
23:10
engage in the real economy with a range of policies to increase productivity.
23:15
And there's a whole set of policy proclivities that come with this, with
23:20
engaging the private sector, cross sector collaboration, thinking about technology
23:26
as something that can complement labor instead of just replacing it and so forth.
23:31
So I've been trying to fill in my most recent work some of the gaps
23:35
in the thinking on these.
23:37
>> John Hartley: That's fascinating,
23:38
I know you also talk a little bit about good jobs over transfers.
23:43
I think that the idea with, I guess, the more neoliberal advocates was that I
23:48
think a lot have recognized that there have been folks who have been left behind.
23:53
But I guess the solution there, the policy solution there that I think a lot of
23:57
people in that older free market era have sort of.
24:00
The policy prescription that they've advocated is for having policy responsive
24:04
transfers to help those left behind rather than in active industrial policy.
24:09
Why do you think it's more important to have, say, good jobs over transfers?
24:13
>> Dani Rodrik: I think this is one of the blind spots in neoclassical economics,
24:17
that the importance of jobs to sense of individual well-being as well as societal
24:22
well-being.
24:23
I mean, how we think about where utility comes from,
24:27
it's all defined over our consumption bundle.
24:30
And then our jobs, really enter our utility indirectly through how it
24:35
affects our budget constraints.
24:37
So the only way that having a good job really would enter, is by giving you
24:42
a better sort of relaxing your budget constraint, allowing you to consume more.
24:47
I think just looking around, or indeed, if you want more careful evidence,
24:52
looking at what the empirical literature on happiness or
24:56
life satisfaction shows, I mean, the jobs.
24:59
Having a good job or a job,
25:01
is one of the most important thing to an individual's well-being.
25:06
Losing a job is something that causes inordinate loss in utility.
25:12
And if you try to figure out what the monetary compensation would be, it's often
25:18
four to six times the value of the job, of the income that you are getting from job.
25:23
And I think sociologists and political philosophers have also stressed,
25:28
that jobs are important for a sense of social recognition.
25:32
That people define their sense of self worth and their sense of who they are,
25:38
by contributing to society in a productive way.
25:41
That's what my colleague here, Michael Sandel, calls contributive justice,
25:46
as opposed to distributive justice.
25:48
When we think about justice in terms of who gets what,
25:51
it's in the frame of distributive justice.
25:54
And distributive justice can be addressed by transferring income to people who
25:59
don't have it.
26:00
By contributive justice is giving people an opportunity to contribute
26:04
to society as productive members of that society.
26:07
And that requires giving them an opportunity to be productive workers, and
26:14
to work in work environments where they have decent carrier ladders.
26:19
They can exercise agency and autonomy,
26:23
they can be productive and effective in that way.
26:27
But the importance of adding good jobs goes beyond the effect on individuals,
26:32
an individual's self worth.
26:35
One of the things that, again, sociologists have taught us, and
26:39
now to the most recent wave of empirical work related to the China trade shock and
26:45
so forth, has shown us.
26:47
Is that when good jobs disappear from local communities,
26:51
it's not just a loss of income, it's just a significant
26:55
deterioration of the social and political fabric of that society.
27:00
So, deforest rates rise,
27:03
mortality rise, suicide rates rise.
27:08
And individuals become actually politically more authoritarian and
27:13
long held divisions about sort of,
27:16
attachments that might lead to political polarization.
27:21
Like aversion to foreigners, to immigrants, to racial or
27:25
ethnic minorities tend to increase.
27:28
So there's all kinds of social and
27:30
political consequences of the disappearance of good jobs.
27:34
And if you will, these are good job externalities.
27:37
And so that's, I think for all those reasons,
27:41
it's extremely important to look at our next set of challenges.
27:46
As being one of not just redistribution, and
27:50
God knows the social insurance system in the United States can be improved.
27:56
But I don't think the solution is just simply thinking in terms of
28:00
the welfare state.
28:02
It's really about, increasing our number of good jobs our economy generates.
28:08
And that's where industrial policy comes.
28:10
Industrial policy is really about increasing the productive capacity
28:15
of a society by targeting those sectors that have the possibilities of
28:20
increasing productive employment opportunities.
28:23
And that requires working with firms understanding what they need.
28:27
There's a huge local element to that because you need to develop these
28:32
cross sectoral coalitions, to figure out what needs to be done.
28:36
I could get into the details, but I think it might get us too far afield.
28:42
So, let me just stop it here.
28:45
>> John Hartley: To sort of push you just a little bit, cuz I fully agree with you
28:49
that disappearance of good jobs is definitely a very negative thing, and
28:53
something that can be devastating for communities and societies.
28:58
But I guess the real question is what can we do to remedy
29:01
these things that is most effective?
29:04
And I guess in terms of whether our goals are growth versus equality,
29:08
these are also different objectives too.
29:11
So, I guess there's questions about what our objectives are,
29:15
whether it's really just minimizing distortions and redistributing resources.
29:21
Or whether it's very much focused on promoting inequality,
29:25
especially amongst, say something, having good jobs.
29:29
I'm just curious, I really want to make the case,
29:32
understand what the best case is for industrial policy.
29:35
We've seen a lot of good non economic national security cases.
29:39
Think about China and Taiwan, semiconductors, chips Act.
29:42
Then there's obviously a lot in the sort of green space.
29:46
Think of some of the things with IRA and EV subsidies and so forth.
29:52
Obviously there's critics of these things and that they're somewhat
29:56
distortionary and don't necessarily lead to all that many good jobs.
30:00
But there's more sort of classically, just in terms of economic theory,
30:04
there's always been this infant industry argument.
30:06
And I'm curious, you mentioned that we're not gonna bring back manufacturing jobs
30:10
less than 10% of America's workforce are manufacturing jobs just down from 30%
30:15
right after the second world war?
30:16
Those aren't coming back, you're very focused on service sector jobs.
30:20
I'm curious, in what industries do you think industrial policy is maybe most
30:25
impactful in economic terms, in terms of possibilities?
30:28
And is there maybe a limit on some of these policy ideas before,
30:33
say, incentives start becoming a real barrier?
30:37
>> Dani Rodrik: Yeah, I mean, first, I think when I'm asked what's the rationale
30:42
for industrial policy, I actually like to turn that question around.
30:47
The economic rationale for industrial policy is very strong.
30:51
And in fact, most debates on industrial policy don't
30:56
revolve around the economic rationale at all.
31:00
It revolves around issues of, but can governments really do this?
31:06
Want governments really get corrupted?
31:09
Will they actually know what to do?
31:11
So the real debate is really about issues, about political economy,
31:16
about administration, about the capacity of the government,
31:20
rather than the economic rationale.
31:23
Now, why do I say this?
31:25
I mean, the economic rationale for industrial policy is essentially,
31:29
I would summarize it under three headings.
31:31
One is learning spillovers, knowledge spillovers.
31:35
And these are ubiquitous, especially in new areas.
31:40
The second would be kind of coordination failures or issues of agglomeration, where
31:46
you might need to coordinate investments and behavior by private actors.
31:51
And again, these tend to be fairly ubiquitous, especially in areas and
31:55
regions that are lagging behind.
31:57
So you might need to invest simultaneously.
32:00
Training on the one hand, and infrastructure on the other, and
32:04
some knowledge and other kinds of public infrastructure somewhere else.
32:09
These are all sort of issues of coordination.
32:12
And third, it's about critical public inputs that
32:17
public private firms need in order to prosper.
32:21
Now, when we think about public inputs, we usually think about these as public
32:26
infrastructure and education and good regulation and so forth.
32:30
Which we think of as horizontal policies that aren't like industrial policies,
32:35
which tend to focus on individual sets of firms or individual sectors.
32:39
Whereas in the real world, these kinds of inputs are highly context specific and
32:45
highly need to be customized to the needs of individual firms or
32:49
individual industries.
32:51
So whether you're talking about training or
32:54
you're talking about infrastructure, you're talking about technology or
32:58
talking about management assistance, these all need to be customized and
33:03
tailored to the needs of a particular set of industries and firms.
33:07
And that's why they tend to start looking like industrial policy,
33:11
because you're engaging with firms, trying to understand their needs and
33:16
then providing specific inputs.
33:18
And by the way, so industrial policy, I think, is much,
33:22
much broader than simply subsidies.
33:25
I think it's a mistake to think of industrial policy purely as
33:29
the provision of subsidies is really a provision of public
33:34
assistance in this very broad sense to a particular set of firms.
33:39
With the idea of being able to overcome various types of market failures or
33:44
coordination failures or the need for specific public inputs.
33:49
Now, do they always work?
33:51
No, have they often failed?
33:54
Absolutely yes.
33:55
Can we do too much of it and overdo it?
33:59
Absolutely yes.
34:01
But here's the most important thing to draw from this discussion.
34:07
Just like in any other area of economic policy, the issue here is not
34:12
whether there is a good justification for the government to be doing it.
34:18
Or whether the kinds of market failures that are of concern,
34:22
whether they exist or not.
34:24
The question is how can we do it better?
34:26
So the discussion really ought to be about how to do industrial policy better and
34:31
not whether we should have industrial policy at all.
34:34
And unlike so many other areas of policy,
34:37
where you can also worry about capture by insiders or
34:40
by inadequate information on the part of the government, these problems plague.
34:46
All areas of government policy, whether it's education,
34:49
whether it's energy policy, whether it's macroeconomic stabilization policy.
34:53
But in none of these areas are we really discussing whether
34:56
the government should have a policy in the first place or not.
34:59
We discuss how can the government do better.
35:03
And I think that's the discussion that we ought to be having in industrial policy
35:07
rather than this completely unproductive discussion of whether governments should
35:12
do it or not.
35:12
>> John Hartley: That's fascinating and interesting way to think about it.
35:15
One, I guess we should maybe rethink how we measure economic progress and
35:20
think about it broadly.
35:22
But also that it's a learning by doing type approach rather than
35:26
an industrial policy, yes or no type of approach,
35:30
in that we already have a lot of industrial policies as it is.
35:34
And the extent that we have it, how do you end up get a better result,
35:40
say, South Korea, Taiwan, type of outcome.
35:44
Rather than, say, a Japan ministry of International Trade and
35:49
industry type result, which I think a lot of critics use against industrial policy?
35:56
I wanna talk just a little bit more about trade and globalization.
36:01
President Biden has largely continued many of that tariffs and
36:05
quotas put in during the Trump administration.
36:09
I mean, do you see tariffs and quotas being an actual norm going forward,
36:14
or like, for economic reasons.
36:16
Or do you see it as more of just a geostrategic,
36:19
sort of non economic objective tool, similar to, say,
36:23
sanctions to punish foreign policy adversaries like China?
36:28
>> Dani Rodrik: I think it's mostly the latter.
36:29
I think it's being used mostly for geopolitical reasons,
36:34
for reasons that I think we've already discussed.
36:38
I don't see a huge role for trade policy in generating good jobs or
36:45
dealing with issues of labor market polarization or
36:50
addressing the problems of lagging regions in the United States.
36:57
And to the extent that I think those problems are linked and
37:01
their solutions are sought in trade policy or trade restrictions,
37:07
I think is going to yield disappointing results.
37:11
So I think we need to live with two somewhat contradictory ideas in our head.
37:18
Yes, the trade shocks of the 1990s and
37:21
two thousands did play a role in creating labor market problems and
37:27
polarization and fueling the rise of populists like Trump.
37:33
But, yes, also at the same time that most of those jobs that were destroyed in
37:39
manufacturing through trade shocks are not going to come back to the United States.
37:45
So that we have to look elsewhere for productive employment opportunities.
37:51
>> John Hartley: That's fascinating,
37:53
its interesting to think about how trade policy will evolve in the coming decades.
37:59
It seems like in terms of remedies for these trade dislocations,
38:04
you're a bigger advocate for active labor market and
38:08
industrial policies rather, rather than a response in trade policy.
38:13
I'm curious just sort of stepping back a bit and
38:17
looking at the sort of broader picture in terms of all of these sorts of policies.
38:22
Whether it's trade policy, industrial policy, active labor market policies,
38:27
thinking about, say, antitrust, have we hit a new political economy equilibrium?
38:32
Or have we reached, say, a new Washington consensus with industrial policy,
38:37
tariffs, quotas, aggressive antitrust, and so forth.
38:40
The IMF now supports some limited controls on capital inflows.
38:44
That's a huge break from what the IMF was supporting, say, 25 years ago,
38:50
say, when Ann Kruger was the deputy managing director of the IMF.
38:55
Are we at the beginning of a shift, or
38:58
have we hit some sort of a new political economy equilibrium?
39:03
>> Dani Rodrik: We clearly have shifted, and
39:05
we clearly are not going back to the earlier Washington consensus or
39:09
the period of neoliberalism or what I've called the period of hyperglobalization.
39:15
So I think those we've left behind, and we also are definitely going
39:21
to see going forward much greater economic nationalism.
39:26
Which I have to say I don't necessarily think necessarily in purely
39:31
negative terms, because to the extent that countries look out for
39:36
their own economic interests and build stronger economies and
39:41
more cohesive societies.
39:43
They're actually doing a great service for the of the world, too, so
39:47
I think one of the best ways in which you can contribute to
39:51
the world economy is by being a strong economy yourself.
39:54
I mean, look at China we complain to this day about China's Trade policies,
40:00
industrial policies, how they manage their currency.
40:04
But if you grant a point that those were economic management that actually
40:09
contributed to China's growth, and I think it'd be hard to argue otherwise.
40:14
That ultimately China, by providing a huge market for
40:18
Western firms and Western investors, actually helped the rest
40:23
of the world through these policies rather than actually hurt them.
40:28
So that's kind of a bit of a side note on how a shift towards somewhat more
40:33
economic nationalist attitudes towards trade policies and
40:37
the international economy may not necessarily be all that bad.
40:42
Having said that,
40:43
I think what we don't know is what that new equilibrium is going to look like.
40:48
So I would say that we have three possibilities, if you will.
40:53
The good, the bad and the ugly.
40:55
I think the bad really would be a kind of eventual return to the 1930s style,
41:01
autarky and bilateralism and a complete collapse in world trade.
41:05
I don't think we're really going there.
41:08
I mean, the cost of that would be so large given how much more integrated
41:14
all the major economies of the world are today compared to the 1930s.
41:20
I just can't believe that we'll end up there but
41:24
there is a contest between the good scenario and the ugly scenario.
41:30
The ugly scenario, I think,
41:32
is a world in which we don't go back all the way back to the 1930s.
41:37
But a world in which geopolitical competition,
41:41
particularly between the US and China, becomes the perspective, the prism
41:47
through which all our relationship to the world economy gets measured by.
41:52
So essentially we transform a setting in which we should
41:58
look at the world economy in positive sum terms.
42:02
We start looking at it in zero sum terms because that's the kind of perspective of
42:07
geopolitics as opposed to the perspective of economics.
42:10
I think that would be a world in which we neither get more peace because
42:15
it's just going to heighten tensions with China.
42:19
Also, we don't get, obviously, much greater prosperity because all
42:23
economic interdependence essentially becomes weaponized for
42:26
geopolitical and strategic ends.
42:28
I think this is an obvious scenario, I hope we don't end there,
42:32
but I think that's quite likely.
42:33
I think the good scenario is one where countries are able to carve greater
42:39
policy space and policy autonomy, to rebuild their middle class.
42:44
To rebuild their economies, to foster more cohesive societies
42:49
through greater equity and productive opportunities, and so forth.
42:55
So that's all linked with the kind of good jobs agenda that we were talking about
42:59
before.
43:00
That will require a certain degree of greater economic nationalism than
43:04
we've experienced under hyper globalization.
43:07
But I think the paradox is that actually that might, in the end be better for
43:13
the world economy than trying to go back to an unsustainable type of
43:18
hyperglobalization because it ends up being so
43:21
divisive economically and politically within countries.
43:26
>> John Hartley: Yeah, its fascinating to think about what the political equilibrium
43:30
future will look like.
43:31
I think two big things to watch are what happens with China and
43:36
its current growth malaise and whether it takes a step back from its
43:41
big state capitalist approach under the Xi Jinping era,
43:45
back toward the more free market era that was inaugurated by Deng Xiaoping.
43:50
Also, the 2028, I think the presidential election in the US is
43:55
gonna be a huge turning point in the battle for ideas in the sense that,
44:00
have had presidents Biden and Trump the helm of the presidency for 12 years.
44:06
And I think in both parties, as they seek to find their new leaders,
44:12
both Republicans and Democrats,
44:14
to what degree will they be willing to accept a lot of this,
44:19
call it new Washington consensus or new political economy equilibrium ideas?
44:25
Or revert back to more the ideas of the old Washington consensus?
44:31
Something I'm certainly going to be watching, as I'm sure you will be as well.
44:35
Dani, I wanna thank you so much for coming on.
44:36
This has been an amazing discussion, and really amazing, and
44:40
an honor to get to talk to you.
44:42
I think you've been the leading person and advocate for
44:47
industrial policy and active labor policies.
44:50
And have been very pressing as well in talking about some of
44:55
the dislocation type of effects from pursuing free trade strategies and
45:01
something that we only became aware of very much later.
45:06
Or had people been listening to you earlier, I think people would have been
45:09
paying more attention to things like the China shock earlier.
45:12
Really wanna thank you for coming on.
45:14
>> Dani Rodrik: Thank you, John, it was good to talk to you today.
45:17
>> John Hartley: Today our guest was Dani Rodrik,
45:18
who is the Ford Foundation Professor of International Political Economy at
45:22
Harvard University's JFK School of Government.
45:25
This is the Capitalism and Freedom in the 21st Century podcast where we talk about
45:28
economics, markets, and public policy.
45:30
I'm John Hartley, your host.
45:31
Thanks so much for joining us.
45:32
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