Dani Rodrik on Premature Deindustrialization and Why the World is Second Best at Best
Oct 1, 2015
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Expert in political economy and international trade, Dani Rodrik, discusses premature deindustrialization, the challenges faced by developing countries, the importance of industrialization for economic growth, the tension between immigration and the welfare state, the absorption of Syrians into Germany, Vietnam's development, and the decline of manufacturing industry.
Premature deindustrialization can hinder growth in poorer nations, emphasizing the importance of rapid industrialization for development.
Manufacturing possesses unique characteristics that make it more adaptable and conducive to rapid industrialization and economic growth.
The trilemma theory suggests that combining democracy, national sovereignty, and global economic integration is extremely challenging, as demonstrated by the Eurozone crisis.
Deep dives
Premature deindustrialization and the future of Africa
The guest, Danny Rodrick, discusses the notion of premature deindustrialization, which suggests that poorer nations today may not be able to follow the path of industrialization taken by countries like South Korea or Taiwan. Rodrick explains that rapid industrialization has been a key factor in the rapid growth and development of countries like South Korea, and without the possibilities of rapid industrialization, countries may experience slower growth based on the accumulation of basic capabilities, human capital, and institutional improvement. He also highlights the importance of a steady and hard-working approach to growth, rather than relying on the rapid growth rates seen in industrialized countries.
The special characteristics of manufacturing
Rodrick talks about the special characteristics of manufacturing that make it unique compared to other sectors. He explains that manufacturing technology is more easily transportable across international borders, making it easier to adopt and adapt. Additionally, manufacturing has the advantage of being able to absorb a large number of unskilled workers, thus rapidly increasing productivity and employment rates. Manufacturing is also tradable, meaning that countries can import inputs and export the output, allowing for growth without relying solely on domestic demand. Rodrick emphasizes that these characteristics contribute to the potential for rapid industrialization and economic development.
The trilemma of democracy, national sovereignty, and global economic integration
Rodrick discusses his trilemma theory, which states that democracy, national sovereignty, and global economic integration are incompatible. He explains that countries can only combine two out of the three aspects, but not all three simultaneously and fully. Using the example of the Eurozone, he suggests that Europe must choose between greater political integration or less economic integration. He believes that Europe should have pursued greater political integration during the crisis, but that the opportunity was missed. He concludes that it is challenging to solve the trilemma without compromising one aspect, and that the current state of the Eurozone highlights the difficulty of balancing these three elements.
Importance of Liberal Institutions in Democracy
The speaker emphasizes the importance of liberal institutions, such as the rule of law and non-discrimination, in well-functioning democracies. While elections are an essential part of democracy, it is equally crucial to have constraints that prevent the majority from infringing on the rights of minorities. The absence of liberal elements in many democracies, including Turkey, allows winners of elections to undermine the rights of those not part of the majority. The speaker argues for empowering the median voter but within a framework that ensures equal treatment of all citizens.
The Challenges of Premature Deindustrialization
Premature deindustrialization, where manufacturing becomes capital and skill-intensive, has posed challenges for developing countries. The speaker highlights how changes in technology and globalization contribute to this phenomenon. Import competition, particularly from countries like China, has limited import substitution possibilities for low-income nations. The shift towards more capital and skill-intensive manufacturing has implications for developing countries that traditionally relied on labor-intensive manufacturing for employment. Premature deindustrialization and its effects on employment and economic development are discussed, with emphasis on the need for countries to adapt to these changes in order to thrive.
Tyler and Dani Rodrik discuss premature deindustrialization, the world’s trilemmas, the political economy of John le Carré, what’s so special about manufacturing, Orhan Pamuk, RCTs, and why the world is second best at best.
