Globalization, Institution, and Economic Growth by Dani Rodrik - Book Report/Review Example

Dani Rodrik. One Economics, Many Recipes: Globalization, Institution, and Economic Growth. Princeton University Press. 5th Edition. 2007. [Client’s Name] [Subject] [Professor’s Name] [Date] Economies around the globe have experienced tremendous growth in the last two decades as globalization became a dynamic element in each globalized economies’ market. With globalization, trade and business can flow from one market to other markets with little or no disruptions, allowing economic growth of enormous proportions. But globalized economies need to develop standard form or structures that every member economy must respect, recognize and follow. By rule of thumb, the most powerful economies should provide most of the structure of the globalized economic community to ensure sustainability and long-term growth. Global organizations like International Monetary Fund (IMF), World Trade Organization (WTO) and World Bank together with economies of bigger stake help design this universal set of rules to protect and promote the interests of the global economy. This system seems to work pretty fine until the global economic meltdown. To put things in perspective, globalization of economies became the bane of the global economic community, at least according to anti-globalization advocates like Dani Rodrik. This group of economists believed that globalization of economy has penetrated the society deep enough that it is present in social areas where, according to George Somos during an interview with PBS, “where it doesn't really belong”. Moreover, globalized economies have become too dependent on the financial structures proposed and implemented by global organizations that when one major economy began collapsing, the rest of the globalized economies followed almost instantly. The recent developments in the global economies baffled many of the extremely bright economists around the world since the aftereffects of the global economic meltdown signifies the incompleteness and incompetence of the economic theories they believed and advocated for too long. Various theories have been presented and many major economic philosophies have been revisited to account for what made the economic strategy pursued by the Washington Consensus failed on a very large scale. Book Summary One Economics, Many Recipes by Dani Rodrik argues that the failure of the global economy is it left local economies vulnerable to local changes. By principle, members of the global economy follow, implement, and pattern their economic policies to the policies suggested by global organizations and bigger global economies like US and UK. The first part of One Economics provides detailed explanation why global policies failed to address local economic changes which eventually led to the global economic failure. The second part of the book establishes the need of context-specific economic policies. While the global economic community received much success with centralized fiscal, monetary, and economic policies, the recent developments in the economy suggest that these policies fail when economic heterogeneity is considered. Rodrik considers Washington Consensus as a set of fundamental economic policies that could not take into account specific economic variations in every economy, hence, making it useless in case-to-case economic situations. The book’s fundamental goal is to understand and explain why it is important for local economic policies to be developed alongside global economic policies. Rodrik argues that universal set of economic policies would almost always fail to answer the local economic policies required by each economy for two main reasons: first, local conditions vary a lot from each other that universal economic policies often do not address these variations. As Rodrik puts it, “appropriate [economic] growth policies are almost always context specific” (Rodrik 4); second, the book underscores the importance for globalized economies not to rely solely on economic policies drafted and implemented in the Washington Consensus but also to make their own internal economic policies that could address economic-specific concerns. According to Rodrik, different initial economic conditions require different approaches of economic policies. Relevance of the Book The economic think-tanks that have driven the global economy to massive growth in the last two decades could not fathom the root cause of the economic instability that started in late 2007. As was mentioned, various economic policies around the globe were revisited in order to derive explanations as to how the economic policies outlined in the Washington Consensus failed. The book sends the message that too much reliance on the government policy interventions or the institutional changes implemented by the private sector has not yield positive long-term economic growth and thus must be discarded, revamped, or modified. The global economics and global politics aim to solve the issue of poverty in underdeveloped countries by creating a system that allows economic growth to these countries fostered by globalization. However, the globalized approach to economy is either intrusive government intervention or the strong reliance on laissez-faire market oriented policies. With the recent developments in the global economic crisis, it appears that not one of these two approaches works in the long run. Revisiting these policies is just the right thing to do in order to correct the mistakes that were done in the past. The relevance of the book One Economics is it puts forward the idea that the existing economic policies used by the global economy is ineffective and inappropriate in heterogeneous economies. Rodrik deliberately criticized the inefficiencies of the global economic policies put forwards by the Washington think-tanks which, according to the book, have caused the massive economic failure experienced by various members of the globalized economy. Neither of the existing approaches mentioned could make long-term and sustainable economic developments in heterogeneous economies as existing policies normalizes economic conditions instead of treating the extreme conditions of different economies with respect. The ideas presented by Rodrik are neither novel nor original but his arguments on how sustainable economic growth can be achieved by departing from the centralized form of economic policies is. One Economies advocates two main ideas: first, the combination of approaches of the government and private sector by integrating the economics of extremes with tested governmental and industrial policies as well as institutional ramifications to sustain and/or jumpstart economic activity. It prescribes a collaborative effort between the government and the private sector to identify the economic-specific constraints that impede the economy to achieving its full potential. The main thrust of these collaborative policies will be focused on increasing entrepreneurial activity of each economy. The recent economic progresses of developing countries supported Rodrik’s claims. Counties such as China and India who are part of the global economy but attack their economic issues using their own institutional and political methods have experienced long-term growth because the economic policies these countries have created are very suitable to their own circumstances. Rodrik identified economic constraints such as high cost of capital, too low appropriability of returns, and low economic activities because of the inadequacies in factors such as investors and human capitals. Rodrik believes that economies experiencing such constraints must create, implement, and direct policies that would relax the constraints and allow economic growth to occur, rather than utilizing universal solutions that are unsuitable for the economy’s situation. However, the book did not give an outline on what steps economies must take in order to achieve the goal of sustainable development. Instead, the book promotes individuality of economic approaches where the solutions to be designed must be aligned to the sustainable programs of the country. Unlike the unified solutions proposed by Washington Consensus, Rodik’s One Economy suggest pragmatic approach on economic healing based on continuous experimentation to allow governments to identify which works best for their particular situations. He believes that sound economic practices are those that are specific to the contexts where they apply best. Critical Analysis Rodrik’s ideas are grand because they are simple. He argues that economists and political scientists must work within the framework of their exiting economic policies in order to effectively resolve their economic issues, instead of relying on a centralized, universal set of policies that overlook outlying cases. But these ideas are just innovations of countless ideas presented by various economic theorists and political analysts and none of these ideas were actually put in action because of their incompleteness. While Rodrik has the necessary academic, theoretical, and institutional backgrounds to substantiate his claims in the book, the inadequacies of the book and the vacuum of workable ideas are very apparent. Rodrik’s claim that in order for the globalized community to avoid similar circumstances in the future, economists and governments must innovate and develop new methods of understanding the market movement, trends in economic growth, and trading policies within the existing economic theories is too broad for practical application. At some point, Rodrik’s idea to perform collaborative efforts to implement change in economic policies may seem so naïve and innocent when taken into a larger context. While it is true that economies should experiment on the ways to sustain economic growth and development, actual change requires broader and more detailed discussion, planning, and implementation before it can be achieved, something that Rodrik is quite vague about. One Economics’ claim that economic effectiveness is context-specific has two major implications. First, it implies that the effectiveness of any economic institution is a function of social and cultural factors identified by the definite characteristics of the country. Second, this claim implies that the effectiveness of any economic institution is defined by the existing preconditions of an effective market. These two implications are very difficult to meet and are contradicting each other to some degrees. How can an economy determine what social and cultural factors must be aligned to meet the demands of the existing preconditions of an effective market without losing the goal in the process? Rodrik did not say anything about this difficulty too. Economic experimentation is closely linked to democracy and institutional choices. Political changes in an economy result to institutional changes which may affect the democratic frameworks of that economy. Besides, it is quite difficult to implement policy change in a democratic economy because change is only feasible to a very narrow range of institution so as not to disrupt democracy. In other words, the selection process alone of policies that will be changed in order to correct an economy’s performance without altering the democratic framework is already a daunting task, let alone the implementation of the change itself. Without a clear, concise, and detailed theoretical and practical step to implement such political and economic change, economic stability is very hard to achieve. But Rodrik is not entirely wrong. His argument on institutional experimentalism might actually work. Institutional experimentation is necessary to gain knowledge on how various social aspects of an economy react to the policies that are and will be instituted in order to correct these policies and determine the correct and most appropriate approach. Of course there is no definite way to theoretically determine which courses of actions to make which makes the experimentation an appealing approach to solving current and future economic issues. References PBS. Bill Moyers Journal. October 10, 2008. Retrieved online from http://www.pbs.org/moyers/journal/10102008/watch.html Dani Rodrik. One Economics, Many Recipes: Globalization, Institution, and Economic Growth. Princeton University Press. 5th Edition. 2007. Read More