“The principles of the Washington Consensus are not a useful guide to promote economic growth in Latin America,” said economist Dani Rodrik in the course of a presentation organized by the Research Department of the Inter-American Development Bank. “The periods of economic growth have no relation with the policies of integration to the world economy,” added Rodrik, who is a professor at Harvard University.
The scholar invited the public to explore alternative strategies to globalization, and pointed out that “experimentation is an important driver of economic development, both in the institutional and productive spheres. But such experimentation is fully compatible—and indeed should be based on—sound economic principles, namely property rights, incentives, hard budget constraints, etc.”
Economic growth of Latin America
Rodrik classified the recent economic history of Latin America in three stages: between 1960 and 1980, there was sustained growth, at an average pace of 2.9 percent a year; between 1980 and 1990, the region had negative growth of –0.8 percent a year; and starting in 1990 economic growth resumed at an average pace of 1.6 percent a year.
According to Rodrik, during the first stage, the region had investment incentives, but lacked discipline, resulting in a too diversified industrial sector. The third stage is characterized by tough discipline related to the Washington Consensus, but without adequate incentives for investment. The region needs to achieve balance between incentives and discipline.
The rules of international trade
Rodrik stated that the needs of the developing world are better served by a “thin” set of rules for global economic governance, as opposed to a “thick” set of rules aimed at maximizing trade and foreign investment flows. By the same token, he said that for Latin America, the regime created by the General Agreement on Tariffs and Trade was better than the one developed under the World Trade Organization.
Rodrik emphazised that it is more difficult to sustain economic growth than to start it, and that each of these goals requires different actions. It is necessary to adopt a flexible strategy that combines elements of the “orthodoxy” with unconventional institutional innovations, adapted to the specific needs of each country.
Globalization and economic growth
As for his premise that the process of integration into the world economy is useless for triggering economic growth, Rodrik compared the average annual growth of gross domestic product per capita of Latin America since 1990, 1.6 percent, with China’s spectacular 8 percent since 1980. He emphasized the fact that China was not part of the World Trade Organization during that period.
Rodrik explained that China took some “institutional shortcuts” to solve problems such as low agricultural productivity, lack of fiscal revenues and unemployment. He added that those shortcuts were not in line with the Washington Consensus, but they were imaginative and innovative solutions that were adapted to the local culture and facilitated the transition. Rodrik highlighted the fact that policies that might work in one country would not necessarily work elsewhere.
Dani Rodrik is well known for his criticism of globalization and trade liberalization, which he has expressed in books such as Making Openness Work: The New Global Economy and the Developing Countries and Has Globalization Gone Too Far?