Wednesday, November 14, 2007

Dani Rodrik's Welcome Analysis of the Deficiencies of Modern Economics When its Exponents Ignore Institutions

Dani Rodrik’s new book, One Economics, Many Recipes: global institutions, and economic growth, (Princeton University Press) has attracted interesting comments on several Blogs. I had intended to contribute some views earlier, but my temporary absence for a couple of days altered those plans.

I would like to comment on some preliminary issues raised by Dani Rodrik though and perhaps follow up with a longer assessment later. An oline seminar was sponsored by Crooked Timber (here) introduced by Henry Farrel, and includes some leading economists as guest contributors: David Warsh, who runs Economic Principals (here); Dan Dresner (here); Mark Thoma's Economist’s View, a leading economics Blogger(here); Jack Knight (author of Institutions and Social Conflict); Adam Przeworski;(">here).

Their contributions to the seminar are published at Crooked Timber, plus the numerous comments each contributor has received.

It is also advised that you read Dani Rodrik’s One Economics, Many Recipes ($27.44 from Amazon US; £16.60 from Amazon UK). It addresses current issues in development – why are the performances of many countries so variable; what does this suggest for the various policies advised by neoclassical economists, particularly in the Washington Consensus, and what conclusions might be drawn from this situation?

Dani Rodrik passes the insider test of being an accomplished neoclassical economist and he never strays too far from its reference points in modern theories of economics. However, he certainly is not a purist when it comes to the application of economic theory to real world problems.

Without shaking the foundations of modern theories his book raises very interesting questions about the strict application of pure theory to the problems his book addresses, and about the relative non-success of neoclassical theories, or more correctly the assumptions on which their application is based, pointing out the weakness that the institutional assumptions of competition, rule of law, efficient political structures, legislative honesty and stability, often do not obtain in the countries which try to apply the Washington Consensus under advice from the World Bank, and others.

What is more, some of the success stories of recent growth and development do not conform to the implied free market models (China, India, Vietnam) and neither did the earlier successes of South Korea, Taiwan, Malaysia, Singapore and Hong King.

So how come? That is what interested me in reading these chapters.

Not surprisingly, to readers of Lost Legacy, I could not help but contrast how Adam Smith saw economic development in Wealth Of Nations and wondered what his work could contribute to such a discussion. It is to this subject that I wish to make a contribution, and shall do over the next few days.

I would post these ideas on Crooked Timber, but feel somewhat chastened for contributing, apparently, too often on the earlier debate on Greg Clark’s, A Farewell to Alms (Princeton University Press), on Marginal Revolution a couple of months’ back.


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