Addressing climate change, shoring up the middle class to strengthen democracy, and eradicating poverty are three large issues that countries around the world are grappling with today. But too often countries make trade-offs that mean a focus on one or two of these goals are at the expense of another. This is the case that Dani Rodrik, the Ford Foundation Professor of International Political Economy, makes in his new book “Shared Prosperity in a Fractured World: A New Economics for the Middle Class, the Global Poor, and Our Climate.”
Rodrik, who is codirector of the Kennedy School’s Reimagining the Economy project, spoke with HKS about why the world needs a revamped model of globalization that responds to changing industries, the pressures of climate change, and the interplay of democracy and economics. Read his insights below (you can also watch a recent panel conversation on the themes of “Shared Prosperity in a Fractured World” or read about the event).
Q: Your book discusses three urgent priorities—rebuilding the middle class, ending global poverty, and tackling the climate crisis. Why do you see these as interdependent challenges rather than separate ones?
In the absence of a systematic and realistic strategy for addressing all three we will create cruel tradeoffs. For example, economic growth in the poor countries will seem incompatible with restoring the middle class in the advanced nations. Addressing climate change will come at the expense of global poverty reduction and good jobs. I show in the book that these tensions can be ameliorated once we understand all three challenges require similar policies of structural transformation in rich and poor nations alike but directed at services and green activities rather than manufacturing.
Q: You argue that the old model of globalization has run its course. What does your “new globalization” look like in practice, and who stands to gain or lose from it?
Under hyper-globalization, global integration had become the end for policymakers around the world and domestic social and economic arrangements the means. I propose a “thinner” version of globalization that recognizes U.S.-China rivalry and also that nations require significant policy space to pursue economic goals, social cohesion, and environmental objectives. I suppose the only losers from such a system would be footloose corporations and financial institutions that have thus far benefited from the rules of the game being attuned to their interests.
“Whether we like it or not, the jobs of the future will be in services. In the advanced nations, these are care work, retail and warehouses, food services, and the like.”
Q: If manufacturing will no longer be the backbone of middle-class prosperity, where will tomorrow’s good jobs come from, and what should governments be doing now to create them?
Whether we like it or not, the jobs of the future will be in services. In the advanced nations, these are care work, retail and warehouses, food services, and the like. Most of these jobs do not require college degrees, so greater access to college education will not help much. Higher minimum wages and labor standards can help some but also come at the risk of creating pockets of unemployment as higher labor costs reduce demand for labor. The only sustainable remedy is increased productivity in these service activities, which requires governments—both local and national—to develop and disseminate the organizational and technological innovations that make higher productivity possible. We have plenty of examples of how this can be done (discussed in the book), and governments can build on them.
Q: For decades, developing countries grew by exporting manufactured goods. If that model is disappearing, what new development paths can lift people out of poverty in the 21st century?
De-industrialization is a feature of most developing countries as well. Even when successful, manufacturing remains an enclave sector and its overall contribution to economic growth and inclusion significantly lower than in the past. So, developing countries too must find ways to increase productivity in labor-absorbing services. Again, we have many examples around the world on how to assist small and medium sized firms, use technology to enhance productivity of informal sector workers, and spur entrepreneurship. Most importantly, the new strategy requires a shift in in focus from trickle-down development—based on nurturing and growing globally competitive firms—to a bottom-up approach based on expanding pathways to the middle class.
Q: Can you say a bit about an approach to greener economies that might share the cost burden fairly among countries?
Realistically, the green transition will happen when countries find it in their own self-interest to invest in renewables and accelerate the greening of their economies. China has shown how this can be an effective strategy: the country has provided a global public good—cheap renewable energy—while at the same time advancing its own economic and geopolitical interests. There is no reason other countries—especially rich and middle-income countries—cannot pursue the same path, using the type of green industrial policies China has perfected. Even in the best-case scenario, though, I fear many low-income countries would be left to their own devices and would end up bearing the brunt of climate change. Avoiding this scenario, through the provision of financial and technological assistance to the least developed nations, must be a top priority for global cooperation.
Q: Do you have reason for optimism that the world might move towards shared prosperity and achieve the aims you discuss in your book?
We live in a period when it is difficult to be optimistic about the prospects for democracy, sustainability, and economic development. What gives me a bit of optimism is that we have multitudes of experiments around the world, carried out by pragmatic policy entrepreneurs, that show that the type of approach I advocate in the book both works and is politically feasible.
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