Wanted: New economic models for a post-globalization world

What if decades of conventional economic wisdom about the benefits of globalization and free-market competition turned out to be so deeply flawed that they need drastic rethinking? Could insights from the people who have suffered most from those failed policies point scholars toward new solutions?

Those questions underpin a new initiative being launched by Harvard Kennedy School Professors Dani Rodrik and Gordon Hanson, longtime analysts of the shortcomings of markets and globalization in America and across the world.

Their work has brought them a $7.5 million grant from the William and Flora Hewlett Foundation, which will support the first five years of the Reimagining the Economy Project, based at the Kennedy School’s Malcolm Wiener center for Social Policy. Their project will take a deep look at the people and places that globalization left behind and try to plot new pathways to productive growth and decent jobs.

That project is one of four related academic research initiatives being funded by Hewlett; the other three are at Howard University, MIT, and Johns Hopkins University. A fifth grant from the Omidyar Network for a similar project at Santa Fe Institute brings the total committed by the two foundations to more than $40 million so far, and later this year the Ford Foundation and Open Society Foundation will fund additional projects around the world also designed to rethink economic policy.

In announcing the first grants on Feb. 16, the Hewlett Foundation said: “At a time when orthodox economic prescriptions are failing and democratic governance is threatened around the world, scholars at leading academic institutions will investigate how economies should work in the 21st century and the aims they should serve for societies around the world.”

At the Kennedy School, Hanson and Rodrik will drive a project that will work with practitioners and workers on the ground as well as scholarly theorists to come up with workable alternative approaches to what is often called the Washington Consensus or “hyper-globalization.”

“Our ultimate goal is to go beyond the analysis of how our current economy works (or doesn’t) to consider new structures, governance mechanisms, and forms of market economy and capitalism,” the HKS professors declared in their project proposal.

Harvard Kennedy School Dean Douglas Elmendorf, the Don K. Price Professor of Public Policy who is also an economist,  said the Rodrik-Hanson initiative “recognizes that existing policies have left many societies with stark inequities in opportunity. This project will tap the ideas and experiences of ground-level practitioners as well as scholars and analysts to develop practical policy solutions that can generate growth and create productive jobs in the places where people need them most.”

Rodrik, the Ford Foundation Professor of International Political Economy, has taught at the Kennedy School for most of his career since earning his PhD from Princeton in 1985. Hanson is the Peter Wertheim Professor in Urban Policy and came to HKS in 2020 from the University of California, San Diego. The two economists approach the problem from distinct research perspectives.

Hanson has spent the last decade assessing how the Chinese manufacturing boom since the 1990s affected American workers, especially in the industrial Midwest and Southeast. He won acclaim for his research finding that the effects of the “China Shock” were not only deep but sustained, long after the import surge leveled off around 2010. Hanson and his research partners showed that the impact on workers varied from one American factory town to another, depending on factors including the workers’ age and their ability to move to another town.

Their conclusion in a recent working paper: U.S. policies have fallen far short of promises to retrain displaced factory workers, many of whom remained permanently jobless.

While Hanson focused on U.S. workers, Rodrik built his reputation as a global economist who was willing to challenge conventional economic policy long before it became fashionable. His 1997 book, Has Globalization Gone Too Far? anticipated the criticisms of unfettered competition that have since become more widely accepted.

In an interview, Rodrik said the failings of conventional policies that led to long-term economic stagnation in many developing countries have inflicted similar hardships in recent years on workers in advanced economies, not least the United States. He stressed that the challenge everywhere now is not just to achieve growth, but “to create employment and productive opportunities … giving meaningful, productive jobs and meaningful career ladders.”

“More and more in recent years, I've have come to believe that the problem that the United States and many other advanced economies are facing has become qualitatively quite similar to the problems that I’ve grappled with for essentially all my academic career, which is how to create economies that are both more productive and more equitable—because I think the crux of the matter is creating good productive jobs,” Rodrik said.

He said the failure to do that, both in developing nations and the industrial West, has resulted in “economic insecurity and inequality in the exclusion of large segments of the population who have not really benefited from patterns of innovation and globalization in recent decades … . One of the symptoms of that is this process of right-wing authoritarian populists. So I think it’s very important for us to have good answers. But we have lagged behind in generating good policy responses, good institutional responses to some of these problems.”

The new research project will build a database of local and regional policies and their effects, starting in the United States but later expanding to other countries. The emphasis on place-based policy options is a departure from most conventional approaches, which rely on national economic strategies. 

The local tactics have included offering targeted worker training based on the needs of local employers; helping convert abandoned factories and warehouses to new uses; and providing logistical support to local businesses capable of expanding and creating new jobs.

Hanson says the project calls for some humility, given the scant success of jobs policies in distressed communities in recent years. “Dani Rodrik and I are going to go learn from the practitioner community about how they’s tried to improve economic conditions on the ground, and then try to draw more general lessons about successes and failures they’ve experienced.”

He says this work should produce “the first systematic, harmonized database of place-based policies and interventions nationally over the last 40 years. And then that analysis will help us provide some guidance about which policy combinations look like they are better matched to which sets of conditions in a community.”

Some of those policy options will flout conventional wisdom. And the resulting menu of job-creation, training, unemployment benefits, and education policy actions should help local and state officials respond to very local circumstances, Hanson says. The work will also draw from European and other international models that emphasize place-based approaches rather than rely on solutions such as tax incentives to attract new businesses, which have had little success.

Hanson will focus mainly on the struggling American communities that have felt the brunt of the China shock. Rodrik will bring in his global perspective to assess the American jobs landscape and will also look at how local policies in other industrial and developing countries have tried to confront the effects of global trade on workers.

“Our goal is to have this project become more international as we go along. We need to start somewhere, so we’re starting in the U.S., but you find the challenge of distressed regions and left-behind places and regional economic distress in Europe, and it’s increasingly common in emerging economies,” Hanson says. “China has this issue [and] it’s true for Mexico. So the policies need to be tuned to local contexts, but the challenges are truly global in nature.”

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Banner image by AP Photo/The Tribune-Star, Joseph C. Garza; Inline images by AP Photo/The Telegraph, John Badman and Nam Y. Huh