APRIL 30, 2020
1 Hour and 53 Seconds
Listen to this Wiener Conference Call with Dani Rodrik, Ford Foundation Professor of International Political Economy, who discusses how COVID-19 will affect globalization and which developing economies are best poised to respond to the crisis.
Wiener Conference Calls recognize Malcolm Wiener’s role in proposing and supporting this series as well as the Wiener Center for Social Policy at Harvard Kennedy School.
Good day everyone. I am Mari Megias from the Office of Alumni Relations and Resource Development at Harvard Kennedy School and I’m very pleased to welcome you to this Wiener Conference Call. As we all continue to navigate the new normal brought on by the pandemic, the Kennedy School has increased opportunities for remote engagement. So watch your email for more invitations to learn from HKS faculty. Also, given that we are all working remotely, we’re running these calls a bit differently. So apologies for any issues we may experience.
Dani Rodrik is Ford Foundation Professor of International Political Economy at Harvard Kennedy School. He is published widely in the areas of economic development, international economics and political economy. His current research focuses on employment and economic growth, to both developing and advanced economies. We’re very fortunate that Dani is here today to share his expertise with our Kennedy School alumni and friends. Dani.
Thank you, Mari, and I hope everyone who’s joined, and their loved ones are safe and will be so. Let me just lay out a few ideas and themes and then take questions. Subsequently, I should begin with the ... By making the obvious point that nobody really knows what’s going to happen after COVID-19. We’re in the midst of what looks like the deepest economic crisis since the Great Depression as well as a very severe public health challenge. And I think as we look ahead to what might happen in the world economy, we run the danger of trying to ... Of providing a prognosis that would fall easily prey to a kind of a confirmation bias and affirmation of our own worldview.
We may very easily see signs of a future economic and political order that aligns very closely with what we may have longed wished to see in the first place and that’s what I mean by confirmation bias. I’ll try to avoid that, but you will be the judge of how successful I have been. Let me start with what I think are going to be three fundamental post COVID trends. The first of those I would say would be a rebalancing between the role of the market and the role of the state with a much stronger state. I think the crisis has made evident the need for adequate state capacity to respond to crisis, to protect people as well as the inadequacy of markets and just competition on its own in responding to collective action problems.
I think that the specific indication of the United States that I think the crisis is going to elevate demands for more significant coverage in terms of health insurance, much stronger labor market protections including gig workers, demands for building up or protecting critical domestic supply chains and medical equipment and other industrial products. I think that’s some first big trend rebalancing of the market-state relationship in favor of the state. Second a retreat and obviously related to the first theme a retreat from hyperglobalization reassertion of the nation state that means bringing supply chains home, prioritizing domestic production, domestic employment, domestic finance, emphasizing resilience and dependability over minimizing costs or maximizing efficiency.
The third theme I would say that I think we’re likely to see a significant reversal in growth prospects for developing nations in particular. This is important because developing nations are coming off two decades or so of very strong growth. Developing countries as a whole, even if you leave out the East Asian countries had the best two decades since the ... Two decades after the Second World War. And the crisis they’re going to be facing is not just in terms of dealing with the public health challenge for which they have much weaker institutional capability obviously. But in addition to the kinds of shocks that developed countries are facing, developing countries are facing a number of very large external shocks in terms of sudden stop in capital flows, a significant reduction in remittances and tourism earnings and export receipts.
And developing countries have a very limited capacity to respond in particular the fiscal capacity is very limited unlike in the advanced countries where even central banks are encouraging a very strong fiscal response and saying, “This is not the time to worry about inflation or debt ratios into developing worlds.” The potential for resumption in inflation if fiscal expenditure rises significantly is a real threat. So three post COVID trends a stronger state retreat from hyper-globalization, significant reversal in the growth prospects for developing nations.
My second big point is to say that in fact, none of these trends are new. None of these trends are actually specifically created by COVID, they are simply what I would say intensification of pre-existing trend. So to return to the title of this presentation, I don’t think COVID is going to remake the world. I think it will simply speed up what has been an ongoing transformation. So let me say a couple of words about that. First, with respect to the market and state balance, I think we’re all aware that what many people have called the market fundamentalist or neoliberal consensus of the 1990s to 2000s has already largely dissipated. We are aware that inequality has become a very core concern even for centrists and for the right, and there’s greater recognition that market forces on their own are not adequate to address inequality and exclusion. We can see how much the nature of the conversation has changed about the role of the markets versus the state in the US, for example by noticing that even though Elizabeth Warren and Bernie Sanders have not made it to the nomination.
The most likely candidate Joe Biden, the only candidate, who was viewed as a centrist, is on almost every policy front. His ideas are much more to the left of what was on the agenda of the previous Democratic nominee, Hillary Clinton with respect to which was much more ambitious health insurance plans, much greater spending on green energy and climate change and much greater public funding for education. And I think as many have pointed out, Biden’s current set of policy prescriptions would be considered radical if they had been proposed by any previous Democratic presidential primary, and that already reflects how much the conversation on the market state balance has already moved.
With respect to the retreat from hyper-globalization, I think that was also evident. It was evident in the numbers, we might associate that retreat with the much more recent experience of Donald Trump’s flag waving on protectionism and the US-China trade war. But in fact it precedes that the numbers show that global value chains have been slowing down significantly in recent years. Trade buoyancy has been down which is that since 2008 international trade has stopped growing more rapidly than global GDP. And a very striking quantitative indicator of this decline in the expansion of world trade, is that in China, the export to GDP ratio has come down by a full 16 percentage points of GDP since 2006. It stood at around 36% exports of goods and services in relationship to GDP was around 36% in 2006 has come down already in 2018 to 20%. And of course, China’s export expansion was a big driver behind hyper-globalization until last quarter century. So the retreat from hyper-globalization also was a trend that was well had been set in motion before COVID.
And third, with respect to growth in the developing countries, I think even though that is perhaps a little bit less well recognized, the growth model in developing countries actually had already run its course in the last few years with growth coming down both in Latin America and in Sub-Saharan Africa in recent years. And that’s for the simple reason that this recent growth boom in those countries, both in the middle income countries in Latin America as well as the low income countries of Sub-Saharan Africa was based not on the sort of the most durable, sustainable kind of growth model that we know, which is industrialization in particular export oriented industrialization. But instead, these recent examples of growth boom were based on either commodity exports or on public investment drives neither of which is actually quite sustainable. So that growth had begun to come down and there was already again a trend that the COVID crisis is simply going to intensify rather than necessarily an agenda on its own.
The third and final big point that I want to make is that when we think about the consequences of these three big headline trends that I have identified, I don’t think we should think of them as inherently undesirable trends in and of themselves. And so far as the world economy was already on a sustainable, fragile path I think what has opened up for us is now a range of alternatives, some of which are pretty bad, but others are necessarily ... Or others are possibly necessary and desirable adjustments to what was a kind of unsustainable order.
And so therefore, whether we think these trends are on the whole a good thing or a bad thing we’re going to depend largely on how we choose to respond, how societies and governments will choose to respond. So again let me return to my sort of three big themes and expand a little bit about what I mean by that. With respect to the balance between state versus markets, I think the big question there is whether that the sort of the pro-state anti-market reaction is going to take a kind of an excessive reactive ad hoc state’s interventionism or will it take the form of a more inclusive sustainable balance between states and markets. And the question is, are we going to be able to put in place policy regimes that stimulate the creation of good jobs and to rebuilding of the middle class. And that’s going to take the kind of a partnership between states and businesses and other civil society actors and that’s going to require partnership and strategic cooperation, rather than hostility or returning back to our state versus markets kind of stale dichotomy.
So depending on the choices we make this reconsideration of the role of the state can be either negative or positive. With respect to globalization I think one can imagine a much more sensible globalization that in key respects fall short of hyper-globalization in its economic dimensions does not push nations to open up their borders to trade and investment to the same extent, gives them a lot more autonomy to devise their own rules and regulations without the pressure of flip lose capital. But that perhaps goes a third over in some other areas of globalization, which we have sorely neglected.
And of course the global public health area is not quite clearly one of those areas. We could have imagined, we could have built a globalization around public health issues around climate changes use, around labor rights issues with WHO or environmental agreements or ILO at the center of the global regime, instead we invested our political capital and building a globalization that is heavily economic in nature with the WTO or CDI, IMF as being the key organization the linchpins of that order. That has brought us a lot of good things but I think we pushed that system too far at the expense of the globalization that we needed to have in many other areas where there were too global public goods and there were severe problems of beggar-thy-neighbor.
And so the question there is whether we will move in the direction of that more sensible, more balanced globalization that balances economic considerations with considerations of the environment, health, social solidarity, labor rights, or are we going to get a kind of a senseless reactive protectionism and the focus on ethnonationalism and then looking at the world from the lens of us versus them. And [inaudible 00:17:16] because it’s a zero-sum game exclusively.
And very finally, with respect to growth strategies in developing nations I do think that growth rates will generally be much lower in the developing world even as the effects of the crisis wear out. But the silver lining may well be there that if this crisis makes policymakers in the developing world realize that they were on a growth model that was unsustainable, that if it pushes them to reorient their efforts in a direction that focuses much more on, and I would have to say here, it will have to be much more on the domestic economy and our services because I think exports of manufacturers in particular are very unlikely to play kind of the role of an engine going forward. And again, for reasons having to do with many trends, technological and other trends that pre-date the COVID crisis.
But I think the silver lining here is that there might be a much more realistic appraisal of growth prospects on developing country leaders. A real orientation towards the domestic economy and building wider strengths around services and the middle class. And because that’s ultimately what’s going to provide both employment and sustainable growth prospects in the developing world. It is going to be lower rate of growth, but unlike commodity exports over public investment-based exports, it might be one that’s easier to sustain. So again, to summarize and close I think COVID in many ways is intensifying and speeding up the pre-existing trends. I think that how this will play out depends largely on the choices that societies and governments are going to make. So it is not all gloom, we have agency and if we make right choices I think there are lots of useful terms that the world economy could take. So let me just stop here and I’ll be very happy to take your questions.
Q: Which multilateral institutions do you think will come out stronger and which weaker and why as a result of the pandemic?
Well, I would like to hope that what comes out much stronger are institutions that I named quickly in my talk. And those are the ones that are addressing true failures of global public goods. And those would be like the World Health Organization, stronger international environmental agreements, the International Labor Organization, which has really been sidelined for decades. And I think those would be the elements of a global regime that we really need to strengthen. And I do think that the elements of the world economy that ... The World Trade Organization, the OECD and even the IMF I think are going to come out weaker at the end of this.
Q: My question to you professor is that you just mentioned OECD and my question is really to follow up, how do you think the role of the OECD would be in terms of fiscal policy in the coming years?
Thank you for the question. I think the OECD has been trying to transition into a mode where problems of social inclusion equity are much more prominent in discussions. The OECD I think for the last three or four decades has spearheaded a process of economic liberalization among its members and also for prospective members. For example, one of the requirements for membership in the OECD has long been openness, the absence of controls on the flow of international capital movements, including short term capital movements. So in order to become a member of the OECD in emerging market, or a middle income country would have to remove all controls on capital flows. Now, today, even the International Monetary Fund accepts that in the kind of world economy that we live and the volatility of international capital flows that capital controls might be a useful policy to a lot of countries.
So I see the OECD sort of moving away from its sort of hyper globalist view to one that is much more emphasizing the role of labor rights, labor standards, models of social and productive inclusion. And I think it remains to be seen how successful it’s going to be, but there’s certainly people in OECD who’s trying to transition the organization in that direction.
Q: My focus has been on the labor issues. You’ve mentioned the ILO a number of times, what do you think would be the priority issues for a rethink of the ILO and specifically, would you think that an idea like a global minimum wage would be helpful?
I’m not a fan of global minimum wage but I would be very much in favor of making the core international labor standards a much more significant global norm. Now, to the point where we make adherence to those core ILO labor standards a precondition for signing trade agreements. And I realized that since the United States hasn’t signed some of those core labor standards and core labor conventions that would leave the US out. But it should be an aspiration for the US as well. And I think actually that was clearly stated by ... But it was part of Elizabeth Warren’s plan that this has to be an aspiration for the US.
So I think realistically, much of the work that needs to be done to improve the working conditions of labor and the bargaining power and the voice of labor in much of that I think I would say 80% of that work has to be done within nations. There’s very limited that international organizations can do. But I think they can help in terms of developing certain norms, certain expectations, and I think that’s what I would hope that the ILO would be elevated in terms of ... A kind of an international organization that people look up to and then take some of the conventions, ILO conventions and the norms that are being developed at the ILOs as aspirations to elevate their economies towards.
Just as I was mentioning a minute ago the requirement of not having any capital controls as one of the norms of the OECD having sort of subscribing to the core ILO Convention, which has enabling things like freedom of association, people collective bargaining no exploitation of labor, some requirements on child labor and so forth. But the global minimum wage I think is problematic in that so much goes into sort of what should be an appropriate wage not just even across countries, but even within nations that I’m not sure a global standard on that would be very helpful.
Q: I do agree with your three major points which are well taken. And as I suspect you know when General Mattis has made it very clear when he said, “You start to cut back on development funding, you better be prepared to spend more on bullets and arms.” My question comment to you, sir, is that notwithstanding what you’re saying and then with parochial political publics as the Americans or the United States is pulling back from international engagement and my country is very well versed in terms of rhetoric’s, but we lack what is called the systemic essential funding or the bottom in terms of walking the talk. And as such, there are many vulnerable nations now that are hanging by a thread. And I would like to say that common sense dictates but also rigorous insights in terms of investigation states that poverty and unemployment are probably the two essential drivers’ vectors resulting in violence. And violence when uncontained tends to migrate, resulting in also ecological as well as economic collapse. What would you suggest if you were the advisor to the next president of the United States in terms of what he should be doing in the next 12 months? I thank you, sir.
Yeah. Thank you very much for your question and comment. And I agree about the importance of development funding, but on the part of the international community. And I think that this point in particular, this is a huge issue given the magnitude of the problem that developing countries are facing. I mean it’s hard enough in the advanced countries, but in the United States today, even the Fed is saying, “Don’t worry about fiscal deficits just go and spend and we will do whatever it takes in terms of the expanding credit.” Because nobody’s really worried about inflation in the advanced countries like United. And nobody’s worried about inflation is because there is a significant increase in saving and resources and financial markets are very deep both in the US and the advanced countries.
And those resources are also augmented by sort of flows returning, leaving the developing world and coming back into the advanced countries. And to the support the poor countries for in both, I would say the low-income countries and also middle-income countries where in fact there’s a lot of poverty in the middle-income countries. Those countries are facing a kind of a magnified shock because that’s so much of their external revenue and external sources are drying up in the developing world. So, what I would tell anyone who would listen and the advanced countries is that this is really the time to think of really enlightened self-interest to that. As you say, you’re absolutely right that if developing countries suffer, go through a kind of a crisis that’s going to imply a significant reversal of developing open trend that we have experienced.
Africa was as you know was full of conflict and many of those conflicts were successfully dealt with. And in most parts in Africa have had a relatively good two decades. And if that’s going to reverse, it’s going to end up in the societies just collapsing with internal and civil wars and a lot of people leaving. And that’s not going to be very good for neighboring countries or Europe and eventually the United States. So enlightened self-interest does mean with coming to their assistance in practical terms right now means not just making available medical supplies and vaccines and treatments as they become available but also dealing with the economic crisis and that means going beyond what has been promised, which is simply the moratorium on ODI and bilateral government aid to low income countries. But actually extending the moratorium to ... That contracted by private borrowers in the developing countries as well as that’s been raised in private capital markets and not just provided by donor government.
So, it has to be really much, much bigger and much broader because in the absence of a moratorium of that kind of a standstill of that service from the developing countries. I just don’t see how developing countries are built to turn around very quickly.
Q: I wanted to engage with you on your second point Dani about de-globalization. And at risk of revealing my own confirmation bias, I was very interested in your point about the various ways in which globalization may be unwinding or pausing. And I wanted to draw you out a little on some of the issues we’re going to experience in the next few years that you mentioned, such as global trade agreements falling apart, action on global public goods like now obviously public health and vaccines, but also in the medium term fighting climate change is going to get more difficult. Would you say that the way to deal with that is to double down on the existing global agreements that we have, like the sustainable development goals, the Paris Agreement for climate change and so on? Or do you think that we have no alternative in the next few years, but to assemble coalitions of the willing that will work on individual of these topic. But will never bring together all the governments in the world because there will always be some countries such as United States and Brazil on the climate change issue or possibly Russia on nuclear proliferation that are just not willing to play ball and that we can’t afford to wait for.
Yeah, thanks. I think conceptually, analytically, the argument for global arrangements and global agreements is very clear. So, in the area of climate change it’s very clear that what you need is a global agreement that goes beyond the Paris that has two elements. But one is a sort of clear limits or taxes on carbon. But secondly, also significant resource transfers to developing countries so that they can undertake the transition to cleaner energy. Now, the analytical conceptual argument for this kind of an agreement is very clear. But we knew already before COVID and before countries began to retreat from sort of global arrangements that this was very, very hard to achieve. And I think this is something else that’s going to become more difficult as we go forward.
So, I think realistically much of the action in terms of climate, in terms of the environment, in terms of more resilient public health systems or for that matter as I was saying better labor market arrangements. I think that will have to come from within individual nations and sometimes acting in concert with others. So even in the area of climate change where the argument that is the global public good, fighting climate change, the global public good that in the absence of global cooperation that each nation will under-invest in it and will collectively go to hell, I think what we’ve been seeing in recent years is that the most meaningful action is actually taking place within nations. Some nationally, states within nations like in California.
So, from an economic standpoint, it doesn’t make any sense. Why should California do anything to fight climate change when it’s such a small part of the global pool. But it turns out that ... It becomes a kind of you can build up political support and change norms and expectations on the part of different types of voters and stakeholders and you can get action at the local level. And that you can do because there are political systems at the sub national or at the national level that sort of work to get that done. And we have no equivalent in the transnationally or globally. So realistically, I think even in those areas where the argument that this is a clear global public good, or clear problem of global comments, I think it’s going to be mostly sort of national or the coalition of willing, as you said.
Q: You’ve talked a lot about the choices that would need to be made and that would definitely determine what we have post COVID. We’re trying to work on what are those choices in terms of options for governments. Resources, as you have mentioned, will be limited all over, particularly for developing countries and middle-income countries. So, as resources are diminished and governments are faced with decisions on where to divert the limited resources that they have, what do those choices look like in order to be more people centered, human development enhancers versus having some other types of consequences. If you’re going to bail out, for example, it’s impossible to impose measures for those companies that you’re bailing out so that they meet some criteria. I like the reference to global norms, but we already know that those are not necessarily binding and that presents a problem. So my question to you would be, what do those public policy choices that governments have look like to you if we want to come out of the crisis in a better situation than we were before? Thank you.
Yes. Thank you for that question. I think this is partly a question about sequencing and what needs to be done upfront and very quickly, and partly a question about sort of what the medium-term strategy is. And then the question is what kind of a bridge, what does the medium-term strategy, what might it imply for how we craft the short term response. So I think really something, I think obviously if there was a willingness on the part of the international community with respect to helping provide ... So let me say a little bit more about what that international response might look like.
I’ve mentioned a standstill on that service that extends to all sovereign debt. We might envisage that standstill also extending to debt that has been contracted by private borrowers in the developing world like corporates or banks because they’re going to have a very hard time servicing their external obligations. And that I think is where some of the quid pro quos might come in to the extent that, for example governments guarantee the takeover or guarantee the debts of private borrowers in return for the standstill being granted. Then it would be perfectly appropriate to impose conditions on banks to keep on lending, for example, or to corporates to maintain employment. And that I think that’s one area where some of those imposition of conditions might play out. But the first order of business is dealing with the public health crisis and that requires a kind of what I would call a carefully crafted lockdown strategy that is not necessarily drastic because that really kills the economy and might create more health hazards. People don’t get access to food or employment or jobs.
So, it carefully crafted lockdown strategy that suited to each individual country on considerations with sort of support and safety nets and employment supports to ensure to the extent that the extra multi economic costs can be borne by the state. Then marrying those sort of shorter term responses with a bridge to kind of the medium term strategy. And the medium-term strategy as I briefly indicated has to be one that’s trying to develop the productive capacity of the economy broadly not just simply focusing on the most innovative, the most competitive, the most export-oriented parts of the economy. But the more, the parts of the economy that generate reasonably good jobs, even if they’re not the most productive, the most export-oriented parts, that’s going to be mostly services, mostly for the domestic economy.
So, we need a kind of a different type of what used to be called industrial policy, but that tended to focus on exportable. We need to think about a version of that, that’s going to be much more domestic market and much more services oriented with the goal of generating and sustaining good employment prospects. Because that employment and good jobs is going to be the name of the game. Both for the advanced countries and for the middle-income countries and low income countries in Sub-Saharan Africa. I think beyond that many of the particular aspects that are going to obviously depend on country considerations. And so, it’s very difficult to say more beyond those generalities.
Q: I wanted to ask you about energy. Do you regard the concept of energy circumstances as really a blip? Or do you imagine low fossil fuel prices continuing for some time with potentially severe implications for the second tier, poor oil producers, but also perhaps for climate change as the focus is really on restarting economies?
I’m not an expert as you know on energy markets, but I think that we are going to be in a period when growth is going to be low. And I think that’s going to my inclination is to think that that’s going to keep our energy and commodity prices fairly low over the medium term even if they will recover somewhat obviously. But it might be ... That environment could grow to be low prices.
Q: I currently work at the European Bank for Reconstruction and Development. And I actually put on a follow-up question to the first two questions to discuss on the role of international organizations going forward. And I would be interested to hear how professor Rodrik will see the role of multilateral development banks, and perhaps also EBRD with our private sector mandate.
Yeah. I think that multilateral development banks have to ... They really played two roles. One is that they’re lenders, they make resources available. The second is that they generate ideas and strategies and norms and expectations about good policy, and I think they’re probably equally important. Although, the second one is obviously a very ... It’s somewhat more abstract notion. The first one you can measure by the volume of lending. But the influence in terms of ideas and narratives and norms and beliefs about what good policy is might be harder to measure, but in practice might be more important.
So I think with respect to EBRD in particular, I would say that I think there’ll be two things that will be difficult for EBRD to stick to. One is the one that she already mentioned, which is the private focus. And I think there would have to be a kind of ... And a reformulation of what does private investment and the supporting environment for private investment look like in these broadly much more mixed economies. Where I think there is much more state involvement in markets, investment, employment innovation decisions and not all of that is necessarily bad. So that the idea that the government has to stay out of that has to be qualified.
And secondly that EBRD the notion that I think EBRD will have to be one way or another, paying a lot more attention to politics of the client states. I think that’s because politics has taken a very ... I think the expectation was that most of the countries that the EBRD would be dealing with have become democratic. They would remain happily and nice and democratic, and that’s obviously not how the world has turned out. Whether you are talking about Turkey or Russia. And I think that EBRD at some point will have to make some decisions about making distinctions between countries that have broadly response to the countable democratic regimes and those that don’t.
Q: I have a question: I’ve been working on health reform in the US for the past 15 years and I’m looking at the current situation both domestically and globally. But to think that where we’ve had such dichotomies and lack of the ability to ... I guess we revert to blaming the victim for their health status. As I’m looking at COVID and wondered if you think that this opens up an opportunity for us truly to see ourselves as more interconnected certainly within the US but really globally and that, that could help to make this argument for solidarity that we’ve been having such a hard time making certainly a more familiar with what’s going on in the US. But the dichotomies that we’ve seen, the polarization, which has been so disheartening, I’m trying to see a silver lining here potentially, and I wondered what your view is of that in order to build the political will for some better social change.
Yes. Every crisis as the old saying goes is an opportunity. But it’s a two-sided opportunity. It’s not always an opportunity for the side that wants to reform in the direction of more inclusive society. But I think it’s also an opportunity for the other side of that to retrench some of the existing arrangements. I think we’ve sort of seen that in the aftermath of the 2008, 2009 crisis, which if you will, was a kind of thing smaller scale, that was pretty severe, but this seems like it’s a smaller sized version of this. And the puzzle is that what came out of the 2008, 2009 crisis was that you could have said many of the things you just said, which was that that crisis made it clear that it would be much more important to have good safety nets, a solid system of financial regulation and much more responsible globalization.
And by and large it wasn’t that side that made political that was able to exploit the crisis for political ends. It was, I think, kind of authoritarian political right that was able to sort of wrap a kind of a cultural identity racialist politics around what I think was fundamentally sort of economic and social anxieties and politically come out ahead. I think one lesson is that every crisis is also going to provide an opportunity for the other side. The other more positive lesson I think is that in order to ensure that the reformists that we have to have a good story, we have to have a good narrative that is a vote winning strategy.
And I think in some ways that’s what the progressives and the left have, it seems to me, lacked. I think things have been changing but I think we probably haven’t gone nearly far enough that we need to be able to provide both the narratives and the specific policies that are going to appeal to a sufficiently large number of people and big enough coalition to be also sort of a winner in the political marketplace. And I think there has been some progress in that. But somehow I think other political forces have been more successful, I think both in Europe and in the United States recently.
Q: Professor Rodrik, I’d like you to elaborate a little bit on your third point about the growth strategies for developing nations. I was born in Morocco and had a particular interest in this country’s development. Practically my question is the following, how does one move away from the traditional manufacturing export-based development model to a more domestic service oriented providing local employment model when one is in the middle of such a storm. How does one transition, how do you go from one place to the other? I’ve noted your earlier point about providing a general moratorium to public and private debts. No doubt all these countries will have to raise additional debts. They don’t have the fiscal latitude that the Western world has. So how do we get there? Thank you.
So, I think that’s really a question of a medium-term strategy. And I want to say again that obviously the first ... The immediate needs of dealing with the public health crisis and providing safety nets, and income support takes precedence over the needs of the ... Sort of having a kind of sustainable medium-term growth strategy. The question is to what extent you can craft, adapt your short-term response in a way that might provide a bridge to the medium term strategy. And there might be a couple of ways of doing that, for example, since as you know, so much of the employment in developing countries is informal and countries and governments are now being forced to think creatively and imagine that to be about how do you provide support to people who are otherwise hard to reach because they’re not formally registered as employees.
So think about how you can transform your strategy of assistance to them not purely as providing handouts or providing food assistance but also trying to think of them, treating them as employees and improving their employment conditions because that’s going to be one of the criteria for that medium term growth strategy of expanding reasonable employment strategies tools. So it’s really trying to get our mind around the question of not just providing income support and food assistance, but also thinking about these people as informal employees as being informal workers, as being as sort of their role as workers and as potentially workers or self-owned businesses that might be able to expand their jobs, of course, not in these depressed times, but ultimately.
So, I think that’s a one way of rethinking how you would structure your systems as a bridge to your medium-term strategy. The other is with respect to formal workers or formal enterprises that if you are going to be assisting them as you will have to by providing credit guarantees, by maybe taking over some of their debt, by giving them tax advantages, what in turn are you going to ask your formal enterprises to engage in? Are you going to ask them to engage in maintaining their workers, in providing collective bargaining rights? In undertaking investment innovation strategies that are much more friendly to labor. Are you going to use this as an opportunity to start a dialogue? Kind of a partnership with your established firms and a bridge to this kind of a medium-term strategy where employment and good jobs are going to be central.
Great. Well, thank you very much for that question and answer. We apologize to everyone who was not able to get their question answered. But thank you for calling in, to listen and a special thanks to Dani Rodrik for sharing his expertise with us this morning.