Tyler Cowen: evaluation

Transcript context

…I think the answer to your last question is yes, although I wouldn’t say we should be more skeptical. I think we should expect lower return to it, is what I like to say, simply because I think the possibilities of industrialization in the sense that you could put, in the old days, 30, 35 percent of your labor force into manufacturing — that is not going to happen. Sub-Saharan Africa will not get there. What that means is that the returns to even successful industrial policy these days are less. That has a couple of implications. One is that, increasingly, I think we really need a different term. We shouldn’t say industrial policy. Maybe we should talk about a structural transformation policy. Your perspective in terms of how do you get to rapid transformation. You should move away a little bit at the margin from manufacturing into other parts of the economy. I think you should be thinking more about services, as well. A lot of services are tradable. To some extent, some of the advantages might exist in tradable services, as well. The other thing which I think a lot of . . . a common mistake in industrial policy that low- and middle-income countries do, which is to look at industrial policy or criteria for success of industrial policy in terms of output, exports, innovation, R&D, patents, and things like that. Whereas I would put a lot more emphasis on actually employment. The question is, are you generating adequate employment in these more productive industries that are oriented into world markets? Because the kind of industrial policy that ends up generating profits and investment and R&D in a low-to-middle-income country, but at the same time your employment is shrinking, is not going to be the kind of high-return activity for the economy as a whole. I think you’re basically right. I go around these days a lot less advocating for very forceful industrial policy, in large part because I do think that the returns to it have fallen. I think also we need to think through a lot more what it should look like in a world where in fact we are concerned at least as much about services as manufacturing, even in the middle-income or low-income countries. Let me introduce one of your best-known ideas. It’s sometimes called Rodrik’s trilemma of the world economy. Here’s how one of my readers defined it. “According to this theory, democracy, national sovereignty, and global economic integration are mutually incompatible. We can combine any two of the three, but never have all three simultaneously and in full. ” Given that, which I would agree with, if we take the eurozone today, something clearly isn’t working. I don’t mean just Greece. But every now and then we have of a nascent recovery, and the recovery’s over before it really has even gotten underway. The eurozone is now sliding back to deflation. France, Italy seem to be slow-growth countries permanently. Let’s say it’s up to you. Given Rodrik’s trilemma, what should the eurozone do? Academically, it’s very easy to give an answer. It’s what the trilemma suggests. That Europe or Europe’s policymakers should decide whether they want . . .…

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