Matt Lucky reviews Dani Rodrik’s new book, “Shared Prosperity in a Fractured World: A New Economics for the Middle Class, the Global Poor, and Our Climate,” now out at Princeton University Press.
Harvard economist Dani Rodrik’s Shared Prosperity in a Fractured World takes on a herculean trifecta of trials on the path to reforming a global economy that is failing so many: arresting climate change, rebuilding the middle class in advanced countries, and eradicating poverty in developing countries. Rodrik then concludes that in the pursuit of this new globalization, we will also reach a solution to rising populist movements and their path of democratic destruction. The risk with such an ambitious project is overpromising solutions, yet Rodrik seems to elude that snare. He offers policy recommendations across the three legs of his project. Yet, he repeatedly notes that what he is advancing is inadequate to fully ameliorate global challenges. In lieu of a complete policy blueprint, Dani exhorts nations to experiment with industrial policies that prioritize pragmatic, context-sensitive “second-best” solutions (i.e., don’t let the perfect get in the way of the good)
With regard to addressing climate change, Rodrik notes that the United Nations’ Intergovernmental Panel on Climate Change expects it will be difficult to limit global warming to two degrees, the scientific community’s consensus tipping point into environmental catastrophe, even if all nations meet their planned emissions targets. Yet, there is some cause for optimism as the price of renewable energy sources has dramatically fallen in the past decade. China’s “developmental environmentalism” is the exemplar for its aggressive subsidization of green industries that has engendered a virtuous cycle of rising production and falling prices. Speaking to China’s success, Rodrik observes that in 2023, China contributed 59% of the world’s added renewable power capacity. China’s remarkable success exemplifies the ability for individual nations to pursue self-interested industrial policies that also provide a global public good. This feeds into another major theme in Shared Prosperity, which is Rodrik’s advocacy for reprioritizing the ability of nations to chart their own policy courses, rather than insisting on systems of global governance. The progress achieved here on climate change, a prototypical issue that ought to require coordinated global action, is offered as evidence that sometimes global problems may be solved as a side effect of national self-interest.
Despite his praise for China’s green industrial policies, along with accolades for the United States and European Union for similar progress in green industries, Rodrik judges that “on their own, [these policies] are clearly not adequate.” This is a running theme in Rodrik’s policy recommendations: they are nice, but not enough. Additional progress on the climate front will require advanced nations to transfer a massive $1 trillion a year to developing ones in the form of cash and green technologies. Rodrik flags facilitating the green transition in the developing world as the main point of departure from his theme that global governance does not always hold cures for global ills.
Shared Prosperity’s second policy challenge is the restoration of advanced economies’ middle class through the supply of secure and well-paid “good jobs” with strong labor protections. A middle-class restoration is essential for delivering crucial goods to the majority of the public. Rodrik attributes populist movements to the economic shocks of globalization and argues that restoring the middle class through the delivery of good jobs will restabilize democratic societies.
The revival of the middle class is hardly a new political goal. In fact, every American politician identifies it as a top priority on the campaign trail. Rodrik contends that American policymakers have failed to resuscitate the middle class because of a misplaced, nostalgic emphasis on manufacturing jobs over improving productivity elsewhere in the economy that can actually lead to more—and better-paying—job creation. Contemporary manufacturing industries do not have the capacity to absorb enough labor to lift up blue-collar workers back into the middle class, as it did in the 1960s and ‘70s, Rodrik instructs. To witness the collapse of manufacturing jobs, look to “China, the world’s factory,” which American politicians blame for taking manufacturing jobs away from the U.S. Certainly, Rodrik notes, China “registers a growing export surplus in manufactures nearly every year.” However, “the country’s manufacturing employment has been in decline since 2011.” Indeed, Rodrik continues, “between 2011 and 2020, China lost thirty-one million jobs in manufacturing—more than the total number of manufacturing workers in the US and Germany combined.” Advances in technology and productivity mean that not as many workers are needed to manufacture the same number of goods as were necessary even two decades ago.
Alternatively, Rodrik advises that policymakers ought to focus on improving the productivity and quality of service sector jobs that will provide the bulk of employment in the future. This is not necessarily an easy task, as Rodrik notes that historically it has been more difficult to improve productivity in the service industry than in manufacturing. For instance, Rodrik notes that after centuries of technological progress, many service tasks, such as conducting an orchestra or cutting someone’s hair, still require the same amount of time to complete as they always have. Technology has not sped up output there as it has for manufacturing tasks.
Yet, Rodrik has a basket of proposals to offer here, including extending public credit to firms and initiating tax incentives, subsidies, and job training programs. Rodrik is skeptical of his own suggestions of tax incentives and job training programs, which in the U.S. have poor track records for creating jobs. Sectoral training programs focused on sustained relationships with local businesses in specific industries appear more promising. Yet, thus far, they “remain small and have yet to leave a large footprint on labor markets.”
Other options include altering occupational rules to allow workers to perform restricted tasks. Here, an example is a rule change to permit nurse practitioners to undertake more complex tasks previously reserved for full physicians. This would reduce the cost of providing, for example, routine check-up examinations, which in turn would expand the supply of medical services and bring in more nurse practitioners.
Rodrik further proposes “a national innovation effort under the US Advanced Research Projects Agency (ARPA) model with a focus specifically on the development of labor-friendly technologies.” Technologies are socially constructed, so we can choose to design them to be labor-enhancing rather than labor-replacing. We can choose, for instance, to design large language model webportals for customer service that replace paid employees, or we are equally free to design an LLM on the backend of customer service that advises/assists a human employee to enhance their productivity. That said, the implementation of an ARPA-like model, in keeping with the experimental orientation of Rodrik’s thinking, is designed to search for potential technological solutions down the line, rather than provide a self-sufficient blueprint for creating bountiful service jobs.
The progressive diminishment of global manufacturing jobs relative to the world’s population is not just a problem for developed countries and poses a conundrum for eradicating global poverty, Rodrik’s third and final chief concern. While China and the East Asian Tigers could use manufacturing to absorb low-skilled labor on their way to development, that pathway is gone for other countries. Instead, “many developing countries have been experiencing what [Rodrik has] called premature deindustrialization. They fail to reach levels of industrialization achieved by others before them and begin to shed manufacturing jobs at much lower levels of income.” The answer, again, must be increasing the productivity of service jobs.
Some of the recommendations for developing economies parallel those above for their advanced peers: worker/management training services, public credit, infrastructure investments, and technologies to improve productivity among low-skilled workers. More particular to developing nations is the need to consolidate small, informal firms into larger, formal businesses that can then benefit from economies of scale and fill government coffers through taxation. Again, Rodrik concedes that the tools on the table for eradicating global poverty appear inadequate on their own.
The intermediary solution is once again policy experimentation. The lodestar ought to be China, which engaged in regional experimentation before scaling up successful initiatives to the national level. Success in experimentation requires, first, a “diagnostic mindset [that] starts with relative agnosticism on what works and what doesn’t. It tends to be limited in its ambitions at any point, focusing on identifying and removing the most severe constraints or bottlenecks.” That is, we need to set aside prescriptions that attempt to identify and implement universal policy regimes and instead work to iteratively tease out what works in context. What makes regimes “smart” is not merely how well they use existing expertise, but how they learn and produce new policy knowledge over time.
Maintaining an experimental political system that can learn and improve is, alas, a difficult task. For one, Rodrik notes that proper experimentation entails a significant degree of failure. For instance, both Solyndra, a manufacturer of solar panels, and Tesla received federal support for green technology companies under the Obama administration. The former infamously collapsed while the latter became a global giant in electric vehicles. In non-authoritarian countries, political leaders must inculcate in the public a degree of acceptance for such policy failures. Some investments will fail, but the net outcome is socially beneficial. To Rodrik’s point, I would append my own, which is that it is not obvious how to prevent an experimental policy mindset from becoming a victim of its own success. Today’s successful policy experimenters, by the merits of their success, are likely to become tomorrow’s entrenched and recalcitrant expert class. That is to say, experiments that demonstrate measurable success may be codified into a new paradigm of “best practices” to follow, especially for bureaucratic agencies that prize regularity and rule-following. Is the best we can hope for, then, some punctuated equilibrium in policymaking over time, cycling through periods of stability, crisis, and experimentation?
With those thoughts aside, Rodrik further suggests that stepping away from global governance and toward a system of nations regaining autonomy over internal economic policies would, among other benefits, afford nations the degrees of freedom necessary for experimentation. For instance, Rodrik suggests that international agreements to restrict tariffs and industrial subsidies sometimes remove valid tools from policymakers’ hands. He contends that a policy free-for-all would be less troublesome than many assume, as states will commonly remain motivated to trade over cultivating autarky. To manage the world after global governance, Rodrick recommends that nations adopt a set of deliberative practices for negotiating out agreements and disputes. The point here is to prioritize the ability of nations to talk through disputes, often imagined as a bilateral exercise in Shared Prosperity, rather than attempting to resolve disagreements through formalized institutions. This again reflects Rodrik’s pragmatic elevation of experimentation and pursuit of contextually varied policies over universal systems: nations iteratively talk through their disputes, rather than crafting comprehensive policy blueprints categorically across nations through global governance.
To close, I have concerns regarding Rodrik’s contention that economic inequality is driving polarized us-versus-them populist politics. He offers that “regional job losses caused by globalization, automation, fiscal austerity, and weakening of labor market protections have been responsible for increased support at the polls for right-wing populist candidates.” Put slightly differently, people experiencing economic dislocations, including, for instance, job losses related to global trade, are expected to embrace outsider populist candidates who promise to overthrow the existing order that is materially failing the people.
However, there are many sources of dysfunctional polarized politics that we can identify before the era of hyperglobalization. Within the U.S., for instance, scholars point to the deployment of partisan cable news, the sorting and stacking of group affiliations to create political “mega-identities,” the homogenization of state parties, and the closely balanced strength of the Republican and Democratic electoral coalitions. All these factors driving polarization predate contemporary economic pains, often by decades. I would certainly not deny that economic distress plays a role in polarization, yet I would recommend thinking of economic shocks as accelerants added to an existing conflagration, rather than the spark that started the fire. The multicausal nature of contemporary political dysfunctions is an issue for Rodrik’s response to populism, as it suggests that constructing a good jobs economy is a necessary, but not sufficient, condition for sustaining liberal-democracies.
Ultimately, two points in Shared Prosperity deserve special emphasis. Firstly, Rodrik’s call for a pragmatic and experimental approach to policy reflects a sage recognition that policymakers do not have answers to every question ready in hand, and that future prosperity will require nations capable of learning through experimentation. Secondly, Rodrik’s argument concerning the global withering of manufacturing employment entails substantial consequences for the future of advanced and developing economies. It also serves as a partial indictment of the explicit employment goals driving industrial policy in the last decade of American policymaking.
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