DANI RODRIK Global Poverty Amid Global Plenty: Getting Globalization Right
the end of the 1990s, China’s export portfolio resembled
that of a country with an income-per-capita level at least
three times higher than China’s. 7
Foreign investors played a key role in the evolution
of China’s industries. They created the most productive firms, introduced new technology to the economy,
and became the drivers of the export boom. The SEZs,
where foreign producers could operate with good infrastructure and with a minimum of hassles, deserve
considerable credit.
But if China welcomed foreign companies, it always
did so with the objective of fostering domestic capabilities. It used a number of policies to ensure that technology transfer would take place and that strong domestic
players would emerge. Early on, they relied predominantly on state-owned national champions. Later, the
government used a variety of incentives and disincentives to foster joint ventures with domestic firms (as in
mobile phones and computers) and expand local content
(as in autos). Cities and provinces were given substantial
freedoms to fashion their own policies of stimulation
and support, which led to the creation of industrial clusters in Shanghai, Shenzhen, Hangzhou, and elsewhere. 8
Many of these early policies would have run afoul of
WTO rules that ban export subsidies and prohibit discrimination in favor of domestic firms—if China had
been a member of the organization. Chinese policy makers were not constrained by any external rules in their
conduct of trade and industrial policies and could act
freely to promote industrialization.
By the time China did join the WTO, in 2001, it had
created a strong industrial base, much of which did not
need protection or nurturing. China substantially reduced its tariffs in preparation for WTO membership,
bringing them down from the high levels of the early
1990s (averaging around 40 percent) to single digits in
2001. Many other industrial policies were also phased out.
However, China was not yet ready to let the push and
pull of global markets determine the fate of its industries.
It began to rely increasingly on a competitive exchange
rate to effectively subsidize these industries. By intervening in currency markets and keeping short-term capital
flows out, the government prevented its currency (
ren-minbi) from appreciating, which would have been the
natural consequence of China’s rapid economic growth.
Explicit industrial policies gave way to an implicit
industrial policy conducted by way of currency policy.
Asia’s economic experience violates stereotypes and
yet offers something for everyone. In effect, it acts as
a reflecting pool for the biases of the observer. If you
think unleashing markets is the best way to foster eco-
AMERICASQUARTERLY.ORG
nomic development, you will find plenty of evidence
for that. If you think markets need the firm, commanding hand of the government, well, there is much evidence for that too.
Globalization as an engine for growth? East Asian
countries are a case in point. Globalization needs to be
tamed? Ditto. However, if you leave aside these stale arguments and listen to the real message that emanates
from the success of the region, you find that what works
is a combination of states and markets. Globalization is
a tremendously positive force, but only if you are able to
domesticate it to work for you rather than against you.
THE DIVERSIFICATION IMPERATIVE
You become what you produce. That is the inevitable fate of nations. Special- ize in commodities and raw materials, and you will get stuck in the periphery of the world
economy. You will remain hostage to fluctuations in
world prices and suffer under the rule of a small group
of domestic elites.
If you can push your way into manufactured and
other modern tradable products, you may pave a path
toward convergence with the world’s rich countries. You
will have greater ability to withstand swings in world
markets, and you will acquire the broad based, representative institutions that a growing middle class demands, instead of the repressive ones that elites need
to hide behind.
Globalization accentuates the dilemma because it
makes it easier for countries to fall into the commodities trap.
The international division of labor makes it possible
for you to produce little else besides commodities, if
that is what you choose to do. At the same time, globalization greatly increases the rewards of the alternative
strategy, as the experiences of Japan, South Korea, Taiwan, and China amply show.
Sustained poverty reduction requires economic
growth. A government committed to economic diversification and capable of energizing its private sector can
spur growth rates that would have been unthinkable in
a world untouched by globalization. The trick is to leverage globalization through a domestic process of productive transformation and capacity-building.
Dani Rodrik is Rafiq Hariri Professor of International
Political Economy at the John F. Kennedy School
of Government at Harvard University.
FOR SOURCE CITATIONS SEE: WW W. AMERICASQUARTERLY.ORG/RODRIK.
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