Elephantstrunk

Or more specifically, is lifting trade restrictions the most important thing a developing country can do?

There’s more heat (and inappropriately macho language) than light in the ringside seats for the econoblog death match between Dani Rodrik and Don Boudreaux.

Dani Rodrik says that free trade may not be the best prescription for the development of developing countries. Don Boudreaux asks why, if trade barriers are good for countries, are they not also good within countries? I think they are talking about different things. I, and at a guess also Profs Rodrik and Boudreaux, think that free markets are a good thing. Rodrik however says with considerable evidence that free trade, as policy prescription is, from the Boston Tea Party to modern China, manifestly not how most successful economies got that way. That significant point is allowed to pass without protest despite being the foundation of his argument.

Boudreaux doesn’t really believe in states. For him free trade is between individuals and states are just an interference with that so it is natural for him to see any suggestion that trade restriction between states might have value as opening the floodgates and so to attempt a reductio ad absurdum by reasoning that if they work between states then should also work within states. For me this is a substantial blind spot. Trade between states doesn’t have the safety nets it has within states nor the years of development. They are also not in fact absent, tax transfers from blue states to red states, from London to Scotland, planning of ports, regional development budgets and so on. I’m sure Prof. Boudreaux is against those too but they do make a difference. I count that one for Rodrik.

When Rodrik tries to summarise the conditions where he thinks trade restriction could perhaps be beneficial and one of them is that labour productivity is low. DeLong pounces on that arguing that productivity can only be low if the institutions are poor and that if the institutions are poor bad things will happen if they play with trade restrictions, look an North Korea and Zimbabwe for example. But China has low productivity and bad institutions and the worst you could say about its economy is that some people think that it could be doing even better. Before that the same could have been said about Malaysia, Japan, South Korea and even the United States.

I think they are projecting the concerns of ultra developed economies onto other economies. Lack of government imposed trade restrictions is not the only prerequisite for a successful economy. It is at least possible to imagine that political stability might be more important than dropping a trade restriction, even from a purely economic point of view.

At this point strength of the claims of DeLong and Boudreaux depend upon what they are talking about. Do they mean what should happen in a very ideal world? If so they mght be right but are not talking about the same problem as Rodrik. Does DeLong mean to offer advice to developing countries? If so he might have a point but will have a hard time being heard because only countries with poor institutions need advice and they can’t be trusted to take it or implement it properly. Even freer trade can be implemented badly. If he means that developed world governments and internatinal development agencies should make it a priority he has to face the fact that it’s been tried, it doesn’t work and other things do.

A corny analogy. In most sports a competent practitioner watching another player will most likely be able to spot a dozen faults. Most of those observations are useless. Telling the player about them all ony serves to confuse and misprioritise. In contrast a good coach will directly address only one or two, the coachee will be able to do something about the ones addressed and often the others will sort themselves out. Helping developing countries is likely similar. I think Rodrik is essentially saying “first things first” and if that means leaving freer trade to another day then so be it. That’s not saying that trade restrictions are the answer, just that free trade by itself isn’t either. In contrast DeLong is saying they should start from somewhere else and Boudreaux is dreaming of Utopia.

[Edit: William Polley also thinks Rodrik is still standing]