Reply #56: Are the good times really over?

[Demeter]

http://rodrik.typepad.com/dani_rodriks_weblog/2009/04/are-the-good-times-really-over.html

Globalization is responsible for the vast increase in economic growth that we experienced in recent times, right?

Well, yes and no. It all depends on what you mean by globalization and when you think it began. As the following chart illustrates, clearly something fundamental happened in the early years of the postwar period (the data are from Angus Maddison). Starting around 1950, the world economy became able to support levels of economic growth that were a multiple of (three to four times higher than) levels observed at any time before then. You may call this the miracle of globalization, but it would be more accurate to call it the success of the Bretton Woods regime.

SEE LINK FOR GRAPH

Note by contrast that the period of gung-ho globalization, which we may date from the early 1990s on, presented no improvement over the preceding post-war arrangements. In fact average growth in the world as a whole lagged behind the rates experienced in the immediate post-war period. And the Chinese growth miracle is slightly less distinguished than the Japanese miracle of the earlier era (at least according to Maddison's numbers).

The lesson? While it is important to ensure that deglobalization doesn't go too far, we should not lose sleep over the possibility that we might not restore openness in trade and financial policies to the levels that prevailed in the last couple of decades. The world economy can do very well indeed, thank you very much, with Bretton-Woods levels of openness.

A second lesson has to do with the post-1950 growth champions identified in the chart above: Japan, South Korea, and China. What was common in the policies of these countries is that they were all "productivist." They prioritized productive structural change--the movement of resources from traditional to modern activities--above all else. They employed not only "orthodox" instruments (such as investment in infrastructure and human capital) but also subsidization of new industries, undervaluation of currencies to promote tradables, and repression of finance whenever it stood in the way.

So the good times need not be over (at least for developing nations) even with some deglobalization as a result of the present crisis. Less finance may even do them some good.