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Recommended reading on industrialization

Updated: Jan 19, 2021

Dani Rodrik

Introductory paragraph:

Once upon a time, economists believed the developing world was full of market failures,

and the only way in which poor countries could escape from their poverty traps was through

forceful government interventions. Then there came a time when economists started to believe

government failure was by far the bigger evil, and that the best thing that government could do

was to give up any pretense of steering the economy. Reality has not been kind to either set of

expectations. Import substitution, planning, and state ownership did produce some successes,

but where they got entrenched and ossified over time, they led to colossal failures and crises.

Economic liberalization and opening up benefited export activities, financial interests, and

skilled workers, but more often than not, they resulted in economy-wide growth rates (in labor

and total factor productivity) that fell far short of those experienced under the bad old policies of

the past.

Few people seriously believe any more that state planning and public investment can act

as the driving force of economic development. Even economists of the left share a healthy

respect for the power of market forces and private initiative. At the same time, it is increasingly

recognized that developing societies need to embed private initiative in a framework of public

action that encourages restructuring, diversification, and technological dynamism beyond what

market forces on their own would generate. Perhaps not surprisingly, this recognition is now

particularly evident in those parts of the world where market-oriented reforms were taken the

farthest and the disappointment about the outcomes is correspondingly the greatest—notably in

Latin America.

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