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The View
OpinionComment
Dani Rodrik
Dani Rodrik

The View | Can we build a better economic framework that looks beyond the market-state dichotomy?

  • If the free market is dying, what replaces it won’t be found among other 20th-century models, but in new ideas that address contemporary challenges
  • Increased state support can help drive innovation and create jobs, but protectionist attempts to revive old industries are misguided

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US President Joe Biden speaks during a visit to an operations facility for American truck manufacturing company Mack Trucks in Pennsylvania on July 28, 2021. Photo: AP
Dani Rodrik
I wrote recently about the possible emergence, from both the left and right of the political spectrum, of a new economic-policy paradigm that could supersede neoliberalism.
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The new framework gives governments and community organisations greater responsibility to shape investment and production – in support of good jobs, the climate transition, and more secure, resilient societies – and is much more suspicious of markets and large corporations. I called it “productivism”, though others can no doubt think of sexier appellations.

Throughout history, the pendulum of economic ideology has swung from deification of markets to reliance on the state and then back again. Superficially, we appear to be in the midst of another realignment. It was perhaps inevitable that neoliberalism’s excesses – increased inequality, concentration of corporate power and neglect of threats to the environment – would trigger a backlash.
A demonstrator holds a placard at a rally in Glasgow, UK, on November 6, 2021, during the COP26 UN Climate Change Conference. Photo: AFP
A demonstrator holds a placard at a rally in Glasgow, UK, on November 6, 2021, during the COP26 UN Climate Change Conference. Photo: AFP

But establishing new paradigms means developing novel approaches, not just emulating the old. When the New Deal and the welfare state replaced the freewheeling capitalism that preceded them, policymakers did not simply revert to former mercantilist practices. They established new regulatory regimes and social insurance institutions, and embraced macroeconomic management in the form of Keynesianism.

If productivism is to be successful, it will have to move beyond conventional social protection, industrial policies and macroeconomic management. It will need to internalise lessons learned from past failures and adapt to new challenges.

State interventions aimed at reshaping an economy’s structure – so-called industrial policies – have traditionally been faulted for being vulnerable to capture by special interests. “Governments cannot pick winners”, as the adage goes. But much of this criticism is overdone. Recent systematic studies find that industrial policies encouraging investment and job creation in disadvantaged regions have worked surprisingly well.
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Public-sector initiatives have been behind some of the most impressive hi-tech successes of our time, including the internet and GPS. For every Solyndra, the US solar cell manufacturer that failed spectacularly after obtaining US$500 million in federal government loan guarantees, there is often a Tesla, the successful electric vehicle manufacturer that also received government support during its development.
Tesla cars are seen at charging stations in California, US, on May 14. Photo: AFP
Tesla cars are seen at charging stations in California, US, on May 14. Photo: AFP
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