Dani Rodrik's weblog

Goodbye Harvard, hello Institute for Advanced Study

So big changes ahead for me. This is my last week at Harvard, as I am moving to the Institute for Advanced Study as the Albert O. Hirschman professor in the School of Social Science.  Here is the Institute’s official announcement.  My new home page is here, although it is barely under construction at the moment. (The Institute is located in Princeton, N.J, but no, it is not part of or affiliated with Princeton University.)

Counting my undergraduate years, I have spent a total of 27 years at Harvard -- an inordinately long time. Harvard has been incredibly good to me, even though I never quite felt an insider. 

For all its craziness, the Kennedy School was a perfect home, allowing me to connect economics to the other social sciences, and scholarship to the world of practice. The School has what any researcher can only dream of – a most wonderful group of colleagues, and a supportive administration. Its access and connections worldwide are unparalleled: all you have to do is sit in your office, and the world comes to you. 

I was blessed on top with great students: The MPAID, in particular, is as close to a perfect training program for development practitioners as I can imagine. I am amazed by the quality of the students we are able to attract to the program year after year.  And I haven't mentioned the rest of Harvard yet...

So why leave?

If someone had told me as recently as six months ago that I would be leaving, I would laugh it off.  But when the Institute came knocking, it was time for reflection. In the end, it wasn’t simply the honor of assuming a chair named after Albert Hirschman and filled previously by a scholar no less distinguished than Eric Maskin – though the honor is great indeed.  It wasn’t just the singular privilege of having no responsibilities other than research – no teaching, practically no administrative duties – though that privilege is enormous too.  It was the thought that moving to the IAS would free me up for a new, if, at the moment, quite unpredictable intellectual journey.

I imagined remaining at Harvard.  I could predict more or less what I would be doing five years from now if I stayed – the kind of papers I would be writing, the courses I would be teaching, the meetings I would be attending, the debates, intellectual or otherwise, I would be having.

A research career can serve both as scaffolding and as trap. My views on globalization and development have evolved – and, I’d like to think, become more sophisticated – as my work on these topics accumulated. But sometimes I do get the feeling that I am repeating rather than renewing myself – that I am chewing over the same material over and over again.

The IAS opens for me a new page. It removes any conceivable excuse for becoming stale. I don’t imagine I will stop working on my usual topics. But my intellectual trajectory is now infused with an added element of uncertainty and flux. And this excites me more than anything else in my research career for quite some time.

Prospects for future economic growth

Tyler Cowen refers to some of my work in his NYT piece on dimming prospects for high growth in emerging market economies. Coincidentally, the brand new Global Citizen Foundation has just published my more substantial paper on this topic, titled “The Past, Present, and Future of Economic Growth.”

There is a lot in this paper, but the bit that I think is really new is the distinction between two different growth drivers, which I call the “fundamentals” and “structural transformation” channels.  Not great descriptors, but bear with me for a while to see what I am getting at.

By fundamentals, I am referring to the development of fundamental capabilities in the form of human capital and institutions. Long-term growth ultimately depends on the accumulation of these capabilities—everything from education and health to improved regulatory frameworks and better governance.

By structural transformation, I have in mind the birth and expansion of new (higher-productivity) industries and the transfer of labor from traditional or lower-productivity activities to modern ones. With the exception of natural-resource bonanzas, extraordinarily high growth rates are almost always the result of rapid structural transformation, industrialization in particular.

Fundamental capabilities are multidimensional, have high set-up costs, and exhibit complementarities. Therefore, investment in them tend to yield paltry growth payoffs until a sufficiently broad range of capabilities has already been accumulated—that is, until relatively late in the development process. Growth based on the accumulation of fundamental capabilities is a slow, drawn-out affair.

Growth miracles, on the other hand, are enabled by the fact that industrialization can take place in the presence of a low level of fundamental capabilities: poor economies can experience structural transformation even when skills are low and institutions weak. This process helps explains the rapid take-off of East Asian countries in the postwar period, from Taiwan in the late 1950s to China in the late 1970s.  My pessimism about the future prospects for high growth derives from the suspicion that rapid industrialization will be much less feasible in decades ahead, for reasons having to do with technology, changing nature of global markets, and demand patterns.

The policies needed to accumulate fundamental capabilities and those required to foster structural change naturally overlap, but they are distinct. The first types of policies entail a much broader range of investments in skills, education, administrative capacity, and governance; the second can take the form of narrower, targeted remedies. Without some semblance of macroeconomic stability and property rights protection, new industries cannot emerge. But a country does not need to attain Sweden’s level of institutional quality in order to be able to compete with Swedish producers on world markets in many manufactures.

Furthermore, as I discuss in the paper, fostering new industries often requires second-best, unconventional policies that are in tension with fundamentals. When successful, heterodox policies work precisely because they compensate for weakness in those fundamentals.

Here is a 2x2 matrix that summarizes growth patterns according to the strength of these two dynamics.

I leave it as an exercise for readers to figure out which parts of the world (and when) fit in what box. Or else you can read the paper.

How well did the Turkish economy do over the last decade?

There has been much discussion in Turkey in recent days about the performance of the economy under the AKP government, occasioned in part by an exchange I had with Minister of Finance Mehmet Şimşek.

The Turkish government likes to claim that the GDP expanded by more than three-fold between 2002 and 2012. This is a misleading number, as it is based on the dollar valuation of Turkish GDP at current prices, and hence lumps both dollar inflation and the real appreciation of the Turkish lira on top of real growth. Calculated properly, real GDP (or GDP at constant prices) rose by 64 percent during 2002-2012, and real GDP per capita by 43 percent.*

This is not a bad record of growth. An increase of 43 percent in income per capita over a decade implies an annual growth rate of 3.6 percent. This is a performance that matches that of Turkey’s previous high-growth period (1960-78) and exceeds anything experienced since.  

In 2002, Turkey was just coming out of a severe financial crisis, so there is a case to be made that any growth calculation that takes 2002 as the base year mixes up real growth with the bounce back from the crisis. There is also the question of sustainability, as growth has been fuelled by large current account deficits in the recent period. I will not elaborate on these issues in the present discussion.  (See here for a more analytical look at Turkey’s recent growth experience.)

However, an important issue that is frequently overlooked is the conjunctural and comparative dimension. The last decade has been an exceptionally good one for developing countries as a whole. When Turkey’s performance is compared to the average for emerging and developing countries, it hardly looks distinguished. This can be seen from the figure below.

Source: Conference Board database

The figure shows that Turkish performance lagged significantly behind emerging and developing economies as a group. In the latter, real GDP rose by 95% compared to Turkey’s 64%.  Real GDP in large emerging markets such as China, India, Bangladesh, and Indonesia all grew more rapidly than Turkey, as it did in many smaller African and Latin American countries.

Turkey’s rank in global GDP tables improved slightly over the decade. In purchasing-power adjusted terms, Turkey went from 17^th to 16^th in global GDP rankings (surpassing Australia).  Measured at current exchange rates, it rose from 21^st to 17^th (surpassing Taiwan, Switzerland, Belgium, Netherlands, Sweden, but falling behind Indonesia). (Note that comparisons of rankings over time using current dollars can be misleading for the same reason noted above, namely movements in real exchange rates.)

Bottom line: Turkey did well relative to advanced countries, and closed the income gap with them. But its performance benchmarked against the most relevant comparators, emerging and developing countries, was not distinguished.

*For Turkish readers, there are good accounts of real-nominal measurement issues by Ege Cansen, Ugur Gurses, and Aykut Kibritcioglu. Also, a technical digression may be useful here. A real appreciation of the curency may reflect an external terms of trade improvement. In that case, it would represent a gain in the purchasing power of domestic output. However, there has not been a trend improvement in Turkey's terms of trade over the 2002-2012 period. Turkish real appreciation has little relation to the changes in its terms of trade, and seems to be driven largely by changes in domestic relative prices (nontradables versus tradables.)

Turkey’s Protests Send a Strong Message, But Will Not Bring Democracy

What follows below is the original, unedited version of my oped in the Financial Times today, for those who cannot access it.

(UPDATE: I should add that neither the title of the FT piece nor the subtitle is mine. The subtitle in the print edition "A political class has turned violent to mask its weaknesses" is misleading and has little to do with the content of my piece; I have no idea why the FT found it apt.)

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The protests that engulfed Turkey in recent days caught by surprise even those observers who, like me, have been vehement critics of Prime Minister Tayyip Erdoğan’s authoritarian rule. What started as a small demonstration against the planned demolition of a rare green space in the middle of Istanbul has escalated into violent confrontations nationwide involving tens of thousands of disaffected Turks of all political stripes. 

The immediate cause was police brutality. Turks are used to rough behaviour by their police, but the images circulating in social media this time caused widespread outrage. The preponderance of head wounds suggested that police were firing tear gas canisters directly at protestors’ heads. One victim was Ahmet Şık, an intrepid journalist previously jailed on trumped-up charges, whose photo with a bloody gash on his head was widely circulated. 

Erdoğan’s reaction stoked the fire. He was at his polarizing best, threatening to turn his supporters loose on the streets, calling the protestors “bums” and social media “the greatest menace to society.” Protestors also turned their wrath at mainstream media, which showed great reluctance to cover the events, no doubt under government pressure. CNN’s Turkish affiliate chose to air a documentary on penguins during some of the worst clashes.

Despite Erdoğan’s attempt to tar them as extremists, it seems clear that the bulk of the protestors are asking for basic rights: the right to assemble and protest peacefully, have a say against excessive commercialization of public spaces, and be treated with respect and without police brutality.  Neither is this a struggle between secularists and Islamists, as much of the Western media is wont to portray it. It is abuse of power by Erdoğan’s government, straight and simple, that unites the protestors.      

The protests are also an indication of the weakness of political parties opposing Erdoğan. Organized along the increasingly irrelevant cleavages that have traditionally divided Turkish society, opposition parties have been unable to channel and capitalize on the discontent that has been building up. Turkey’s liberal intelligentsia has largely discredited itself as well, having continued to provide support to Erdoğan long after his illiberal tactics had become plain to see. 

Many in the West give Erdoğan credit for the performance of the Turkish economy, having sent the military back to its barracks, and the recent peace process with the Kurdish insurgents.  Yet look closely at each of these, and the lustre vanishes pretty quickly.

On the economic front, the best that can be said is that his government avoided big mistakes. Growth was based on unsustainable levels of external borrowing, and has not been particularly distinguished by emerging-country standards. Public works have been marked by widespread cronyism. 

Meanwhile civilian control over the military was achieved through a series of show trials involving massive violations of due process – with rampant use of planted and fabricated evidence against accused officers. Rather than close the book on the military, Erdoğan’s tactics have opened up new wounds that will continue to fester.

Finally, the Kurdish opening has more to do with Erdoğan’s efforts to amend the constitution and ascend to (a more powerful) presidency, than with any genuine desire for reconciliation.  As his previous flip flops on the Kurdish conflict shows, he would quickly change tack if short-term political calculations required otherwise.

The main beneficiary of Erdoğan’s weakness may well be the Gülen movement, the powerful network led by the Islamic preacher Fethullah Gülen.  Erdoğan and the Gülenists made common cause until recently to defeat their common enemy, the military and the secularist old guard. But with that task accomplished, they have been increasingly at odds. The Gülen movement does not want Erdoğan to become too powerful, while Erdoğan is wary of Gülenist machinations within the police and judiciary. The movement likes to promote President Abdullah Gül, who is much closer to it, as a tolerant, more democratic alternative to Erdoğan. 

That the Gülen movement watches Erdoğan take the rap for the protests carries more than a hint of paradox, as Gülenists are known to be particularly well represented in the police. Supposedly moderate, the movement has been closely linked to some of the worst police and judicial abuses under Erdoğan.

Sadly, there is no organized political movement that can give voice and representation to the protestors that have made their point so loudly and clearly in recent days.  So it will be the competition between Erdoğan and the Gülen movement, along with developments on the Kurdish front, that defines the future of Turkish politics.

Having missed Turkey’s authoritarian turn (or turned a blind eye to it), Turkey’s friends should know that none of the established players in this drama has strong democratic credentials. The challenge is to avoid another facile narrative about democratization and speak clearly against political, judicial, and human rights abuses in Turkey – whatever the source.