The International Economic Association’s global conference at Medellin, Colombia, is grappling with new questions about development economics. The presidential address was delivered by Dani Rodrik. Readers may want to refer to his earlier work on the globalisation paradox, fiercely argued at a time when supply-side, neoliberal economic ideology and a hyper-globalisation wave – built around a need to unconditionally enable cross-border capital movements at the cost of domestic macroeconomic stabilisation, particularly in developing economies – ruled the roost. Rodrik’s work made space for mainstream critical voices among economists and in policy about the limitations of hyper-globalism advocated within the neoliberalism paradigm.
At Medellin, Rodrik offered a new approach as a theory of economic change built around ‘good jobs’, drawing on his recent work. He postulates a new theoretical approach for countries struggling to rebalance policy priorities aimed at a need to globalise (via trade, finance, flexible immigration laws) and also secure a domestic-focused commitment to socio-cultural ‘national priorities’ (often wrapped in an ideological, majoritarian agenda). Much of the populist imagination of the political Right concerns the need to meet these two goals, and they have constantly struggled due to the absence of an alternative theory of economic change.
Rodrik calls this new approach (to the theory of economic change)‘productivism’. According to him, it can help “prioritise the dissemination of productive economic opportunities throughout all regions of the economy and segments of the labour force.” It differs from neoliberalism in giving governments and civil society a significant role. It puts less faith in markets and is suspicious of large corporations.
Productivism, as a normative and applied policy approach, emphasises “production and investment over finance, and revitalising local communities over globalisation. It also departs from the Keynesian welfare state – the paradigm that neoliberalism replaced ― by focusing less on redistribution, social transfers and macroeconomic management and more on creating economic opportunity by working on the supply side of the economy to create good, productive jobs for everyone”.
And, the paradigm “diverges from both of its antecedents by exhibiting greater scepticism towards technocrats and being less instinctively hostile to populism in the economic sphere”.
Keeping its nomenclature aside from a political economy perspective, Rodrik’s approach combines key policy ingredients:
- Safeguard ‘good jobs’ to help the upward mobility of the lower socio-economic class, which failed to get much from neoliberalism, and
- Take the ‘productivity’ debate in economic policy back to a labour-intensive sectoral focus, which is critical for the creation of middle-income groups from the upward mobility of the poor. This remained central to the developmental stories (and socio-economic mobility) of post-80s China and post-90s India.
A focus on labour-intensive productivity, not just in manufacturing but also in low-skill services (for India), that enables good employment, rebuilds domestic supply chains, ensures better working conditions (especially for women), and provides a better redistributive environment in the government’s fiscal choices, can offer a useful ideological approach to the status quo, which are anchored without any theory of economic change by the current government. The issues are not restricted to India.
In the US after Donald Trump, we saw this in the way the Joe Biden administration pivoted its economic policy. According to Rodrik, “The wholesale embrace of industrial policies to facilitate the green transition, rebuild domestic supply chains and stimulate good jobs, the finger-pointing at corporate profits as a partial culprit behind inflation, and the refusal (so far) to revoke Trump’s tariffs against China are some examples.”
In The Vanishing Middle Class (2017), MIT economic historian Peter Temin pointed out that the Lewis model of a dual economy had become increasingly relevant to the US. According to Temin, a combination of forces – de-industrialisation, globalisation, new technologies that favour professionals and capitalists, and declining protections for labour – have produced a widening gap between winners and those left behind. Convergence between poor and rich parts of the economy was arrested, labour markets became increasingly polarised between highly educated workers and the rest, and regional disparities widened.
If we look at output-employment growth in the last six years in India, particularly from the post-demonetisation period (2016), there has been a sharp fall in overall output (if we only look at industrial production levels) and in the aggregate employment rate of the eligible job-seeking population. Even more strikingly, the female employment rate has dropped from 11.88% (2016-17) to 7.96% (2021-22). In urban areas, for women, it has dropped from 10.77% to 5.57% in the same period.
From 2016-2021, the top 20% rich have seen almost a 40% rise in income growth while the middle 20%, lower middle 20% and poorest 20% have all seen negative income growth.
The Temin phenomenon is visible in a vanishing middle class, which hasn’t received a better bargain from the Modi government’s economic policies, and has lost more than it gained in terms of jobs and income growth. Rising inflation in the essentials basket adversely impacts real wages, consumption and demand-supply issues, making the poor worse off.
Productivism can bring economic policy change back to key focal points. An elected government needs to be the guide of change in economic policy, and Opposition politics in India would need to have a good sense of what they want to do, and how.
Earlier policy paradigms, from mercantilism to Keynesianism and neoliberalism, were primarily economists’ paradigms and according to Rodrik, had significant blind spots when it came to key social, cultural and national priority issues (which is what gave rise to an alternative imagination of the political and economic establishment dominated by right-wing strongman politics).
As Rodrik says, “Our societies are confronted today with vital challenges that require new economic approaches and significant policy experimentation. But those who are looking for a new economic paradigm – or actively trying to develop one ― should be careful what they are wishing for. By the time a set of ideas become conventional wisdom, it is riddled with one-size-fits-all generalisations. Our goal should be not to create tomorrow’s ossified vision, but to learn how to adapt our policies and institutions to changing exigencies. Productivism may be the right approach for today’s challenges. Yet the more successful it is, the less relevant it will become to future challenges.”
Opposition politics in India would need to adopt a new economic theory of change, built upon the progressive ideas (and policy approaches) of productivism, focusing on issues vital to a vanishing middle class, while creating an aspirational trajectory of upward mobility for the (low-middle) income groups left behind, in terms of jobs, output production processes, tech skills integration etc.
Deepanshu Mohan is professor of economics and director, Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities, OP Jindal Global University.
This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been republished here. To subscribe to The India Cable, click here.
