In his new book, Shared Prosperity in a Fractured World: A New Economics for the Middle Class, the Global Poor and Our Climate, Dani Rodrik of the Harvard Kennedy School argues that the three biggest challenges as we continue to march through the 21st century are mitigating climate change, saving democracy, and alleviating poverty. The good news is that we have made remarkable progress on these fronts; the bad news is that there is much left to accomplish. On this, there is much to agree with Rodrik, yet his proposed solutions, while eschewing technocracy and autocracy, almost necessitate those outcomes.
Rodrik is a renowned political economist. Yet, his book lacks clarity on the political economy of rent-seeking and cronyism that will emerge from subsidies and government-controlled international rules. It’s as if the government can be not only a referee of the rules of the game but also an active player, rearranging pieces on a chessboard to achieve its desired outcomes. He fails to bring in the essential public choice critique to his proposed solutions to understand if they can both achieve their goals and remain resilient to rent-seeking and perverse unintended consequences.
Rodrik sees our current series of problems stemming from the rapid acceleration of globalization and economic integration that began in the 1990s. In his view, global anarchy and the pursuit of a borderless global economy have undermined not only the American economy but also economies worldwide. He suggests that this exacerbates inequalities, has led to global populist politics and the rise of the Trump administration, whom he rightly chastises for his tariff policies, which not only hurt the US economy but also the world.
Hyperglobalization steered us in the wrong direction and is ultimately unsustainable, according to Rodrik, because it led to distributional struggles (page 33) and to the rise of geopolitical competition between the US and China. He is right to urge us not to see geopolitics as a zero-sum game. Yet he sees this as the case because of the ‘excesses of neoliberalism,’ which he uses interchangeably with ‘market fundamentalism.’ He goes so far as to suggest that the American left has failed the working and middle classes because it capitulated to hyperglobalization, which he argues generated the crisis. In other words, the left failed because they embraced a version of market liberalism.
The only bright light for Rodrik was the Biden Administration’s industrial policy. He, in part, blames the educated elite for progressives losing their way. No argument here. Yet, shockingly, he argues that it is because the progressive left moved from a ‘Keynesian, social democratic worldview to a more market-friendly, government-skeptic one’ (page 213). We would be hard-pressed to find evidence that Paul Krugman, Ezra Klein, or Elizabeth Warren have embraced market-friendly policies over the past quarter-century – quite the contrary. Paul Krugman calls for universal healthcare and Warren wants government ownership of private companies.
Rodrik is correct in his arguments that we do not need to overemphasize manufacturing jobs as a mechanism for income mobility and productivity enhancement. The focus is now on the service sector. In the first wave of the industrial revolution, manufacturing and industry were the path to success. Workers have always adapted to technological transformation, from farm to factory to cubicle, and artificial intelligence is simply the latest chapter in that story. The question is not whether that transformation will happen, but whether government intervention or market dynamism is better equipped to manage it. After all, today, the United States is an economic powerhouse precisely because it is engaged quite productively in all three sectors; agriculture and manufacturing continue to produce more with less. This is the source of economic progress, and it’s brought to us by open and free markets, the rule of law, and entrepreneurship. Rodrik is right to worry about how low-skilled workers will adapt to that transformation so that they do not get left behind. But he argues that the government can step in to help these workers, thereby strengthening economic dynamism and safeguarding the middle class.
To achieve what he calls shared prosperity, Rodrik focuses on second-best solutions, a framework premised on the idea that when markets are imperfect or distorted, targeted government intervention can improve on market outcomes. It is a seductive premise that, in practice, opens the door to almost unlimited intervention. He, for instance, argues that some subsidies are justified because they address climate externalities. In contrast, others are harmful because they entrench market failures, but this distinction assumes policymakers can reliably tell the difference. Both the public choice framework and the Hayekian knowledge problem are essential here: not only will self-interested actors inevitably capture subsidy programs for their own ends, but policymakers also cannot know which interventions to implement, when, or at what scale. The information required to make such judgments well does not exist at the central level, and the incentives to make them honestly rarely do either.
He recognizes self-interest as a problem in theory while counting on enlightened policymakers to transcend it in practice. Rodrik argues that we should focus on the service sector and enhancing worker productivity. Agree. He sees the world as if we could somehow sit above it, observe what is happening, and then use incentives, rules, and altered norms to achieve different outcomes.
To realize this vision of managed growth, he calls for a new progressivism in which the left connects with the middle and working classes to ‘convince them that it offers a path to middle-class prosperity’ (page 215). He suggests that we create good jobs through micro-interventions targeting structural change and macroeconomic management to ensure full employment, thereby necessitating an industrial policy.
Contrary to this pessimistic view, the middle class has achieved enormous success since the 1990s, and that success is due to market liberalism both at home and abroad. The data bears this out in ways that cut directly against Rodrik’s narrative. Economist Jeremy Horpedahl has shown that both Gen Z and Millennials are doing better financially than Boomers and Gen X were at the same stage of life, when adjusted for inflation. To the extent that the middle class is not gaining as we might hope, it is precisely because government has grown in both size and scope.
Rodrik’s understanding of what is broken in the American economy is misdiagnosed. He is correct that the Trump administration’s aggressive tariffs harm economic growth and development. But this raises the question of why that is the case. Free trade is not zero-sum. The author spends a great deal of time deriding market fundamentalism and neo-liberalism, which are terms tossed around jubilantly by both the progressive left and the progressive right. Yet market trade is, by its nature, voluntary and thus win-win. This is not to say there are no costs to a global free-trade regime under global anarchy. Creative destruction not only reigns, but no one can know what technologies will emerge and how they will destroy the old way of doing things. Free markets buttressed by the institutions of economic freedom, which include low levels of regulation, free international trade, limited government, private property rights, sound money, and the rule of law, spur the very economic growth Rodrik is rightly after.
Both Rodrik and the current Trump administration miss the point that the abundance we have is due precisely to the institutional environment the United States has long experienced. This is true across the world; in any country with greater economic freedom, there is growing income mobility and a robust middle class that often becomes part of high-income groups. Market abundance isn’t trickle down, beggar thy neighbor, or zero-sum. The best thing we can do is to remove artificial barriers and allow the progress to continue.
