The Globalization and Development Reader: Perspectives on Development and Global Change, 2nd Edition

26 The Globalization Paradox: Democracy and the Future of the World Economy (2011)

Dani Rodrik

The Political Trilemma of the World Economy

In 1990, Argentina couldn’t have been in a worse economic mess. In almost perpetual crisis since the seventies, the country reeled under hyperinflation and a crushing debt burden. Incomes had shrunk 25 percent from their levels a decade earlier and private investment had come to a virtual standstill. Prices were rising at unprecedented rates, even by Argentina’s demanding standards. In March 1990, inflation, climbed to more than 20,000 percent (on an annualized basis), sowing chaos and confusion. Struggling to cope, Buenos Aires’ world-weary residents took refuge in gallows humor. With prices soaring by the minute, they told themselves, at least it had become cheaper to take a cab than a bus. With the cab you paid at the end of the ride instead of the beginning!

Can You Save an Economy by Tying It to the Mast of Globalization?

Domingo Cavallo thought he knew the real problem. For too long, Argentina’s governments had changed the rules of the game whenever it suited them. Too much governmental discretion had resulted in a complete loss of confidence in Argentine policy makers. The private sector had responded by withholding its investment and fleeing the domestic currency. To restore credibility with domestic and foreign investors, the government needed to commit itself to a clear set of rules. In particular, strict monetary discipline ...