Dani Rodrik’s New Economics Explained

Since the early 2000s, it has felt as though we have been living through one crisis after another. Financial shocks, geopolitical conflicts, pandemics, energy shortages, and technological disruption have become recurring features of modern life. Governments often appear to be firefighting rather than solving structural problems, while economic growth has slowed and societies seem trapped in a cycle of recurring uncertainty.

Traditional economic theories increasingly appear too rigid to explain a world shaped by unprecedented and unpredictable forces. At the same time, rapid technological progress is transforming every aspect of our lives, yet societies often struggle to adapt to the opportunities—and the risks—it creates.

It is becoming increasingly clear that applied economics requires new, practical frameworks capable of addressing today’s realities.

Harvard economist Dani Rodrik has been one of the leading voices developing such ideas.

During his recent visit to Hungary, Rodrik gave an extensive interview to the Hungarian news portal Telex, once again outlining the principles that have shaped his work over the past two decades.

One of his most influential contributions remains his Globalization Trilemma, first published in 2000. In this remarkably simple yet powerful framework, Rodrik argued that hyper-globalization, national sovereignty, and mass democracy cannot all be fully achieved simultaneously. Nations may pursue any two of these objectives, but attempting to maximize all three inevitably creates political and economic tensions.

Twenty-five years later, the theory has proven remarkably resilient, and Hungary itself provides an instructive example.

As a member of the European Union, Hungary benefits from access to global value chains and international markets. At the same time, successive governments have sought to preserve national sovereignty by maintaining an independent tax system and introducing regulatory measures that have often conflicted with European Union policies.

However, prioritizing sovereignty has come with trade-offs. Hungary has not only limited some of the economic opportunities offered by deeper integration but has also weakened certain democratic institutions.

Public consultation over major industrial investments has often been limited. Local communities have frequently had little influence over whether large industrial facilities should be established in their regions. Similarly, insufficient investment in public transportation has reduced access to employment opportunities outside local labour markets, leaving many citizens feeling disconnected from decisions that directly affect their lives.

In his latest book, Shared Prosperity in a Fractured World: A New Economics for the Middle Class, the Global Poor, and Our Climate, Rodrik presents an ambitious vision for rebuilding economic prosperity.

He argues that accelerating the green transition is no longer simply an environmental objective but an economic necessity. Developing renewable energy and sustainable industries can create entirely new sectors capable of replacing the employment and income lost as fossil-fuel industries decline.

Equally important is rebuilding the middle class.

In my view, the middle class performs not only an economic function but also an essential social and ethical one. A strong middle class provides stability, preserves civic values, and reinforces the democratic foundations upon which healthy societies depend.

Rodrik also emphasizes the need to accelerate economic development across poorer regions of the world. Reducing global poverty should not come at the expense of cultural continuity. Economic development should allow people to build meaningful lives within their own communities rather than forcing migration as the only path to prosperity.

The experience of the past decade suggests that authoritarian governance has struggled to generate sustainable long-term economic growth. Instead, growing political centralization has often increased public anxiety about the future.

Economic nationalism has encouraged protectionism, reducing innovation while increasing corruption-related costs that ultimately weaken governments’ economic capacity.

Meanwhile, automation and emerging technologies are transforming labour markets. Future economic growth will no longer rely primarily on abundant low-skilled labour—a resource that has already become increasingly scarce in many developed economies.

Rodrik proposes restoring prosperity through new forms of cooperation between governments and the private sector. Investment in renewable energy, green industries, productive service sectors, and quality middle-class employment can drive growth even in an era of weakening global cooperation.

At the same time, he argues that a new form of globalization must recognize governments’ legitimate responsibility to protect their own economic, social, and national security interests.

The central message of Rodrik’s work, as I interpret it, is that economic incentives must once again be aligned with the broader interests of society. The challenge facing humanity is no longer unlimited economic expansion but sustainable long-term survival.

Rodrik also warns that industrial production will gradually lose its historical role as the primary engine of employment. Productivity gains in manufacturing are slowing, while automation continues to reduce labour demand.

For this reason, public policy should increasingly support the development of domestic service industries capable of absorbing workers displaced from manufacturing.

Interestingly, Rodrik revives an idea often associated with earlier social democratic thinking: people do not primarily need universal basic income or passive financial transfers. They need meaningful, productive, and dignified work.

We previously explored the challenges of the middle-income trap and possible strategies for overcoming it in another article.

Viewed through the lens of Rodrik’s ideas, Hungary’s economic strategy over the past decade raises important questions.

Government policy has largely focused on attracting labour-intensive and energy-intensive manufacturing industries. Many of these investments have created relatively low-value jobs while generating income primarily at the lower end of global value chains. At the same time, insufficient emphasis has been placed on attracting research, development, and innovation activities that could generate higher long-term value for the Hungarian economy.

Rodrik also devotes considerable attention to the growing influence of large technology companies. He argues that their continued expansion requires stronger regulation to prevent the enormous volumes of data they control from being used solely to maximize profits or entrench monopolistic positions in key markets.

The political, economic, and social implications of Big Tech are so extensive that they deserve separate discussion.

Ultimately, Rodrik’s work reminds us that rebuilding healthy societies requires a new social contract—one in which capital accumulation is no longer an end in itself.

Governments have a vital role in ensuring that economic incentives serve society rather than allowing society to serve the accumulation of capital.

Rodrik’s vision is both unsettling and reassuring.

It paints a future filled with significant challenges, yet it also offers a coherent framework for addressing them. Perhaps most importantly, it reminds us that economics can once again place human well-being—not abstract market outcomes—at the centre of public policy.

By: Viktor Szentkiralyi