Beyond Trade-offs: New Economics for Climate, Jobs, and Development – A Symposium

In this new special Symposium edition of our podcast series Planetary Choices: Global Governance Beyond Neo-Liberalism, we engage with Dani Rodrik's new book, Shared Prosperity in a Fractured World: A New Economics for the Middle Class, the Global Poor, and Our Climate, alongside a panel of leading scholars: Jayati Ghosh and Marcel Fratzscher.

How can we simultaneously address climate change, restore the middle class, and reduce global poverty, without sacrificing one for the other? Is the Keynesian social-democratic settlement truly exhausted, and if so, what comes next? And how do local and national strategies succeed where global governance has failed?

Our guests unpack these questions, debate the trade-offs and synergies at the heart of Rodrik's "productivist" vision, and offer fresh perspectives on industrial policy, the future of democracy, and what a genuinely inclusive global economy might look like.

Academic Reference: 

Dani Rodrik, Jayati Ghosh, Marcel Fratzscher, Hagen Schulz-Forberg; Beyond Trade-offs: New Economics for Climate, Jobs, and Development – A Symposium. Global Perspectives 21 May 2026; 7 (1): 162174. doi: https://doi.org/10.1525/gp.2026.162174

This podcast was created and produced by the Research Center for New Critical Politics and Governance (CPG).

To watch the video version of this episode, please visit the link below:
https://cas.au.dk/en/cpg/podcast/mapping-the-planetary

Transcript

Hagen: Welcome to Planetary Choices. In this episode for season two, which deals with global governance beyond neoliberalism, I’m absolutely excited to talk with Dani Rodrik, Jayati Ghosh, and Marcel Fratzscher about Dani’s new book Shared Prosperity in a Fractured World: New Economics for the Middle Class, the Global Poor and Our Climate.

Dani Rodrik is an economist whose research revolves around globalization, economic growth, and development, and of course, political economy. His current work focuses on how to create more inclusive economies in developed and developing societies together. He’s a Ford Foundation Professor of International Political Economy at Harvard’s John F. Kennedy School of Government, Co-director of the Reimagining the Economy Program at the Kennedy School and of the Economics for Inclusive Prosperity Network. He’s also done a ton of other things. So he’s a busy man, and even though he’s so busy, he’s written this book which gives us a vision of a future which is more inclusive and constructive, as we will hopefully talk about in a minute.

I’m very honored to have been able to get Jayati Ghosh and Marcel Fratzscher to talk with Dani about his new book. Jayati Ghosh taught economics at Jawaharlal Nehru University in New Delhi for 35 years, and is currently Professor of Economics at the University of Massachusetts Amherst. She’s authored and/or edited 21 books and 230 scholarly articles. So who better to invite for such a discussion? She also writes regularly for popular media, including newspapers, journals, and blogs. She received innumerable prizes, for example, the International Labor Organization’s Decent Work Research Prize, which was in 2010 and 2011. Then in 2023, the Galbraith Award from the Agricultural and Applied Economics Association in recognition of breakthrough discoveries in economics and outstanding contributions to humanity through leadership, research, and service. And the International Economics Association’s Fellow Award for 2023, for outstanding work and excellence in economic research, research-driven popular writing, and economic policymaking. She’s also involved in government consultancy and has consulted international organizations, the Club of Rome, governments. I could go through a whole list of things. I don’t know how she does it, but she’s able to do it.

Similarly busy is also Marcel Fratzscher, who is a researcher, author, and columnist on economic and social political topics. He’s President of the German Institute for Economic Research and Professor of Macroeconomics at Humboldt University in Berlin, Germany. Among other things, he’s a member of the advisory board of the German Federal Ministry of Economics and the Association of the Euro 50 Group. His work focuses on macroeconomics and financial markets, inequality and the globalization and integration of Europe more specifically. Like the others, he is a columnist for media and appears on public programs and discussions regularly. He is a voice in the public sphere on the German economy, the European economy and the global economy, just like the two others.

So without further ado, I would like to hand over the word to Dani Rodrik, who has given us this book, Shared Prosperity in a Fractured World, which to my mind is one of the few visions of thinking in a constructive way. We all know that the challenges are humongous, the problems are huge, and how to solve them is a big mystery. But you also say that the times which we are experiencing right now are really indicative of a failed imagination that we have been suffering for the last 10, 15 years, and that it’s time to think anew, that what we have experienced right now is an incentive. So Dani, would you please introduce us to your ideas?

Dani: Well, thank you. Thank you, Hagen, for organizing this. And thank you in advance, Jayati and Marcel, for taking part in this discussion. I look forward to hearing your views.

As Hagen mentioned, this is an optimistic book at a time when it’s very difficult to be optimistic, given everything that’s happening in the world economy and the kind of economic and geopolitical approaches pursued by the current administration of Donald Trump.

But I do think that we need to think constructively and creatively for a world when a better future might be available, when we have better political leaders. And in many ways, Trump, I think, is a response, is a symptom of our inability to have generated an alternative vision. And if Donald Trump, among the many negative things he has done, at least he has demonstrated the possibilities of having a very big break from the past in terms of just taking our fate into our own hands. And there is a kind of, if you will, a type of Gresham’s law that when there aren’t good ideas, bad ideas fill up the space. So I think it’s incumbent upon us to have those good ideas.

Now, the first thing I do in the book is try to place on our agenda as co-equals three important economic priorities. First is the green transition. I don’t need to say much about that. The challenge that global warming poses is well understood, if not by our current leadership in the United States. That’s a fundamental threat to our physical existence. Second, perhaps a little bit less well understood, is the challenge of the disappearance of good jobs and the erosion of our middle classes. And that’s primarily a problem for rich and middle income countries. I think that’s a problem in and of itself, not just from the standpoint of economic inequality. It’s also a problem because I believe the erosion of our middle class and the disappearance of good jobs lies at the root of our social and political polarization, of which, as I said, I think Donald Trump and the rise of the far right in Europe is partly a response.

So the second big challenge is: how do we create the good jobs that are going to provide a new foundation for more cohesive, more middle class-based societies? The third is the challenge of poverty reduction and development in the developing world at large. That’s a moral imperative, I think, for all of us. And again, I probably don’t have to say much about that.

So the way that we talk about these three issues, the green transition, the problems of inequality and the middle class and jobs in the advanced world, and poverty reduction in the developing world, is often at cross purposes. There’s a sense that there are very significant trade-offs: that if we have to create jobs in the advanced countries, that has to come at the expense of putting up protection and trade barriers that will hurt the developing countries; that there is a trade-off between addressing climate change and the need to promote economic growth. There is an inherent trade-off between the reassertion of national sovereignty and the desire of countries to take back control, and the apparent need for global governance and global rules to address problems like climate change and global poverty reduction, which seem to require a lot of global coordination.

So I think, if you will, the optimistic and innovative aspect of the book is to say that in fact many of these apparent trade-offs do not exist, or at least that they can be significantly ameliorated within the context of our existing realities.

For example, much of the future of our jobs, and therefore our middle classes, will lie in services, many of which are not tradable. The focus, both on the centre-left and the centre-right, on trying to create and revive manufacturing to create good jobs by reshoring manufacturing is actually not a very useful strategy, because manufacturing is not going to be the labor-absorbing sector in those countries. And then we need to think about strategies for creating good jobs in services. And that perspective on how do we restore the middle classes, one that imposes much less cost on the rest of the world and has much fewer adversarial dimensions, is very different from the current approach.

Similarly, with respect to the climate transition, I think we’ve put too much emphasis on global solutions and global coordination and global governance. And in fact, the reality is that local and national approaches have done much more on this. And I think probably the most significant progress we’ve had on the green transition in the last 10, 15 years, and it’s progress that no one really anticipated, is really much greater than is still realized today. It is the progress we’ve made with renewables: how the cost of wind and solar and electric batteries have come down. That’s a true revolution. It has not been the product of global cooperation or global governance; it has been the product of essentially one country, China, taking on this as a kind of developmental challenge: using the climate transition as a mechanism for moving on to a new path of economic development.

I think there is a bigger lesson there in terms of how, if we reformulate the green transition as a developmental challenge, as a growth strategy, many other countries can pursue very similar things and essentially produce a global public good, namely cheaper renewables and new technologies. And often national and local initiatives and carbon taxation are really pursued from the standpoint of their own interests, their own vision of what they need to do, rather than from global governance. There’s a version of this also for the developing countries, which is that, unfortunately, I don’t see a very big future in export-oriented industrialization for developing countries either. And therefore developing countries have to emphasize these new tracks of structural transformation, labor-absorbing services on the one hand and green sectors on the other. And that’s a kind of very different type of development strategy that often places much less emphasis on the trade policies or benign trade policies of your trade partners.

So just to wrap up, I’m not suggesting that we would not be better off if there were more global cooperation or if we were pursuing first-best policies. But I think I take heart from not just hope, but actually from the observation that there are a lot of practical, pragmatic approaches already being pursued at the local, national, and sub-national levels that provide the kinds of germs, or the type of examples, that we can build on, that make, or should make, it possible for us to achieve those three broad objectives, even in a world where there is very little global cooperation and we’re pursuing largely second-best strategies rather than the first best. But there has to be room for significant experimentation. So that’s really a high-level overview of what the book is about.

Hagen: Thank you. Thank you so much. Jayati, would you like to come in?

Jayati: Yeah, thank you. Thanks a lot, Hagen. And thank you, Dani, for writing this book. And also, what a brilliant summary of the main arguments. I thought that was absolutely right. You know, everything that Dani Rodrik writes, I always find illuminating and insightful and wise. But I was particularly taken by some of the ways in which he’s turning around the things that depress us and making them into sources of possibility. And I really appreciate that, Dani. At this moment in time, it’s clearly something that we need hugely. And I think especially it’s a very bold attempt to provide a positive agenda in an obviously very dark and increasingly dangerous world. So I also take your point about how a lot of these things are happening independently of, you know, us doing them in a coordinated way, or the UN and other bodies getting together. In other words, despite the absence of the multilateral approach on this, which, of course, as you say, we all prefer, these things are happening anyway. I think that’s a very important message.

I have a couple of maybe questions about how to interpret some of these things. The middle class, for example, I think you’re right about North America and Western Europe, that being the relevant category of middle class there. In a country like India, we have 5%, actually 4.6% of the population who pay tax. They’re not even in that… 95% of our workers are informal. I mean, even when the slightly better-off can be called the middle class in that traditional sense of, you know, the formal regular job and that kind of thing. And yet the disaffection is not only from the middle class; the disaffection is from a much wider group, and increasingly that disaffection is used against each other. And the rulers encourage that turning against each other, as they do in Europe against migrants, in India against Muslims again. So I’m thinking that, yes, I would actually widen that notion of disaffection beyond the middle class. And so when we’re looking for middle class, maybe I would say that what we’re really looking for is the expansion of decent work in the traditional sense, at larger levels.

The other issue: I mean, I completely take your point about manufacturing no longer being a source of employment generation. But I want to put a case for manufacturing anyway, on the grounds that it does more than just employment generation. It actually, there are all those synergies associated with innovation, productivity, learning, knowledge. In India, that was the view. 20 years ago, our government at the time, which was otherwise a kind of rational government led by an economist, just said: well, no, we should skip manufacturing, we will leapfrog the manufacturing phase and go straight into services. And so they put a lot of development, for example, in the ICT sector and software industry and so on. The problem with that is that increasingly so much of the software itself is embedded in hardware, which we neglected completely. As a result of which, if you look at it, we are actually net importers of software, because everything you import, the phones, the laptops, the iPads, etc., contains software. We are no longer in a position to make it. I’m saying that manufacturing gives you other benefits beyond employment, so we can’t ignore it entirely.

But where I completely and wholeheartedly agree with you is that we have to broaden the notion of industrial policy to include the care and also the creative industries. I do think these are the employment generators of the future. And so we have to be thinking of ways to tax the extraordinary benefits that are coming out of highly concentrated productive sectors in manufacturing and services, to shift them into public investment in care, especially care industries, but even some creative industries. It’s not something the markets will do on their own. So we have to think of those internal mechanisms that will transfer the wealth that is being created by supposedly much more productive, certainly with higher labor productivity, into the activities that do generate employment. So yeah, that would be the other issue. I mean, it’s not that I think we fundamentally disagree on this. I think it’s just a question of emphasis: coming from the Indian experience, I would not advise any economy to ignore manufacturing. I would just tell them it’s not going to give you jobs, so don’t do it for that reason. And think of the other possibilities, the linkages, the knowledge effects, the synergies that you’ll get from it.

You also have this very realistic attitude to multilateralism, and what we can do without global coordination. And I think you emphasize local and national responses. But I’m thinking that in some of these cases you can’t do it without regional or plurilateral, shall we say, groups of countries. Even something like getting fair taxation, the fair taxation of multinationals and ultra-rich individuals, at least you need to exchange information. You need country by country reporting. You need to be able to implement certain things without everybody trying to shift their capital out or choose other locations to reside in and so on. So we do need, if you like, coalitions of the willing in the good sense, which are not necessarily global, and they cannot be global anymore, given our geopolitics at the moment. But we need to go beyond just the purely national in that sense. The point you make about green technology, and the fact that China did it because they saw it as industrial policy, they saw it as development, I think in a way, this terrible war that we’re experiencing right now is another sort of reaffirmation of that point. I mean, fossil fuel dependency is a disaster now, even in strategic terms. Every country has every reason to be thinking of renewables that they can access domestically or regionally, in ways which are not entirely dependent on things that can be blocked and wars that can be fought for no reason. So I would say that yeah, we can’t really go on the whole global public goods, global public investment mode anymore, but we can think of some of those issues, perhaps, in terms of coalitions of the willing. The Sevilla Financing for Development conference talked about platforms for action, where countries can get together to do some of these things. And so I would add that maybe as one of the other ways in which we can resurrect some good stuff out of a lot of the bad stuff that is happening. But yeah, thank you once again for what I thought was, as I said, light in dark times. Thank you.

Hagen: Maybe you go ahead, Marcel, I think he’s ready.

Marcel: All right. First of all, thank you for having me, and thank you, Dani, for sharing the book, it was a great read. And I don’t really… it’s very hard to come up with criticism because I think it’s a very strong argument.

Two things I like in particular, and I share this with Jayati. First, your optimism, your positive perspective: it’s so easy to get desperate and pessimistic in this world, that it’s equally or even more important to see the opportunities and look at the path of how we can solve the challenges that we have. But second, what I like a lot is what you call productivism: the linking of sustainability, prosperity, so reducing inequality, creating social participation and solidarity, and reducing poverty. Really linking the three. And I think that’s really important: not to look at those issues in isolation, but really to understand that they are interlinked. So in other words, if you fail on one of them, we will also necessarily fail on the other two. So I think that’s a great contribution and an argument that I haven’t heard with that clarity and to that extent. To me those are major contributions.

I have really three points I want to not criticize, but rather try to take a step further and maybe get into a discussion. The first one is on multilateralism versus nationalism or bilateralism, and I see with a lot of concern the move away from multilateralism. In recent years, over the last 10, 15 years, I fully agree with your argument about hyper-globalization, that globalization has gone too far. You have been making this argument at least, I believe, for 25 years or even longer: that the benefits of globalization, first of all, have been exaggerated; second, have not been shared equally; and that it has created a lot of losers. But in particular, if I look at all the big challenges that we as mankind face today, they really are shared challenges. And problems of, of course, sustainability and climate change require a coordinated approach.

And if some countries do their work and try to push, it doesn’t necessarily solve the issue, and it might actually create a race to the bottom. And that’s an argument you hear a lot in Europe, in particular in Germany, in the automotive sector: so why should we shift away from the combustion engine towards electric cars? We are great at doing combustion engines, all the others are, you know, not sticking to their climate objectives. So let’s stick to a technology that we can exploit at least for another 10, 15 years possibly. So I think we really need to think about how we can strengthen global institutions, because if you believe in market economies and competition about the best ideas, it’s really about creating rules and rules of the game for global competition. And with all the points agreed about hyper-globalization, that it shouldn’t go too far, that it should protect the weakest members of society, that it shouldn’t challenge social cohesion, I think this will really be a crucial issue in solving this trilemma, or these three challenges, that you pose.

The second point is the role of governments and the role of the state. And what I see with a lot of concern and worry is that governments pretty much everywhere in the world are becoming less and less capable of addressing the challenges they’re facing. Partly because the challenges are global, if you look at the shock from the war in Iran, if you look at a lot of the other issues, these are external shocks, and external shocks are becoming more important, meaning national governments are less and less capable of acting and addressing the challenges ahead. So this is, I don’t have the answers, but I’m concerned that the potency, the ability to act and solve problems, of national governments is becoming ever more restricted. Also on the budgetary side, we see a rise in government debt; governments become less and less able to provide the environment for good jobs, for social security, for social cohesion. So for me, this is one big question mark: how we can empower governments in the future and achieve that.

The third and final point I want to make is my biggest concern, or put the other way around, the question that comes to my mind: what political system do we actually need, or what political system is most conducive to dealing with these challenges? And maybe I’m leaving my realm as an independent scientist here too much. Maybe I want to believe, but I do strongly believe that democracy is crucial for helping address and solve the three challenges that you describe. Because what’s really different today compared to all the challenges we had over the past 200 years, from the Industrial Revolution to today, is the speed of change, the speed with which technology is evolving, creating havoc for societies and for industries. And democracies are not well equipped to deal with that, because democracies are about finding consensus, moving slowly, trial and error, correcting the path. And I’m not surprised that countries like China, or governments like we have in China, are very self-confident and say: look, Western democracies have failed, they’re not capable of addressing those challenges, and we need a different political system. And I believe our Western democracies are crucial for solving those challenges that you describe, precisely because they’re able to learn, they’re able to adjust. And there is a huge literature, including Nobel Prize-winning work, on the role of institutions and the role of democracy, not only for economies but also for transformations, including social transformations. And so, for me, that is one of the crucial issues: how to reform democracy. And again, I don’t have the answers. I’m working on this, now for a year, a year and a half, on a book project, but I’d be very curious to hear your views about it. So again, thank you for sharing this and I look forward to our discussion.

Hagen: Dani, please.

Dani: Well, thank you, Jayati and Marcel. So first I’m very grateful to hear that the ideas resonated, and that’s very gratifying.

I think you’re all raising important issues which I think are largely complementary and enforce or deepen some of the arguments in the book. I don’t think we’re facing major disagreements; some of them have to do with the framing. I think I may have a tendency in the book to emphasize the part that is less discussed, that is less emphasized, and then it might seem to some readers as if I’m downplaying the importance, for example, of global cooperation and global awareness. My worry is that we shouldn’t hide behind that. So maybe it’s something I’ll come back to. But just taking the points that you’ve made, roughly in order.

I think, Jayati, you’re very right when you talk about developing countries and countries like India: that the issue is probably less well stated as one of middle class there. The reason I emphasize the middle class, and I do so mostly in the context of the advanced countries, is that I don’t think the issue in the advanced countries has been mostly one of inequality. I think that’s how it is usually posed in the advanced countries, but I think, you know, many countries in Europe have not experienced really an increase in inequality in the same way that has happened in the United States. But what is, I think, common is a sense of increased economic insecurity that people in traditional industries have been facing with respect to their economic prospects and the prospects for their children. So it’s not a problem of poverty, it’s not a problem of rising inequality per se, it’s not necessarily a problem of the increase in concentration of top wealth, which I think might be important for other, independent reasons. I think the sense of loss of social recognition and dignity, a sense of identity and belonging, which I think drives so much of the increased support for the far right, I think that has to do with the loss of economic opportunities and career progressions that many people in the advanced countries are facing. And I do think it’s appropriate to phrase it as a problem of good jobs, which is sort of as I do. And I think you’re right: that’s where it also joins the conversation in a place like India, you said it’s decent work. Yes, absolutely. That’s what it is. And India, for all of its economic advances in the last couple of decades, on the job front hasn’t done very well. Formal employment has remained very limited. A lot of economic insecurity remains, precarious work is still significant. And the advances in terms of social support and transfers, and we’ve had some advances there, but social support and transfers and poverty alleviation is not the same as giving people the chance to contribute to society through the work that they do, and giving them a sense of dignity and social recognition that jobs, and good jobs, provide.

And I think economics has traditionally, going ever back to Adam Smith, right? The whole debate, the whole point about Adam Smith in his debate with the mercantilists, was that the point of economics was to increase our consumption possibilities. So that sort of ingrained a habit within economics of thinking of individuals essentially as consumers. And I think too often we overlook the identity that comes from us being essentially defined by our work, the work that we do. And that’s a very important complementary perspective. And I think what the last three, four decades of neoliberalism has done is it’s created this incredible loss of sense of dignity on account of the disappearance of good jobs.

You know, I think I totally agree with you that there are lots of good reasons why you may want to support manufacturing. And one needs to be very careful: manufacturing still produces a disproportionate share of innovation and the innovation spillovers. For national security reasons, for supply chain resilience reasons, for the green transition itself, you may need to invest in manufacturing. So absolutely. But I do think that what policymakers have not quite gotten around to understanding is that those are distinct reasons that might provide a motive for industrial policy. But whether you’re talking about India or Germany, this association of industrial policy for manufacturing that does all those things, plus will help us rebuild our middle class and create good jobs; I think that’s where the argument falls apart. And the tragedy is that it distracts attention from what you ought to do to really make progress on jobs. Because you forget, then, that what you need to do on jobs is a very different kind of productive transformation policy that’s focusing on services.

So again, returning to the role of multilateralism, and I’ll connect this to what Marcel was saying as well, I do think there are important areas where multilateralism, or coalitions of the willing, or plurilateralism as you said, or regional approaches, has a role to play. I mean, the one area where I highlight this, and you sort of mentioned it in passing, Jayati, is the need for revenue generation. I think for a lot of global public goods, for which revenue is especially important for the lowest income countries, the least developed countries, that’s important. And whether it’s through taxation of multinationals or taxation of high wealth, that’s an area of important action. But, you know, again, I don’t want to see too often developing country governments hiding behind a lack of international cooperation and ignoring that there are lots of things that they can do on their own. And I think the most striking thing about economic performance around the world in the last 50, 60, 70 years is how heterogeneous it has been. Whereas whether there is international cooperation or not, or the strength of multilateralism, pretty much influences all countries in quite the same way. But performance, when it comes down to it, I think is 80%, 90% what countries do on their own.

Marcel, I think the additional two points beyond multilateralism that you raised have to do with these tough questions about the role and the effectiveness and capabilities of the state, and whether democracies can handle what’s happening. You know, I think these are fundamental questions. Again, my optimistic take on these things would be that the effectiveness of the state is something that is built and has a lot to do with where we put our priorities. And I think a lot of the things that we see as the state being ineffective are not because of some inherent weaknesses or some structural factors that make the state weak. It’s much more about how we define our interests and where we set our priorities. I’m sure there are lots of European examples, but let me give you one from the United States. Under the Biden administration, Biden made a big commitment to industrial policy and spent tens and hundreds of billions of dollars to promote manufacturing, advanced semiconductors, and also the green transition. So the amount of resources actually put into programs that were much more directly focused on employment and job generation in the regions that need the most is more of the order of $3 billion. And so we’re really talking about a sense of priorities; it’s not the fiscal constraint that determined those choices.

There are similar things happening in Europe. I mean, if you ask what are the priorities in Brussels and in Paris and in Berlin, often it’s about strategies on digitalization, AI, how to restore the backbone of German manufacturing. And those might be important enough in themselves, but I don’t think we’re getting enough of a focus on how we deploy productive policies to strengthen the backbone of our middle class, and that’s going to happen through local and regional policies that are much more employment-focused, that are focusing much more on local services that entail cross-sectoral collaboration. And you know, it is much more a sense of priorities and the ideas we have about promoting them, and less about something intrinsic about state capabilities; that’s what I would say.

Finally, on democracy. I mean, I do think democracies have some structural weaknesses, but this is really not an issue of democracy versus authoritarianism. The reason that China’s green industrial policies were successful was not because they were top-down, imposed policies by a dictatorial regime that had continuity. It was much more the fact that the Chinese government acted, as I say in the book, much more like a collaborative catalyst and promoted a lot of experimentation: creating space for municipalities and regions and provinces to do these things, while framing national priorities and taking this on as a kind of national project. It’s the kind of thing that advanced democracies have been able to do. There are examples of this in the United States of course with respect to, you know, the defense procurement and the nuclear power regime. You can always, even within democracies, create systems with a significant degree of continuity that are focused on solving their own problems. But again, my sense is this is less a structural problem, less that one type of regime has a better handle than another, and much more a sense of our ideas about what our objectives should be and our ideas about what are the best means to promote that. So maybe this is just a self-serving way to say that we intellectuals have a bigger role to play in developing these frameworks and ideas and getting rid of old frameworks that are no longer very helpful. But you know, maybe that’s just a professional deformation that it’s normal for academics to have.

Hagen: Any immediate reactions, Jayati? Marcel?

Jayati: Yeah, could I come back on both those points actually, on democracy and inequality? Absolutely, Dani, I think I agree with everything you said.

On democracy, you know, Marcel, you were asking: we don’t know how we can actually make it work better. I mean, I think one obvious thing that I keep thinking about in every country now is state-funded elections. You know, it’s so blatant, the money power that drives elections, and then the fact that elected officials have obligations and commitments and promises that they have made to the very, very rich, and therefore a lot of the policies that have led to the erosion of the middle class that you talk about, Dani, are the way they are. And I think that feeds into the other issue about inequality.

The thing that bothers me about inequality, I mean of course the poverty and the insecurity and all of that, but it’s actually the stuff at the top. It’s the fact that we now, I believe, have the greatest concentration of wealth and power among very few people that we’ve ever had in human history. And that means that they can influence laws, regulations, institutions, policies, everything. So all the reasons why the middle classes feel more and more disempowered and are disenchanted, all the reasons why in countries like India we cannot get out of that poverty trap for at least half of our population; all of those come in a sense from that wealth concentration. So maybe I’m saying that inequality is a problem because of the fact that it has generated this extreme power at the top. It’s not just the wealth. It’s not just that they have more income, more assets, etc. It is that that power brings more wealth, and they’re using it. We can see that, right? We can see one person say: ‘I’m going to take over what has become the global town square and make it into something that I want.’ Another one can say: ‘I’m going to influence wars’, which they are doing as we speak, and ‘I’m going to create wars.’ So I think it’s that upper end which is a problem in all of our countries, and globally in a way.

Marcel: Maybe if I may add two points. I like your point, Dani, on local and regional institutions, to really say, decision making cannot be very far away from people. You have to be as close to people as possible. And in the United States we have a strong federalism. Many European countries, my own Germany, we have this very strong federalist structure.

The problem I see is twofold. One is that at least in the US and in Germany and other European countries, the local municipalities and cities often don’t have the means. They have very little capacity or capability to really shape policies that are relevant to making a difference. And so again, it’s a question of how can we reform federalism? How can we make the institutions more capable?

And the second, related point to that is: I wonder how that fits with technological change, because, when we ask what are the services and service jobs that will experience growth and provide opportunity for good jobs, it’s often in technologies or services related to technologies like digitalization, digital platforms, and AI. So technologies that really have huge economies of scale that need a big domestic market. And in Europe, I believe even Germany is a small economy, and even Germany is too small to really be able to provide those economies of scale. So I guess the challenge is, and I agree with you on the point of giving as much power to local municipalities and getting decision making as close as possible to people, but at the same time, we need to have the size, the financing, and all that is necessary to scale technologies and create these good jobs. So this is my first concern, of how to do that, and we have been failing in the US and in most of the European countries as well.

And the second one is: I see with a lot of concern that the destruction of democracy in the United States also comes from people who believe that their power is constrained by governments. And people like Peter Thiel and many others have very openly expressed the intention that they believe democracy is an evil system, and it should be weakened and should be destroyed, and tech billionaires should be deciding what the future for us looks like. So I think there’s also the attack from that side, and both of these points I see with a lot of concern.

Hagen: Thank you. Thank you all three. This was already very, very deep and insightful and I think…

Jayati: Can I add one point?

Hagen: You can add everything you want.

Jayati: So, Dani, this is actually coming back to the point you make. I mean, I’m all with you about investment in services, but I don’t agree that we should be looking for more productive services. I mean, you know, in the normal sense, the quality of services is not decided by its productivity. In fact, often so-called productivity makes it worse. So I would actually say we need services that improve the quality of life. And so yes, not one nurse serving 20 patients, but one serving three patients, maybe. Not one school teacher serving 100 students but, you know, 10 students per class, etc., etc. So I think the standard notions of productivity we should completely ditch when it comes to services, because what we’re looking for are services that deliver better quality of life. And that can only happen through public investment, because obviously the private sector is not going to go for it, and if they do, they’re going to do what private equity does to nursing homes and kindergartens: drive them down and destroy the quality. So I personally am completely with you on services, but I think somewhere you say that we should be looking at increasing productivity in services, I don’t think we should be. I think we should be improving and expanding services that improve the quality of life, and we do it through public employment and public investment in those sectors, because markets are not going to give you that. Which goes back to the whole fiscal issue as well, I guess.

Dani: Yeah, so that is an important point of discussion and I think it is worth maybe spending a few minutes on. I agree with you, Jayati, that the point of care has to be to improve the quality of service, and that’s absolutely important. But it also has to be done in a way that improves the quality of work that the service providers are engaged in, because that’s going to be, and already is, and certainly in developing countries will soon also become, a very big part of our employment, surpassing manufacturing many times over. I don’t think this is a problem that can be solved only by public employment, because the issue then becomes: where does the resource come from for paying for this? I think the only way that you can actually simultaneously increase the quality of service and increase the quality of work that the service providers do is by increasing productivity; productivity is the solution to that. But you’re right that productivity not in the misleading notion of, you know, how many elderly people are you serving; quality is part of your productivity, so let’s be very clear about that. So there is a virtuous cycle where increased quality of work produces higher quality of service, which in turn enables greater productivity, partly because it reduces costs like turnover costs in care, which are extremely high; or it reduces costs like hospitalization costs and incidents of chronic disease, because if the elderly are being cared for better, the broader costs to society and to the medical system are going to be much lower. And that’s where the productivity benefits are going to show up.

The only way we can actually provide simultaneously good jobs in care and improve the quality of care is precisely by emphasizing that we need to enhance the productivity of care. But the type of organizational and technological innovations we deploy, I think those have to be heavily influenced by societal and public choices. There are some investments in technology that are going to go in the wrong direction. You know, you can try to replace care workers by having social care robots, basically just elderly people sitting next to robots that are supposed to be their friends. That’s not the way to go. There are many other technological innovations that simultaneously increase the quality of care and the quality of jobs, such as assistive care technologies, robots that actually enable care workers to do heavy lifting and give them assistance; point-of-care diagnostics that enable relatively less skilled caregivers to perform some of the tasks that maybe only nurses or much more skilled physicians might be able to do.

What you’re right about is that the market is not going to deliver the right type of technological and organizational innovations to ensure that the benefits can be captured by the workers and the people that are being cared for. There, I think the government has to put a very heavy hand on the direction of innovation. And so there is a significant role for the government. But I fear that if we give up on productivity, then we are resigning ourselves to Baumol’s cost disease, which is that we take it as a given that we cannot overcome it or reduce it. And that’s simply a recipe for giving our states a fiscal burden that they’re not ever going to be fully able to recover from. So that’s why I think productivity is actually important, productivity that’s appropriately measured both in terms of the quality dimension, as well as the dimensions in terms of the external effects on the rest of society and on the rest of the medical system.

Hagen: All right. Jayati, is that okay for you now or do you want to come back?

Jayati: Okay, I don’t want to prolong the discussion.

Hagen: It’s okay, this is what we are here for.

Jayati: Dani, okay, this is just me thinking through: why do we have to look at specifically productivity in that sector? Why can’t we say we’re going to increase aggregate economic productivity and transfer those surpluses into these areas where we can expand employment at what is supposedly low productivity? And if you think only sectorally, then the most productive workers on the planet are the guys in Morgan Sachs and Goldman Sachs, etc. The people who basically give us all the financial crises are the most productive in terms of output per worker. So I don’t know, I think we should be thinking about how, if we raise aggregate productivity in any economy, we then transfer those surpluses into the areas which improve the quality of life.

Dani: So that is, you know, the Keynesian social democratic settlement, and my view is that we’ve reached the limits of that. Because what enabled that was a system of mass production industrialization, alongside limits to how much wealth could be concentrated at the top, and how much redistributive taxation we would have. So it is, I believe, possibly, at least logically possible that we move to a world where we have a productive enclave that generates the surplus that can then be taxed and redistributed. But that seems to me neither a healthy society, because it still entails one where the economic system generates vast amounts of inequality which we’re trying to claw back through our redistributive tax system, and where we’re essentially not necessarily creating good jobs for the vast majority of workers, who will still be in care and other related service sectors. Because it’s not just care: it’s also retail, it’s hospitality, and all those sectors need similar approaches. And we cannot simply mandate good job standards in all of those sectors by just subsidizing them through the fiscal system.

Hagen: I would like to open the discussion a little bit to maybe shift the conceptual focus, inspired by what you were all saying. I was wondering, Dani, what you think about the dilemma or the old discussion between, you know, maybe a more neoliberal or market-based idea of productivity versus a Keynesian idea. What do you make of alternative concepts that are floating around, care economy, circular economy, donut economy, ecological economy, how do you deal with these kinds of visions as alternative scenarios for a future which includes the green transition and all that? That would be one question I would love to pick all of your three brains on.

And then I was wondering, as you were making your triangle, your conceptual triangle, do you have any alternative concepts floating around? Because I could always hear security in the back of my mind. Institutional security that would ensure that any ideas are actually followed through. Economic security. And maybe your idea of a middle class is kind of a synonym for security, because you imagine that a middle class will provide a stable political order, ideally inside democracies. So what’s your take on security? Which is increasingly also written into ideas of planetary governance, planetary security, legal security and all that. So: institutional frameworks, security, and alternative concepts: how do you three think these matter?

Dani: Yeah, security, I think you’re right. I was thinking about that on the economic component of security as being largely part of my focus on good jobs and the middle class, to the extent that I’m thinking about good jobs being not simply those that pay well, but those that provide some predictability, a sense of control, career progressions, and labour market protection. So they have a significant element of providing economic security as well. And the more national security and political dimensions, those kinds of issues, I didn’t want to include, you know. This is still not going to be a book about all the challenges that we face. It’s a book about what I think are the most important economic challenges of our time. And yes, economic insecurity I think is partly baked into one of those three, mostly in terms of the labour market and economic insecurity issues, not the others.

On institutional frameworks and these various alternative conceptions: look, I’m very open to all of them. I think we should be pragmatic, I think we should experiment. My approach to economics has always been that we think about neoclassical economics as being a terribly constraining view that fetishizes markets and has one-size-fits-all blueprints and all of that. My view of economics has never been that; economics is really a set of tools about understanding and making causal statements and developing hypotheses and testing them. That’s really very open-ended. And depending on the values that we place, which have to come from outside economics, depending on what we take as constraints, institutional or political, depending on what we think are the tools that are available, economics doesn’t constrain us at all. And it is one of my fights in my career, if I can put it that way, to try to get our graduate students and assistant professors to broaden their institutional imagination, to understand that the tools of economics are not married to a single set of institutions that we might associate with one particular market system. Now, whether it’s the social democratic settlement, or neoliberalism, or the developmental state in its idealized version; these are all just compatible with traditional standard neoclassical modes of thinking. But that should alert us to the possibilities that you can have a rich array of existing institutional arrangements that are desirable in context. But also they indicate that for the future, we shouldn’t constrain ourselves by what we’ve already inherited from our history, and we should be open to new institutional possibilities as well. And therefore, this focus on institutional experimentation that I think is very much at the heart of the book.

Hagen: Thank you. Anybody on this? Jayati?

Jayati: I was just thinking, while Dani was speaking and also when you asked that question, you know, I found Dani’s book to be completely compatible with, let’s say, donut economics or ecological economics or any of those things. Because fundamentally, first of all, of course, what you just beautifully put in terms of the experimentation. But also because in a way, I don’t know, Dani, if you would agree with my interpretation, but the sense I get from your book is really that you have to subordinate the economy to the needs of society, the planet, and so on. And so you have to think of ways of doing that, ways of getting to an economy which is meeting the needs of people and planet, rather than the other way around. Which is a perspective shared by the other things that you mentioned. And that’s basically how I saw it. And that’s why I thought it was so valuable as well.

Hagen: Marcel, do you have… What do you make of security and economic security now, also as a European policy, which is shifting in front of our eyes? And the idea of security there is, of course, coupled with something else, not just a stable middle class, but a larger fight against the industrial superpowers of China and the US and all that. How do you relate to these newer concepts and ideas of security?

Marcel: I share, of course, Dani’s concern about the middle class. And we see pretty much in most Western economies that the middle class is shrinking. And if you look at what kinds of jobs are threatened by technological change and digitalization and AI, it’s mostly jobs in the middle class. So this is probably going to get worse. For me, the main concern, as I also briefly alluded to in my introductory remarks, is that what makes it so difficult for governments to make actual changes, at least in Europe, and I see that pretty much in every country, is that it’s not just inequality, but it’s the fear of change. People are afraid to have to adjust to something completely new. And for many people, new technology, changing jobs, learning something new, is a great opportunity. People say: wonderful, I learned something new, I can have choices; if I do well, I can actually improve and have a higher income and a better job. But many people perceive that change as a threat to the status quo, to what they have achieved. And that’s what, in a way, represents the loss of economic security. So the challenge I see is, in particular, to convince people: look, the change that’s coming with green technologies and the way we are mobile, the way we eat or we behave, is not primarily a threat. Yes, it is to some extent, but it’s also an opportunity. So I think economic security is limited, and the social welfare state, in particular in Europe, is really at its stretching point, and in particular with the demographics. I mean, that’s another aspect that is really a huge problem for many European countries, in particular countries like Germany and Italy, that have some of the oldest societies. So in a way, it’s really about social acceptance, or shifting the mindset of people to say: look, change will come, change will be quick. Yes, it is a threat, but it’s an opportunity, and we will help you to use that opportunity. I think that, to me, is crucial. And I think we will not have the same level of economic security in the future as, let’s say, we had in the 1980s or 1990s, at least for most of the industrialized countries in Europe. And I think that’s part of being honest, for politicians to communicate. They say: look, this is what is going to happen, and there’s nothing that can change that. Technology is really disruptive, and we have to deal with it.

Dani: Just say one thing here.

Hagen: Sorry, Dani, we need to slowly come to an end. So please, come in.

Dani: No, I would just basically very quickly say that I worry, Marcel, that if that’s the line politicians are presenting to their electorate, that we’re simply going to have a repeat and intensification of what we experienced during hyper-globalization, where the argument was: globalization is here to stay, there’s nothing we can do about it, just grin and bear it, go get another job, get training. We can’t do anything about it. That’s literally what leaders told their electorates. And the response was: okay, so you’re not going to pay attention to my problems because you say you can’t control it? I’m going to elect the people who say they’re going to give me control back. Now, I think it’s very important, and we should not be technological determinists, just like we were not globalization determinists. Globalization was not something that could not have been shaped. And I think we can also shape the direction that AI is going and that technological change is going. It’s going to be very different if AI becomes a tool where we give the less-advantaged, the less skilled, the less experienced, the knowledge that AI is able to disseminate, and therefore empower them in their lives, including the kinds of jobs that they do, as opposed to if we use AI as a way of simply concentrating wealth at the very top and enriching just a few corporations. That’s part of our democratic responsibility. And I think it’s important for political leaders to take that on, because otherwise we’re simply going to have the worst, even worst repeat of what we had in the past.

Hagen: Thank you so much. We’re going through times of rupture and change, and certainly new beginnings and futures will emerge. And it’s so good to have a more positive and constructive voice. We need to talk to each other, build systemic and social communities, and imagine a better world together. Thank you so much, Dani, for writing that book for us. And thank you, Jayati and Marcel, for joining us.

Dani: Thank you everybody.

Jayati: Thank you so much.

Marcel: Thank you.

Further Readings

• Acemoglu, Daron, and James A. Robinson. 2012. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown Publishers / Random House.
• Baumol, William J. 2012. The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t. New Haven: Yale University Press.
• Keynes, John Maynard. 1936. The General Theory of Employment, Interest and Money. London: Macmillan.
• Thiel, Peter. 2009. “The Education of a Libertarian.” Cato Unbound, April 13. https://www.cato-unbound.org/2009/04/13/peter-thiel/education-libertarian/.
• Rodrik, Dani. 2025. Shared Prosperity in a Fractured World: A New Economics for the Middle Class, the Global Poor, and Our Climate. Princeton: Princeton University Press.
• Rodrik, Dani. 2011. The Globalization Paradox: Democracy and the Future of the World Economy. New York: W. W. Norton.
• Smith, Adam. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. London: W. Strahan & T. Cadell.