Dani Rodriks's new book is a very interesting - and rather alarming - look at the current state of globalization. His basic proposition is that we are currently experiencing the:
'fundamental political trilemma of the world economy: we cannot simultaneously pursue democracy, national determination, and economic globalization. If we want to push globalization further, we have to give up either the nation state or democratic politics. If we want to maintain and deepen democracy, we have to choose between the nation state and international economic integration. And if we want to keep the nation state and self-determination, we have to choose between deepening democracy and deepening globalization. Our troubles have their roots in our reluctance to face up to these ineluctable choices.' (Introduction P XVII-XIX)
Over the course of the following twelve chapters, Rodrik gives us a history of globalization and free trade (pre- and post-World War 1), a consideration of the economic theories and policies that have affected the responses to them (Keynes, Bretton Woods, GATT, WTO, the 'Washington Consensus' etc.) and a look at specific national responses to globalization (South Korea, China, Argentina, South Africa amongst others), before returning to and expanding on his theme of the 'Political Trilemma' (Chapter 9). Finally, he makes a number of proposals for the design of 'Capitalism 3.0' (Chapter 11) before looking forward to 'A Sane Globalization' (Chapter 12).
Initially, Rodrik examines the relationship between states and markets. He suggests that '...markets are not self-creating, self-regulating, self-stabilizing, or self-legitimizing.' (P22 in italics) He continues: 'If states are indispensable to the operation of national markets, they are also the main obstacle to the establishment of global markets'. (P22)
Thus we see the beginnings of the 'trilemma'. Global markets fall between national regulatory systems. One solution to this, historically, was mercantilism (P23).
The first great era of globalization, prior to the First World War, Rodrik suggests, was down to a number of factors - new technologies played a major part, but so did a growing acceptance of Adam Smith's ideas, leading to a desire to reduce tariffs and other 'transactional costs'. However, the reduction of these costs was also largely down to imperialism which helped to minimise the 'regulatory gaps' between nations. Even so, the actual period of 'free trade' was relatively brief - roughly the 1860's and 1870's (P26). The fact is that the role of the nation state was always crucial, always underpinned 'free trade'. It is not simply a question of removing the state from the picture - 'free trade' cannot exist without the state. The relationship between the two is complex, subtle and quite inextricable.
Rodrik examines the relationship between the state, civil society, free trade and globalization in detail in Chapter 3. He also criticises his fellow economists:
'When economists oversell globalization by presenting an incomplete case for it, they not only lose an opportunity to educate the public, they also lose credibility. They become viewed as advocates or as hired guns for the "stateless elites" whose only interest is to remove impediments to their international operations.' (P66)
Rodrik next considers the Bretton Woods agreement and the development of a limited form of globalization post-World War 2. He, like many economists, sees this as a golden era for which Keynes and Harry Dexter White were largely responsible. Rodrik sums up Keynes' views on globalization as:
'Unqualified commitment to free trade was feasible only when societies were ruled by narrow technocracies with faith in a uniform type of capitalism. It ceased to be practical, or even desirable, in a world where nations were experimenting with alternative visions of political economy.' (P68)
Again, an indication of the 'trilemma'.
Freeing up trade in goods, Rodrik believes, has largely been a 'good thing'. But it was with the freeing up of finance that things started going awry. With the 'stagflation' of the 70s and the subsequent move towards 'supply side' economics and floating exchange rates, capital became 'excessively' mobile. This caused huge problems: in Latin America, Mexico, Europe, South East Asia (1997-8), Russia (1998), Brazil (1999), Argentina (2000), Turkey (2001). (See Naomi Klein
for an alternative perspective on this).
It turns out that those countries that were most successful, as has been noted many times before (Roubini
et al), were those who precisely did not open up their economies to the vagaries of globalization; South Korea, Taiwan, India and, of course, China, have all protected their fledgling industries, ensuring their establishment before opening them up to international competition. Rodrik specifically rejects Tom Friedman
's contention that donning a 'Golden Straightjacket' of 'free trade, free capital markets, free enterprise and small government' (P189) was the only way to successful economic progress. But:
'...Friedman's central insight remains valid. There is a fundamental tension between hyperglobalization and democratic politics. Hyperglobalization does require shrinking domestic politics and insulating technocrats from the demands of popular groups. Friedman erred when he overstated the economic benefits of hyperglobalization and underestimated the power of politics. He therefore overestimated the long-run feasibility, as well as desirability, of deep integration.' (P189-190)
Again, we see the 'trilemma' raising its head, again we see the tension between national democracies and global markets. And globalization is not yet complete. Although trade and finance are pretty well globalized, there is a third area that has barely begun the process - and that is labour.
Finally, Rodrik moves on to possible ways forward. Admitting that a global government is unlikely to arrive any time soon, his solution is essentially to limit the scope of globalization, promoting the importance of democratic national governments over the demands of, as he puts it, hyperglobalization, even at the expense of efficient markets. He expands on these ideas in 'Designing Capitalism 3.0'.
Whether you think that these proposals are feasible or not, judge for yourself. Making markets subservient to local/national regulatory systems will inevitably increase 'transaction costs' but if this means a 'saner' globalization surely this is a price worth paying.
However, some of his proposals struck me as simply unrealistic. In particular, I was not impressed with his proposals regarding labour. He suggests that workers from developing countries should be allowed temporary (five year) visas to come and work in richer countries. To avoid these workers overstaying, the visas should work on a 'one in, one out' basis, so that the worker would have to return to their country in order to allow another worker the opportunity.
At this point, I think it would be an idea to read 'Immigrant Nations
'. Will these workers be allowed to bring their families with them? If such a worker brings a child with them, that child will be educated in the host country for the duration of their stay. What of the cultural differences? If such a worker was to start a family in the host country during their five year period, will the whole family return? In a labour market which is increasingly 'hour glass shaped', (see Owen Jones
, amongst others) these workers will most likely be either highly skilled professionals or un/semi-skilled workers who will push down the value of wages in the host country, making them an inevitable source of tension.
Overall, this is a very readable book, making many valid points. But in the end, I was unconvinced. Quite frankly, I think it's too late. As I've said elsewhere, I believe that the Goldman Sachs Vampire Squid and the Kleptocracy (a.k.a. "stateless elites") have got far too firm a hold and we are more likely to see the rise of a new form of feudalism. In the end, hyperglobalization is just another Road to Serfdom
. We are so doomed.