I first learned of Dani Rodrik in 1997 when I came across his pamphlet, Has Globalization Gone Too Far?. That pamphlet created a sensation in a Washington awash with “new economy” optimism. It was an opening salvo against what Rodrik has come to call “hyper-globalization.” Since then, the fissures that Rodrik saw in the global system have become crevasses. Rodrik has continually updated his own critique. His most comprehensive statement was in his 2011 book, The Globalization Paradox.
Rodrik was born in Istanbul in 1957, part of Turkey’s small Sephardic Jewish community. He came to the United States to attend college at Harvard and subsequently got a PhD. in economics at Princeton. He has taught political economy at Harvard’s Kennedy School for most of the last 32 years. Besides writing books and articles, he also has a blog, where he comments regularly on American, European, and Turkish politics. He is a noted critic of Recip Tayyip Erdogan’s administration.
As globalization has come under attack from the left and right, I wanted to ask Rodrik what he thought about the jeremiads from the Trump administration and how he assessed the problems of global capitalism in the wake of the Great Recession.
Real Grievances And Fake Solutions
Judis: During his campaign and presidency, Donald Trump has made a big issue of America’s trade deficit, and singled out China, Mexico, and Germany for blame. When Trump was in Europe recently, he attacked the Germans for having a trade surplus. He even threatened to block German car exports to the United States. Is there any basis for Trump’s complaints?
Rodrik: Like most everything with Trump, I think there is a significant element of truth in the causes that he picks up. He is addressing some real grievances. But then the manner in which he addresses them is completely bonkers. So in the case of Germany, I do think Germany is the world’s greatest mercantilist power right now. It used to be China. China’s surplus has gone down in recent years, but Germany’s trade surplus is almost 9 percent of GDP. And they are essentially exporting deflation and unemployment to the rest of the world.
I think the damage, though, is done to the rest of Europe and not the United States. In addition, it is not a trade problem. It is a macro-economic problem. The solution is to get German consumers to spend more and save less and the German state to spend more and to increase German wages. It is not the trade policies of the US or any other country that is going to be able to address this issue. It is similar to the way Trump has picked up grievances about how trade agreements have operated in the United States. These agreements have created loses, and grievances that have not been addressed, and I think there is a lot of truth to those kind of things, but I don’t think he has any realistic way of dealing with those things.
Judis: So you do think our trade deficit is a problem?
Rodrik: Yes, but I don’t put it on the top of our concerns. There have been times when it is a bigger issue. The U.S. could use more aggregate demand and one of the places it could come from is smaller trade deficit. But you could get the same result more effectively through a more aggressive fiscal stance on the part of the federal government and the states, particularly through expenditure on infrastructure. I do think the low labor force participation is something we should try to bump up and I think there is a place for increasing demand. A lower trade deficit might contribute a little bit to raising it, but I don’t think it’s where the major action is.
Judis: Do you think there is a point in trying to renegotiate the North American Free Trade Agreement (NAFTA)?
Rodrik: The damage of NAFTA has already been done. Many communities affected by NAFTA have already experienced sizable losses, but there is no way you are going to bring back the jobs that have been lost. Those are water under the bridge. So we shouldn’t fool ourselves that we can reverse the consequences of NAFTA.
If we are going to be renegotiating NAFTA, we might be able to put a symbolic stamp on a new type of trade agreement, but there is absolutely no sign that the current administration is approaching it that way. I would have let NAFTA be NAFTA. I would have put TPP on hold, and I would have articulated a new approach to trade agreements before starting on new agreements. There is a complete disconnect between what Trump said he wanted to do on trade agreements and what seems to be happening.
Rebalancing Trade Agreements
Judis: Where do you see the disconnect?
Rodrik: I don’t think Trump’s proposed remedies for the issues that he picked up from the angst, the anxiety created by jobs losses have any chance of working. I also thought from the outset his bite would be much less than his bark. That when push came to shove, he would not do some of the radical things that he said would do, like building a wall or putting 35 percent tariffs across the board on imports from China. I am glad he is not doing these things, and I think the optics at some point will look more and more awkward and at that point his base will start to wonder what is really happening with his promises.
Judis: And what should a president concerned about trade do? What are new types of trade agreement that are worth pursuing?
Rodrik: There is a kind of rebalancing we need to do in the world economy. I would put it under three major headings. One is moving from benefiting capital to benefiting labor. I think our current system disproportionately benefits capital and our mobile professional class, and labor disproportionately has to bear the cost. And there are all sets of implications as to who sits at the bargaining table when treaties are negotiated and signed, who bears the risk of financial crises, who has to bear tax increases, and who gets subsidies. There are all kinds of distributional costs that are created because of this bias toward capital. We can talk about what that means in specific terms.
The second area of rebalancing is from an excessive focus on global governance to a focus on national governance. Our intellectual and policy elites believe that our global problems originate for a lack of global agreements and that we need more global agreements. But most of our economic problems originate from the problems in local and national governance. If national economies were run properly, they could generate full employment, they could generate satisfactory social bargains and good distributive outcomes; and they could generate an open and healthy world economy as well.
This is an important issue with the cosmopolitan and progressive left because we tend to be embarrassed when we talk about the national interest. I think we should understand that the national interest is actually complementary to the global interest, and that the problem now is not that we are insufficiently globally minded, but that we are insufficiently inclined to pursue the national interest in any broad, inclusive sense. It might seem a little bit paradoxical but it’s a fact.
The third area for rebalancing is that in negotiating trade agreements, we should focus on areas that have first order economic benefits rather than second or third order. When tariffs are already very small, you do not generate a lot of economic benefits by bringing them down further. When you restrict governments’ ability to regulate capital flows and patent/copyright rules, or when you create special legal regimes for investors, you do not necessarily improve the functioning of our economies. In all these areas, global agreements generate large distributional effects — large gains for exporters, banks or investors, but also large losses to rest of society – and small net benefits, if any at all. In other words, past agreements addressing trade and financial globalization have already eked out most of the big efficiency gains. Pushing trade and financial globalization further produces tiny, if not negative, net gains.
One major unexplored area of globalization where barriers are still very large is labor mobility. Expanding worker mobility across borders, in a negotiated, managed manner, would produce a large increase in the size of the economic pie. In fact, there is no other single global reform that would produce larger overall economic benefits than having more workers from poorer nations come and work, for a temporary period, in rich country markets. Of course, this too would have some redistributive effects, and would likely hurt some unskilled native workers in the rich nations. But the redistribution you’d get in this area per dollar of efficiency gain you’d generate is small – much smaller than with trade liberalization, greater capital mobility, or any other area of the world economy. This may seem paradoxical, but it is an economic fact. This is a major reorientation in our global negotiation agenda we need to think about.
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Judis: What is social dumping?
Rodrik: We have remedies against dumping when a foreign country sells things below cost. You protect your domestic company by putting tariffs on the importer who is dumping. Now we often subject our workers to competition with workers elsewhere who are working under very dangerous or substandard labor regulations. These are workers who don’t have bargaining rights and so forth. I think in those cases there is an argument we should have a parallel trade remedy that allows for a policy to protect American or European workers from unfair competition.
We protect workers from competition from other domestic workers. I can’t hire workers in the United States who work below minimum wage, but I can compete back door by outsourcing to a company in Bangladesh and doing it that way. So social dumping is essentially a mechanism that undermines domestic labor standards and other norms. Preventing it would be one way of changing the rules to make them more symmetric with respect to how we treat businesses and workers.
Judis: A lot of things you are proposing are difficult politically. It would be very hard to get an agreement on social dumping given the power of banks and multinationals. Where do you see changing coming?
Rodrik: I think the change comes because the mainstream panics, and they come to feel that something has to be done. That’s how capitalism has changed throughout its history. If you want to be optimistic, the good news is that capitalism has always reinvented itself. Look at the New Deal, look at the rise of the welfare state. These were things that were done to stave off panic or revolution or political upheaval.
I don’t want to overdramatize but I think in some ways we are at the cusp of a similar kind of process. You have the populists at the gate, and the centrist political figures and the powers behind them are looking for ways of maintaining the system, and I think they realize they need to make adjustments.
We say we wonder how the people that benefit from the system, the multinationals, the high tech companies, will ever be willing to change, but we forget where these people get their idea of what their interest is. They operate with a particular narrative. The way to change the way they act is to change their ideas of what their interests are.
I think this might be a moment where this is happening. They are seeing the process they believed was perfect is not so perfect. And they see that if nothing is done, there are going to be a bunch of rightwing populists and nativists and xenophobes who are going to gain in power.
So I think the powerful interests are reevaluating what their interest is. They are considering whether they have a greater interest in creating trust and credibility and rebuilding the social contract with their compatriots. That is how to get change to take place without a complete overhaul of the structure of power.
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ldrews, on 2018-May-15, 06:49, said: