STRAIGHT TALK ON TRADE: Ideas for a Sane World Economy
by Dani Rodrik
Princeton University Press, Princeton
Paperback: 336 pages
Reviewed by Colin Teese
Dani Rodrik has certainly presented us with some straight talk on trade, but he has gone much further – he has given us a masterful and comprehensive critique of orthodox economic thinking and practice.
Rodrik is Ford Foundation Professor of International Political Economy at Harvard University, and is internationally famous for his criticism of what he terms “deep globalism”. That is to say, the kind of globalism associated with neoliberalism, which has dominated Western capitalist thinking since the beginning of the 1980s.
Neoliberalism proceeds on the assumption that economic liberalism is the foundation upon which economic growth can be optimised within independent, democratic, nation states. Economic liberalism defines economies organised around the ideas of small government, privatised public assets and borderless movement of people, capital, goods and services.
Rodrik is famous for having created some 15 years ago the term “trilemma”, to describe the inescapable internal contradictions associated with deep globalisation. It was impossible, Rodrik demonstrated, to have globalisation, sovereignty and democracy. Any two of the three could always be present, but not all three.
Rodrik traces all the problems of globalisation that are troubling the Western world today back to this reality. The reasons are simple. For globalisation to work as effectively as its supporters claimed, it would need to be contained within a framework of globally acceptable and enforceable rules. In the absence of such governing rules, global business proceeds on the basis of anarchy.
Even if national governments were prepared to regulate international business (and mostly they are not), their national reach will always be insufficient to contain the operation of international businesses some of which possess greater wealth than nation states.
In many instances they are beyond the reach of national tax agencies, and free to ignore national labour standards, social practices and customs.
Of course global institutions supported by national government could easily frame rules to contain the operation of multinational companies, providing, of course, that national governments were prepared to surrender such powers to international institutions.
In general terms they are not. Though interestingly, many have voluntarily subordinated key elements of national sovereignty to international agencies. The World Trade Organisation (WTO) is a case in point.
The WTO effectively takes trade policy, and much that hangs off it, out of the hands of national governments. Many important areas of domestic economic policymaking have been placed beyond the reach of governments – including quarantine, tariff protection, even some aspects of health policy, especially as it relates to plant and animal health.
All nations are circumscribed as to the actions they are able to take against imports under the commitments they have made to the concept of free trade.
Once this is clearly spelled out, it immediately becomes clear why Rodrik’s trilemma proposition is incontestable – and why Western economies are plagued with the problems of inequality, unemployment and low wages arising from the fact that neoliberalism has permitted global business to operate within the context of nation states, and yet is beyond the reach of national regulation.
At the heart of all this is the proposition put forward by the advocates of neoliberalism that the best economic outcomes cannot be achieved unless markets are allowed to operate unimpeded by government interference.
Rodrik dismisses this proposition out of hand. Markets do not and cannot operate in a vacuum. They require government-provided frameworks, such as roads, schools, hospitals, police and legal protections for a start.
Furthermore, they operate within a social framework of nation states that, in liberal democracies, are managed by an elected government with commitments and obligations beyond markets.
The hope, and probably the expectation, at least among the more committed “free marketeers”, was that the nation state would disappear under the weight of globalisation’s success.
Nothing like this has happened, nor is it likely. In fact, quite the opposite. The appetite for globalisation is waning – as yet less so within governing elites, but certainly among those compelled to bear the burden of globalisation’s shortcomings. We are all aware of most of them, but Rodrik brings them into sharper focus and applies a deeper analysis. Low and stagnant wages, high unemployment, rising inequality.
The author makes it clear that advocates of neoliberalism were aware that there would be winners and losers as a result of their ideas. They refused to acknowledge them on the grounds that to admit to shortcomings would put ammunition into the hands of the dedicated protectionists.
Most of all, Rodrik makes clear that the ideas could not work for a quite fundamental reason completely ignored by the champions of neoliberalism. Nation states have fundamental differences based on cultural, social and linguistic separateness. One economic size does not fit every nation state.
No less important, in the matter of free trade, nation states must take into account matters over and above economic efficiency. Trade-offs are necessary and desirable if social cohesion is to be maintained. Less than optimal economic outcomes are mandatory if the losers are not to be permanently disadvantaged.
History going back to at least the French Revolution reminds us that permanently disadvantaging large sections of any society will lead to trouble.
Professor Rodrik’s book, which he acknowledges is built upon many articles originally published on the Project Syndicate website, is a worthy and readable book for anyone wanting to enlarge their understanding of why neoliberalism was always a bad idea tearing society apart rather than bringing it together.
This reader, at least, has one regret: that Rodrik totally ignores perhaps the most adverse aspect of neoliberalism. Neoliberalism is a feature of Western capitalist economies, all of which are built on the foundation of the tenets of Christian civilisation. Yet the idea of winner-take-all economics stands in stark contrast to every ethical precept that Christianity stands for.