Putting globalization on the right track

Tom Palley uses an interesting analogy to get us to think about improving globalization:

The global economy has built a narrow gauge railroad and now needs to find a way to build a broad gauge replacement. That points to several directions, relevant for both the US and Europe. First, countries should stop building more narrow gauge track, which means no more trade agreements without high quality labor and environmental standards. Additionally, agreements must have exchange rate provisions guarding against currency manipulation and unfair competition based on undervalued exchange rates.

Second, the US and Europe should start cherry-picking the existing “narrow gauge” trade system and promote “broad gauge” trade agreements. For instance, they could negotiate a US - Europe Trans-Atlantic free trade agreement (TAFTA) that includes proper labor and environmental standards and exchange rate provisions. Similar agreements could be negotiated with Canada, Japan and South Korea. All of these countries would have little difficulty complying with standards, and together they comprise over eighty percent of the global economy. Such a trading bloc would quickly become a “broad gauge” magnet for other countries.

Third, country shareholdings in the IMF and World Bank may in future be adjusted to reflect the greater contribution of developing countries to the global economy. If this happens, it should be part of a quid pro quo whereby the IMF and World Bank commit to promote labor and environmental standards.

The bottom line is that it is still possible to escape globalization lock-in. The key is replacing corporate sponsored downward competitive liberalization with progressive upward competitive harmonization.

And there is the rub. For one thing, where does harmonization start and stop? If it is OK to harmonize  on labor, does that also make it OK to harmonize patent laws, and vice versa?  And what exactly in labor do we harmonize? And for another, what if other countries do not want to harmonize their policy regimes with the U.S., because they feel this would hurt their own development prospects?

It seems to me that a robust international economic regime has got to leave enough room for different countries doing their own things. The push for economic globalization is narrowing that space--both from the left (labor harmonization) and the right (patents).  So maybe the solution is to reconfigure the balance between international obligations and domestic policy space--and not to build more railroad tracks until we do so. 

Comments

[terence]

Hi Dani,

That sounds sensible but I genuinely don't think that labour standards have to significantly reduce development space. By labour standards I'm not talking about forcing China to pay a minimum wage of $6.80 an hour (what is the minimum wage in the US, by the way?) but rather that they are required to enforce workplace safety legislation and fair employer employee contracts (or to allow independent trade unions). In areas such as manufacturing China's competitive advantage is, I think, large enough that it could handle these restrictions. Indeed, in the long run they may well help its development (as part of a general system of checks and balances on rising inequality which, in the long run - pace Sokoloff and Engerman - harms institutional development).

On a similar topic, according to Johann Hari a columnist in London's Independent newspaper, it was western business interests that got together to stifle the China communist party's recent attempt to strengthen labour rights. The Independent is reputable so presumably Hari's facts pan out. It's a useful reminder that political globalisation sails quietly alongside economic globalisation.
http://www.johannhari.com/archive/article.php?id=1107

[R Mutt]

This analogy between lock-in and globalization isn't making a lot of sense to me.

In the narrow-gauge railroad example, there are two kinds of infrastructure: track and rolling stock. These seem to tie in together to produce lock-in: once most tracks are narrow gauge you don't want to buy broad-gauge cars and engines. Once most cars and engines are narrow-gauge, you don't want to build broad-gauge lines.

But I don't see how the existence of these "narrow-gauge" unrestricted trade agreements makes it harder to create "broad-gauge" restricted agreements. If you want to create a new bilateral agreement with labour restrictions, why does the mere existence of other unrestricted agreements make that less viable? You can carry what you like over these "tracks".

[DRR]

Here's the rub; A: many of our big trading partners already have strong labor regulations, a U.S.-Europe Free Trade agreement with "labor standards" would be superflous.

B; most of the developing countries that this could apply to are so tiny & are such an infintesimal amount of our total trade that it would barely accomplish much.

[Jim Leitzel]

The lack of a principled approach to the desirable extent of 'harmonization' is palpable. As a result, expedience and domestic interests seem to drive policy choices. Countries don't mind forcing other folks to harmonize with their tune, but when it comes to changing domestic policies to join someone else's melody, it's another, er, key. Maybe intellectual property and internet gambling policy should be governed by different harmonization regimes, but we lack a coherent story of precisely why and how.