My good friends Devesh Kapur and Arvind Subramanian (along with Pratap Mehta) have written a piece in the FT which takes Larry Summers to task for having expressed views on reforming globalization with which I am broadly in agreement. They write:
The liberal economic order of the last several decades was premised on two assumptions. First, that the proliferation of prosperity across countries was a good thing. Second, there would be winners and losers but, on balance, a majority of people in both developing and developed countries would benefit. Mr Summers now appears to be questioning both assumptions. He has not stated outright that the proliferation of prosperity is undesirable but his columns do suggest that globalisation creates competition for America.
I think there was a third element in the liberal economic order of the postwar period, which is the essence of its success. And that is the idea that international economic arrangements would leave enough room for nation states and governments to strike their own particular domestic economic and social bargains. This is the compromise of "embedded liberalism," as my colleague John Ruggie has called it. This compromise lay at the root of the phenomenal success of the Bretton Woods regime, and its piecemeal abandonment is the chief cause of the troubles of globalization today. I see Summers' argument as a recognition of this fact.
In effect Kapur et al. have fewer problems with the message than with its bearer:
The problem Mr Summers identifies, the hyper-mobility of capital, was an outcome that he and the US actively promoted. Attracting foreign capital was one of the raisons d’être of the Washington Consensus-based reforms. Developing countries were forced to change their intellectual property laws. At the US Treasury, Mr Summers was a leading proponent of capital account liberalisation by developing countries. Having swallowed those bitter pills of intellectual property protection and capital mobility as a necessary price for a better future, developing countries are now told that those medicines cause problems that need more – in this case protectionist – medication.
But they also worry that Summers has opened the door to protectionism, whereas the remedies to the ills of U.S. workers, they say, are to be found mostly at home (through better social programs and progressive taxation).
I don't know. Yes, we need better social programs. But we also need better international rules. I think it does the cause no good to throw the "protectionist" label around whenever someone expresses doubts about the current rules. For my part, I celebrate the defection of Larry Summers from the camp of globalization's cheerleaders.