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July 12, 2008

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HH

I'm surprised that you'd be calling for a new consensus, as if there is anything surprising going on. Any economist worth his PhD should have been able to predict that technology would make more and more goods and services tradeable across distances, and as a result their production would go to the cheapest producer. And this kind of reallocation of resources could only serve to drag down previously protected people and pull up those previously excluded. That's exactly what's happening.

I guess I should not be surprised that this is predictably US-centric. These mainstream economists of which you speak are all Americans worried about the political effects of globalization here at home. [Effects which would be far less disequalizing if "free trade" meant you could get professional services from abroad. Our current managed trade forces low-skilled labor to compete with the rest of world while protect high-skilled workers.]

Meanwhile, I doubt that social dislocation is any less in China and India, where traditional notions of culture and family are encountering Western values and a commercial economy. However, this dislocation comes with economic benefits, benefits probably significantly greater than losses in places like the US and Western Europe. The only just thing to do is to expand the benefits to ever more people, while protecting ever fewer. Though in my current job I'm well-protected by US trade barriers and licensing requirements, I see no reason that someone of equal skill abroad should be prohibited from underbidding me for the sake of maintaining some sort of equality here in the US. I definitely don't think I should get to extort any benefits by threatening political upheaval lest I get my way. [As I'm currently watching baseball, here's an analogy: If I'm a white major league baseball player in 1946, I'm well protected by the ban on minority players. Chances are a lot of us would have to play in the minors or manage grocery stores if minorities were allowed. That is no reason to deny them access, of course, regardless of the social upheaval among whites. Suggesting that the US exclude some from the world market place to protect others is essentially the same. I doubt that discriminating by national origin is any less reprehensible than discriminating by race.]

HH

"reminding his fellow economists that China's gains in globalisation may well come at the expense of the US"

I forgot to include this quote in the post above that was getting too long to begin with. But it just proves my point that instead of being blindly US-selfish we should let the rest of the world win when they deserve to. And I have no doubt that in the long run that can only benefit us: wealth elsewhere raises our absolute standards of living in the long run. In addition to relieving our foreign aid and military budgets, it would create millions of people whose inventions will make lives, including American lives, better.

dk.au

"Rock throwing youths... Violent street protests"?? For such a critical piece, it's a real shame that you regurgitated the tabloid media frame on this one.

A little nuance wouldn't hurt your argument (cf. academic literature on social movements)

Ranjit Mathoda

What people hate is not globalization. I mean, who hates being able to have an orange out of season, read the thoughts of a British professor, see a Japanese no opera on Youtube? What people fear is competition: that somewhere out there is someone cheaper, faster, better at what you're doing. Humanity has for the most part gotten over its fear of competition from technology, recognizing that such competition expands the overall pie and creates new services. We're still dealing with the fear of competition beyond our self dreamt borders.

Deane

Prof. Rodrik, although I don't quite agree with you on somethings things, I do enjoy the blog and I read your observations about trade with interest.

The great shame in all of this is you are frequently quoted in articles (often out of context) by protectionists and self-described Marxists increasingly in developing countries such as Sri Lanka where I live.

Correct me if I'm wrong, but your insight is that you don't necessarily disagree with the first-best notion that free trade creates prosperity and most people well off, but given the imperfections in integration of global markets you see some forms of protectionism as having beneficial effects in terms of economic growth?

My problem with that is, We (that is Sri Lanka, and perhaps most other developing countries) never had this Brenton woods/Washington consensus stuff to begin with. Sure we most local economist generally articulate free-trade is good, but prevailing policy is one based closer to serving protectionist instincts and mercantalist understanding about trade.

So would it be correct to sum up to say, that While I am, as a "free trader" appalled by Sri Lanka's restrictive trade regime, whereas you wouldn't worry as much, although you worry somewhat just the same?


robertdfeinman

Apparently the weakening of the "consensus" is happening a bit slower than some might think.

The Sunday Times had a column by Greg Mankiw where he stated axiomatically all the things that economists agree on. Here's the link:

http://www.nytimes.com/2008/07/13/business/13view.html

#1 is support free trade.
#2 is oppose farm subsidies.

The list goes on. It looks like the points on the GOP platform for the coming election.

Per Kurowski

Dani Rodrik says “There is no global anti-trust authority, no global lender of last resort, no global regulator, no global safety nets, and, of course, no global democracy. In other words, global markets suffer from weak governance, and therefore from weak popular legitimacy”

That is the truth, but unfortunately it seems also rampant locally.

Dani Rodrik “The cheerleaders' true sparring partners today are not rock-throwing youths but their fellow intellectuals”

Yes, it should be so, but I am not sure it is so. So much of the debate has been caught up in carefully guarded enclaves of what seems delicately choreographed systems of debates and that all have as their number one priority not to affect their own interests in the business of politics, development and all other closely related activities such as the business of research papers. The mother of all the enclaves until quite recently must be the financial regulators.

How on earth did we allow the issue of how our commercial banks should function to fall in the exclusive domains of bank regulators whose only concern in life is not having a crisis on their watch and could not care a jota for what could be the true societal purpose of a bank? Even in a place like the World Bank it is hard to discuss anything but the issue of bank stability… as if that is all that matters to banking.

How on earth did we allow bank regulators to outsource risk supervision to the credit rating agencies and who in a world with supposedly free capital movements they set up their risk signs everywhere rerouting flows to such an extent that according to an article published recently in the Financial Times home mortgages in the US grew from $500bn in 1985 to about $9,500bn in 2005 and of which $7,500bn was used as collaterals for securities, most of which received prime ratings from the credit rating agencies.

And things are not getting better. Instead of shelving the whole concept, Angela Merkel was recently quoted saying “I think that in the medium term Europe will need a working ratings agency because the robust currency system of the euro has not yet secured sufficient influence over the rules governing the financial markets”, by which she is in fact questioning the whole fundamentals for the use of the credit rating agencies, namely that these agencies could, objectively, without bias, and presumably without mistakes, measure risk. Any moment now I can hear a chávez calling for a Credit Agency del Sur.

Do you really thinks those who dug us in a hole will now be able to dig us out?

But there are also many other sacred cows out there, most of them related one way or another to the capture of the benefits of globalization… and so of course a local global confused disappointment must be setting in.

By the way how many of your very own International Energy Agency have been fired for not alerting in time about the differences in the growth rates for the demand and the supply of oil.

And we could go on an on about thinks that do no require intellectuals but plain common sense questioners. Honestly some think tanks should be ashamed of referring themselves as such, as they have not been able to come up with more than platitudes for decades now.

InSearchOfPropserity=TheDevelopmentBible

Dear Dani,

I was attempting to explain to a friend today how classic development models haven't worked to explain growth, and institutional explanations haven't been complete either, and he asked me "Well don't economic models have to work if a whole field requires them to be used?" I realized throughout my whole undergrad. in International Relations (IPE) that the question was left unanswered!

If deductive models lack case-specific details and inductive descriptions lack empirical methodology, then what direction can an aspiring political economist, or developing country for that matter, hope for regarding growth?

Tord Steiro

To InSearchOfPropserity=TheDevelopmentBible

You post a very interesting question. I have found myself in a similar situation many times, especially during my undergrad in Economics and resource Management.

and I think one of the most important lessons I've learned is that "all models are wrong, but some are useful" as one of my professors put it.

But how to know which models are useful when, and in which context? That is the grand question, and I guess my only answer is that: "It is not a science, it is an art." And the only way to learn it is to read - a lot - both excellent and less excellent theories. I think that is the only way you can know what makes sense, and what doesn't.

I think you will have to find your own direction, but you see much further if you can stand on the shoulders of other scholars!

Nathan Smith

"There is no global anti-trust authority, no global lender of last resort, no global regulator, no global safety nets, and, of course, no global democracy. In other words, global markets suffer from weak governance, and therefore from weak popular legitimacy."

And, without all those things, the world economy has been growing at 4-5% in the past few years, with poor countries growing faster than that. Whether a United States of Earth would conduct better economic policy, I have no idea. But given that that's pie-in-the-sky, let's be thankful for what we got, which is pretty good.

Danny

How about free trade on government - individuals can pick the government they want to pay taxes to and the military they want to be drafted into regardless of where they live. After all, globalization is about the ability to pick the "low cost, better producer".

Since governments have no loyalty to the people - why should the people have any loyalty to a national government?

Sandro Perricelli

"Any moment now I can hear a chávez calling for a Credit Agency del Sur."

Any moment now you can hear Chavez getting the boot.

gordon

Perhaps economists are beginning to realise that refusal to recognise reality can rebound on the reputation of the whole profession - see this post at Jesse's Cafe Americain:
http://jessescrossroadscafe.blogspot.com/2008/07/economics-in-disrepute-as-economy.html

Aparicio Caicedo

I am reading Ruggie´s most famous article once again. I think we should all read it to learn something from history. I am amazed how things are still the same. Things happen all again and again: naif economic liberals against naif keynesians.
Shamely, as a South American, I feel like we were the only stupids that swallowed all the happy liberalization-globalization-marketequalshappiness tale. Most of the world did not.

eee_eff

"I'm surprised that you'd be calling for a new consensus, as if there is anything surprising going on. Any economist worth his PhD should have been able to predict that technology would make more and more goods and services tradeable across distances, and as a result their production would go to the cheapest producer. And this kind of reallocation of resources could only serve to drag down previously protected people and pull up those previously excluded. That's exactly what's happening."

Well, I think you have not understood completely his position.

First: The idea that you can separate the winners from the losers is not as straightforward as you might think.

A neighborhood is created by a group of houses, shops, streets: true. But the composition of those houses creates an entity greater than the sum of its parts. Thus, developed in a skillful way, those individual buildings can create a special district that has charm and an urban life all its own. The value of this is recognized in the market place.

If I bulldoze half the houses and make garish additions to the remaining houses, by some very crude ways of reckoning, there are winners and losers. However, from a SYSTEMIC viewpoint, everyone (even those who got the additions) actually lost, because there is no more neighborhood.

Have you read Karl Polanyi's book "The Great Transformation"?

eee_eff

Nathan says:

"And, without all those things, the world economy has been growing at 4-5% in the past few years, with poor countries growing faster than that. Whether a United States of Earth would conduct better economic policy, I have no idea. But given that that's pie-in-the-sky, let's be thankful for what we got, which is pretty good."

But that is simply not true; the poorest billion have, in fact gotten poorer.

wjd123

"That model, we have learned, is unsustainable. If globalization is to survive, it will need a new intellectual consensus to underpin it. The world economy desperately awaits its new Keynes."--Dani Rodrik

It wouldn't be fair to ask economist to answer sociological questions or to ask sociologist to answer psychological questions or to ask psychologist to answer political science questions. It's not their job. Aren't the problems economist are having with globalization at heart ethical and not economic per se. Is't that true of all the sciences, at the end of the road they are presented an ethical question.

Economist aren't having any problem measuring what is happening, greater trade causing causing ineqality, a hollowing out of regulations, these are measurable by economist. What isn't measurable is whether these are good or bad phenomenon and what should be done about it. Those are ethical questions and not economic ones.

Pose the problems caused by globalization to a sociologist, a psychologist, or a political scientist and at the end of the road an ethical question once more appears: Is this good or bad for society, for mental health, for global stability and if not, what should be done? All these fields can help inform us of the facts but the duties of those practicing these sciences ends with the descriptive. It doesn't run on into the normative.

When it comes to informing us about globalization and free trade all these sciences are informative. The problems caused by globalization are just as much theirs as economics.

I think Dani pays more homage to the inclusiveness of all the sciences when it comes to forming development policy than most economist. Maybe, that's why I can't understand his desperation for a new Keynes to save globalization. At least not in any all inclusive way. By itself, all the creativity of a new Keynes can't save globalization.

Keynes thought outside the box, creatively, and came up with a paradigm shift that economist gradually accepted. Does Dani beleive that a new Keynes is sufficient to saving globalization or just necessary?

Let's say that all the sciences come to a consensus. Not on what should be done but on what is. And let's say that our policy makers decide to solve the problem by taking 3 parts of economic consensus, and 2 parts of sociological, psychological, and political science consensus and then mixing well. Would policy makers then end up with sweet amprosia? Maybe, but they could just as easily end up with swill.

Why? Why won't analytical aplomb save the day? because the right mixture is as much a creative problem outside the sciences as it is within--Keynes and his paradigm shift.

Let's look at a sociological problem caused by globalization. I can't remember sociologist having much to say about the consequences of globalization weakening unions. Unions provide people with solidarity, discipline, pensions, and health care. If unions are destroyed by globalization where will people find substitutes in society to provide these things? If they can't find substitutes in the family or the church, or the State, what will be the likely consequences for society?

Can sociologist really claim the ennui Americans are experiencing, particularly in the Rust-Belt, was unforseen, or were sociologist just obtuse? Emile Durkheim was writing about this problem at the turn of the nineteen hundreds in the face of the Industrial Revolution.

Will a lack of foresight when putting together the analytical data or will a lack of creativity when answering those "should" questions turn the policy mix our policy makers put together into swill?

A paradigm shift in economics in which a new consensus is formed can help, but it's not the whole answer on how to save globalism. Much of the phenomenon of globalism and it's problems are outside the economic sphere. Many of the problems call for normative answers which are outside the sphere of all the sciences--science is descriptive, not normative. Answering the problems of globalization calls for more than analytical aplomb it also calls for creative imagination, and good fortune.

Considering the enormity of the problems caused by globalization, perhaps, it is the last we are most in need of to save it: not a demigod in economics like Keynes but the goddess of good fortune, Fortuna.

PS I didn't read the full article. The site asked for too much personal information, so I wouldn't go on it.

BJ Feng

So economists are crying because they're the ones experiencing the pain? I think the only thing that has changed is that emerging nations are benefiting the most from the global trade system unlike times of the past.

It's easy to advocate for a system that produces greater overall global wealth when you're the main beneficiary, it takes principle to do so when you're the one who has to lower his standard of living.

I think this is a temporary phenomenon, not Globalization, but the period of pain for the developed world. Wages have to equalize, similarly educated workers will have to be paid nearly the same, or at least in the ballpark.

But people don't realize that this produces more potential customers in the long run. Those who can afford American intellectual property and technology without the need to steal it. Greater global wealth means more of the high end stuff America specializes can be sold. We are in a period of transition, and there are the dumbass, unprincipled economists who will abandon their field due to raw emotion. They don't care that billions of people are better off today than ever before, they only care about themselves. Let history remember their names, and may generations of wealthy Chinese and Indians spit on their graves.

tunk

Hallo Prof. Rodrik.
I totally agree with yout - liberalization cannot be everything - there is more than the Washington Consensus.
However, I think, the world economy is not sitting around waiting for a new Keynes (even when I would like to see one) actually, it just had forgotten Walter Eucken or cannot see James Buchanan. The Theory is already there (ok, not for everything, but like Markusen (2005: 26) said with respect to Service Offshoring or fragmentation: "... it is usually possible to find some strange model that generates whatever result the client wants.") What we need (like you sad) are better instituions. How to get? Dunno, waiting for Obama?

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the consensus was a fake! in different culture world there are can't be a consensus globaly!

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