Saving globalization from its cheerleaders

A few months ago I published an oped in the Financial Times arguing that in order to sustain globalization we need to change the way we go about negotiating international agreements. I emphasized that the binding constraint on globalization is the narrowing of policy space for countries, not inadequate market opening.

Here is a longer paper which makes the case in fuller form. An excerpt from the introduction

In this paper I present a forward-looking evaluation of globalization. I accept as my premise that globalization, in some appropriate form, is a major engine of economic growth .... But I will argue that several paradoxical features require us that we rethink its rules. First, ... globalizations’ chief beneficiaries are not necessarily those with the most open economic policies. Second, globalization has come with frequent financial crises and considerable amounts of instability, which are both costly and in principle avoidable. And third globalization remains unpopular among large segments of the people it is supposed to benefit (especially in rich countries).

It is not that these features have gone unnoticed in the recurrent debate on globalization. In fact, we can talk of a new conventional wisdom that has begun to emerge within multilateral institutions and among Northern academics. This new orthodoxy emphasizes that reaping the benefits of trade and financial globalization requires better domestic institutions, essentially improved safety nets in rich countries and improved governance in the poor countries. With these institutions in place (or in construction), it remains safe and appropriate to pursue a strategy of “more of the same, but better:” continue to open markets in trade and finance, while strengthening institutions. Enhanced trade adjustment assistance (and perhaps more progressive taxation) in the advanced countries, the Doha trade agenda, IMF surveillance over exchange rate policies, the World Bank’s governance agenda, “aid-for-trade, and international financial codes and standards are some of the visible markers of this approach.

This strategy is predicated on the presumption that insufficiently open markets continue to pose an important constraint on the world economy. Its proponents’ concerns therefore center on the question: what institutional reforms are needed at home and internationally to render further market opening politically acceptable and sustainable?

But is this presumption really valid? I shall argue here that lack of openness is (no longer) the binding constraint for the global economy. I will provide a range of evidence on trade and capital flows that indicates the obstacles faced by developing countries do not originate from inadequate access to markets abroad or to foreign capital. The gains to be reaped by further liberalization of markets are meager for poor and rich countries alike.

This leads me to an alternative approach to globalization, one that focuses on enhancing policy space rather than market access. Such a strategy would focus on devising the rules of the game to better manage the interface between national regulatory and social regimes. A good argument can be made that it is lack of policy space—and not lack of market access—which is (or likely to become soon) the real binding constraint on a prosperous global economy. This argument can be buttressed both by current evidence from rich and poor countries, and by reference to historical experience with the previous wave of globalization.

But what do we mean by policy space and can we really create it without running into the slippery slope of creeping protectionism? By the end of the paper, I hope I will have given the reader some reason to believe that an alternative conception of globalization—one that is more likely to maintain an enabling global environment than the path we are on currently—is worth thinking about and potentially workable.

Comments are welcome and appreciated.

UPDATE: Thank you all for the comments, and paine, Steveb, and Andrew in particular for the corrections.

Comments

[robertdfeinman]

If one looks at all human activity as a contest then the old maxim "might makes right" can explain everything.

When transactions are consummated to the benefit of both parties it just means that they are approximately equal in strength. In the international arena there has been an attempt since Wilson to circumvent the maxim. There has been some progress in establishing international structures which permit negotiation instead of violence, but when the issues are important enough they fail.

The UN has not prevented a single war where the parties were determined to fight. In the US the phrase "national interest" is used to justify whatever position the ruling admin wishes to take.

It may be pleasant to design new international structures to move negotiation into new areas, but when push comes to shove it is the ability to force compliance where things break down.

Sovereign states are not restrained by any supra-national body because these organizations have no "might". Personally I think this is an insoluble problem, but those who think otherwise need to explain how compliance will be achieved. Soft power won't do it.

[Andrew]

The one thing that jumped out to me is that in delineating the new conventional wisdom, you included stagnant median wages in addition to inequality and insecurity.

Notwithstanding the desirability of a third 'i' for marketing reasons, is this not a more contentious point than the other two?

Also, two typos: p.14, 3rd-last line: in -> into.
p.24, 4th-last line: 1915-1913 is not a valid interval.

[Per Kurowski]

I would like to make a couple of very brief comments on Dani Rodrik’s “How to save globalization from its cheerleaders” based on some very specific issues that I have been writing and commenting about in my non-academic environment. These comments do not in any way contradict Rodrik’s opinions but provide hopefully even more meat to the discussion.

1. New world geography. Rodrik mentions on page 14 that “growth remained lackluster in El Salvador” and on page 15 that “Successful growth strategies are based on making the best of what you have—not on wishing you had what you lack”.

Well Rodrik is as most of us are still too stuck in the geography of the non-globalized world to be able to see what is truly happening around us. For instance, El Salvador has about 2 million of its people working abroad, more than a third of its total workforce and so if to the current GDP figures of El Salvador we add what these workers are earning, gross, abroad, well then we suddenly discover that El Salvador’s growth rate could actually be higher than China’s. And why should we not do it this way? Is not an El Salvadoran still a real El Salvadoran just because he or she is working abroad? The internal emigration in China from west to east might take a Chinese from 50 to 150 dollars per month, but the El Salvadorans going south to north go from 120 to 1.200, and no one hears a word of complaint about an over or undervalued currency as El Salvador is dollarized.

2. Running in parallel to the globalization, the opening the markets, there has been a process of worldwide bank regulation and that although Rodrik mentions it on page 24 as the international financial regime, its impact in terms of closing markets by submitting them to the opinions of some very few credit rating agencies are much more far reaching than what Rodrik implies. Place this in the context of the ongoing debate on debt-sustainability and you have a very intoxicating cocktail. If you want more on this I am now building up my

http://www.subprimeregulations.blogspot.com/
http://unsustainabledebtsustainability.blogspot.com/

3. One of the underlying problems with being able to capitalize the full benefits from globalizations might be that a lot of actors are capturing an unfair large share of them. Rodrik mentions on page 23 and 24 for instance “how the intellectual property rights entail a narrowing of space for the conduct of industrial policies” but it is really with respect to how much these TRIPs and other forms of monopoly’s enhancement tools capture the benefits of globalization that more research has to be done… among others to make the compensation of the losers in the developed countries an economically viable proposition.

[paine]

for rob fein:

if we think of nations as
legal persons
then libertarian doctrine suggests
these nations
are better off without supranational institutions
with supra power coersive
"rights"

or at least
so believe
a few visiters to these commment cages

the flaw ..even with no supra power

trans border power projection
occurs and can be gainful

like a system
of cross
raiding among
cow herding tribal societies

the problem gets intense

when a hegemony dreaming tribal herding nation
"convinces "
the rest to join in
setting up a rigged confederacy

then rigs the rules
---
maybe with a posse of willing tribes ----
to deem
certain raids "legal"
and other raids still"illegal"

when the systemic interest would rule
all raids are illegal
but that type of
wilsonian fantasy confederation
would never get out
of the first get together
in a treaty lodge

hey whats in it for us

[paine]

per kur
don't know about your stats
but dani r
has a paper that addresses this issue of exporting
the peculiar commodity
labor power

he sees it if i recall
as a faster better waty to speed development
then trade
i agree
my view from up north
better by far
the south workers come here
then north jobs go there

our domestic
"native "tasks

maintain chock full employment fiscal policy
ala bill vickrey

dive the dollar
vis a vis south currencies

organize our immigros

high minimum wage
high over time premiums

unions
most of all unions

more likely they 'll get organized here then down there
we have an open pluralized
civil society
down south ....

and dirty industry
can start cleaning itself up here
instead of escaping down there
to soil and foul unimpeded

[Per Kurowski]

Paine

My very imprecise statistics

El Salvador GDP US$ 17.3 billion less remittances of about US$ 3.3 billion equals US$ 14.0 billion.

Remittances of about US$ 3.3 billion results in, if they represent 18% of gross earnings, a GEP (Gross Emigrant Product) of US$ 18.3 billion,

And giving us a total El Salvador product of US$ 32.2… give and take many purchase power parity adjustments.

I agree with the thesis that opening up to real and massive temporary worker programs is the best way for everyone. If you could get me Dani´s paper on this I would appreciate it… meanwhile dare having a look at

http://theamericanunion.blogspot.com/

[paine]

dani
the paper is a nice summary of where your at

i haven't digested it yet
but chunks have been pre marketed here obviously
and nothing surprised me therefore

if i might say this
as a hi fi uber alas guy

the trade stuff seems more solid then the cap market stuff

problem:

the corporate hegemons
up north here
are hi fi ers
first last and always

case today

paulson in the PRC

I HATE TO THINK
BUT I BELIEVE
THE LEVER
OF LOOMING PROTECTION CLOUDS HERE
WILL BE BARTERED AWAY
FOR MORE OPEN CAP MARKETS IN CHINA

now i know you favor export firm subsidy
over the rmb at half fair pricing vis a vis
north currencies
but maybe
the prc's second best
is america's jobblers first worst

[paine]

non pedantic heads up:

ps the brits went off gold in i think 31 or 32..
but certainly after tumbling down the 29 cataract

in 25 the tory gubmint
as a boost to sterling's
captal export value
raised
the pounds value
to i think 5 dollars
a pre great war forex rate

i suspect you know all this quite well
and the two dates just got flip flopped

[Steveb]

Page 1: “In this paper I present a forward-looking evaluation of globalization. I accept as my premise that globalization, in some appropriate form, is a major engine of economic growth (as Figure 1 amply demonstrates).”

Comment: Fig 1 does not demonstrate even a correlation between globalization and per capita growth, let alone a causative engine. To do either, one first has to have a quantitative measure of globalization. There are obviously many possible measures of globalization, so perhaps to be most persuasive, you should try several quantitative measures. Also, choosing a time period of 320 years for the US is very different from a 24 year period for Japan, or a 6 year period for China. Perhaps those time periods are not comparable. Perhaps the US did much better in shorter periods of time.

Page 19: “A collapse towards protectionism and bilateralism à la 1930s can never be ruled out—it has happened before—and would be bad news for poor and rich nations alike.”

Comment: Did international trade drop in Europe and US primarily in the 1930s, or was the larger drop in the late 1910s, more associated with WWI than the depression? I have read both assertions. A quantitative measure of globalization might answer that question.

[wjd123]

"Sovereign states are not restrained by any supra-national body because these organizations have no "might"."--robertdfeinman

Might isn't as important as legitimation. Legitimation can bring to it might.

[dawood mamoon]

To add up further to the discussion, let history be the lesson for policy making to the extent that old mistakes are not repeated but future dvelopment discourse should also be partly/significantly based on the context of our shared enhanced wisdom surrounding our scientific and technological progress. Currently, on paper the road map or blue print, if you may call it, of a comprehensive development discourse has been more or less established. There are many international agents of progress which can be expolited for the good of global welfare i.e., multinationals through corporate social responsibility, regional trade agreements,direct development aid by international donors while coordinating with the governments. Ensuing technologies, due to the participation of international actors, have a capability to change the dynamics in favor of sustainable development only if larger trust is developed between North and the South. The dynamics of conflict, internal or external, cannot be isolated from the slow progress of development discourse at a more comprehensive level in the South.
Human psycology and institutional psycology are not much different.Every institution has its own psycology. When different institutions coordinate, each has to consider the psycological underpinnings of the otherside to ensure that efforts of coordination be a success and thus minimise deadweight loss arised through information assymetries or lack of trust. Thus coordination between agents of development and globalisation should occur as an outcome of trust and mutual understanding than under some set of pre-defined, or need to need basis connections.

[Lok Sang Ho]

"I will allow you to protect your national social compact if you allow me to engage in development strategies that conflict with WTO and International Monetary Fund rules of good behaviour." This is the idea of expanding "policy space" as advocated by Prof. Rodrik.

The problem with this approach is that it ignores third party or spillover effects. The two negotiating parties are likely to mutually benefit, but the world as a whole is likely to become worse off.

[Lok Sang Ho]

A further point. I have been arguing that liberalization generally brings potential net gains but the gains and losses are often unfairly shared. So I argue that some redistribution mechanism that softens the blow to losers and even allows them to become gainers has to be part of the solution to the globalization impasse.

[hari]

I'm old (70Yrs!) hand of gatt and its tariff and trade round of negotiations. It was a slow process but much more realistic and manageable.

Under WTO, Clinton & Gang (Rubin!) tried to tie down the lose ends by including environmental and other issues under (former) Gatt rounds. This was a serious mistake and constrained WTO from functioning smoothly.

I didn't like environmental issues put in same basket with tariffs and trade plus NTBs.

Dani is trying to find realism within current WTO system - I suppose he's unable to find one because WTO is tilted more than ever against non-OECD block of nations.

PascalLamy, as former head of EU trade negotiations directorate, knows fully the Clintonian mistakes. As a Frenchman, and a socialist, he must try and find ways and means to go forward now with WTO.

My suggestion is more central to the errors of ommission/commission by ClintonAdmin in attaching side issues to basic tariff and trade issues; namely, non-tariff issues such as environment and labour conditions, etc.

The UN system already has an Environmental Agency based in Kenya/Nairobi which is more qualified to deal with its central manadate and global agenda.

NTB always been my subject because its OECD tool to protect its member countries domestic markets
from lose of comparative advanatage, etc.

Health hazards, like in sea food and other food items, is best example which OECD countries deploy to manage market penetration by a non-OECD country.

Value added is another criteria by which OECD countries demand origin requirements before approving potential imports. (Australia is a good example in SouthPacificRegion).

The problem with WTO is that it has become a huge bureaucracy now (campared to Gatt/Unctad).

Moreover, by making the complaint/dispute mechanism legally binding, it has strengthened its decision-making power while renouncing/compromising its central tariff/trade negotiation priority.

Of course, development demands consolidation and reinforcement of procedures/processess, but at what cost?

What Dani is trying to achieve with his think-piece is to find some rationality to fit intrinsic weakness of ThirdWorld countries. If they don't develop or "graduate" into developed industrialized nations, Africa will continue to remain a backwater of underdevelopment. Principally because capacity development is not one of the priority functions of new WTO.

In conclusion, I want to redirect WTO to its basic global function of tarrifs and trade negotations.

[paine]

"The problem with this approach is that it ignores third party or spillover effects. The two negotiating parties are likely to mutually benefit, but the world as a whole is likely to become worse off."

non sequitor

the notion is not to lead to an outbrake of exclusionary
bilateralism
but to allow for flexible pathways to development
your part whole argument is misplaced

use it on washington
one on one bully or buggar the south strategy

as iuncle brow beats its way from emerger to emerger demanding take it or leave it
one way deals
featuring prone capital markets
and wild
ntellectual property
rights scalping

oh the indictment runs long ....
at any rate
the whole south is more then the sum of its bilateral north south parts

emergers must stand together or washington will knock em off one by one

[paine]

"...I argue that some redistribution mechanism that softens the blow to losers and even allows them to become gainers has to be part of the solution to the globalization impasse"

words words words
sweet

promising roses and delivering sour kraut ...

even larry summers has learned this
lull a buyer

please
we need to take direct action
not wait for the give backs

[paine]

hari
i share the view of your wise comment

"Dani is trying to find realism within current WTO system - I suppose he's unable to find one because WTO is tilted more than ever against non-OECD block of nations"

but your stuff about green
and union regs

well i suspect those are cover stories
for the losers back home
a fig leaf
that hardly explains the doha brake down

and surely even if included
will never be implemented
except as a pretext for quotas and other barriers
really motivated by
any of a half dozen
corporate profit
strategy moves
that bare no link to unionization
labor standards working conditions
product quality
or environmental impact

the impact on the bottom line
is the only impact that
hits the target

[paine]

hari
on second thought
forget my
hair trigger
man with a message "lecture"
obviously you get it
better then i do
as this shows

"NTB ... OECD tool to protect its member countries domestic markets.."

"Health hazards, like in sea food and other food items, is best example ...
OECD countries deploy
to manage market penetration by a non-OECD country "

now add
labor rules and green trade standards

hari

i'm with ya baby

[paine]

dani
i comment too often
but this site is on the core issues

may i open this up

the benefit of
international trade
would be
far less
if technical transfers
were costless

putting aside the small country small internal market scale of production
effects
your well outlined
cost discover and learning by doing it right enough
to earn a living
in the big league foreign markets
and the innovation incentive effects amd the ....
ya
may be that amounts to throwing the baby out with bath water

but my point
trade per say is an expedient
where natural variation
is of no signifgance

optimal trading areas
in a borderless global system
prolly would move people once to locations of production
not products over and over again
and hop locations of production too

as if the mines and minds of one place are exhausted

[Little Diogenes]

The paper is quite interesting.

One detail though: there is no "full labor mobility" within the European union, far from that. In most western European countries, citizens from the new member states are simply not permitted to work (UK being a notable exception).

[Little Diogenes]

The previous comment was my first comment on your blog.

I've been reading it almost from the start and I really enjoy the quality of your posts.

So, thank you!

[Simon Lester]

You say:

"For example, an NGO may try to make the case that goods
imported using child labor violate domestic views about what is an acceptable economic
transaction. Or a consumer body may want to ban imports of certain goods from a country
because of safety concerns."

But doesn't your proposal actually make it harder to keep out such imports? Arguably, under the current rules governments can do these sorts of things without going through any special procedures. Not indisputably, of course, as the rules are fuzzy, but I think it wouldn't be too difficult to accomplish.

[G]

G UNIT

[G]

G UNIT

[Enjoying my credit card consolidation]

The need for credit card consolidation is increasing at a rapid rate due to the interest and costly penalties. I am currently using the credit card consolidation information I found over at ArticleMonarch.com to get myself jockeyed into a better financial position in life.

[My NFL Forums]

Damn. I wanted to see some cheerleaders!

[rado watches]

Why is everyone just montblanc watches willing to accept power cuts? Don't you think that patek philippe watches having continious power is your right? If people aren't going to demand rado watches 24X7 power, don't expect anything zenith watches to change. The government needs to look at other sources parmigiani watches of power generation. The only solution is more power panerai watches production. Nothing less.
http://www.watchvisa.com/montblanc-watches.html
http://www.watchvisa.com/patek_philippe-watches.html
http://www.watchvisa.com/rado-watches.html

[rolex watches]

People usually say :"Seeing is believing." http://www.tt88times.com
Each attempt has a corresponding gain, in part or obvious, or vague. At least we have the kind of satisfaction After I bought this watch ,in a sense,it means a great deal to me. http://www.fashionhairfu.com

[nfl jersey]

People usually say :"Seeing is believing." http://jordanmass.com Each attempt has a orresponding gain, in part or obvious, or vague. At least we have the kind of satisfaction After I bought this watch ,in a sense,it means a great deal to me. http://boon-shoes.com

[ugg classic knit]

People usually say :"Seeing is believing." http://jordanmass.com Each attempt has a orresponding gain, in part or obvious, or vague. At least we have the kind of satisfaction After I bought nfl jersey ,in a sense,it means a great deal to me. http://www.fansshirt.com

[jordan shoes]

People usually say :"Seeing is believing." http://fansshirt.com Each attempt has a orresponding gain, in part or obvious, or vague. At least we have the kind of satisfaction After I bought this watch ,in a sense,it means a great deal to me. http://boon-shoes.com

[Moncler]

I am a senior student, I Love your blog as i love study english, I learn much from this post, i ths very much.

[jordans for sale]

I think this is a great post. One thing that I find the most helpful is number five. Sometimes when I write, I just let the flow of the words and information come out so much that I loose the purpose. It’s only after editing when I realize what I’ve done. There’s defiantly a lot of great tips here I’m going to try to be more aware of.

[jordan shoes]

It's good to see this information in your post, i was looking the same but there was not any proper resource, than now i have the link which i was looking for my research.

[Moncler]

The web of losses that you describe in NC are offset by a web of gains in Boston. Restrict trade, and I pay more for my socks, do not eat dinner in Boston, and the web of losses you described in NC happens in Boston

[engine additive]

Lubechem International introduces a wide range of very high performance petroleum additives, based on components technology, which makes engines, machines and equipments run smoother at optimum efficiency for longer.

[gucci outlet]

good point. I enjoy it.

[Dubai coupons]

Savers point a Dubai friendly e-portal owned by Saverspoint.com, has been an active online guide for residents, tourists and promotions of Dubai.

[Mbtmbtshoes]

each big tobacco companies and conducted the roof compensation prosecution. In 1999, a $5.5 million for compensation lawsuit, In 1999, with another $81 million cases of compensation,http://www.asicsusashoes.com/

[Mbtmbtshoes]

In 2001, preliminary decision together individual litigation compensation 30 billion dollars, after appeal for $100 million; adjudged The 2002 with another single litigation, the jury first award and sentenced him to tobacco companies compensation, 28 billion was later the judge to reduce to $28m.http://www.mbtusasale.com/

[Mbtmbtshoes]

This day price compensation judgment, in my opinion, just send a signal, http://www.uggsaleaustralia.com/ do an appearance, says the United States is really in resisting tobacco smoking,

[Account Deleted]

raf

Thanks a lot.

[Mbtmbtshoes]

http://www.mbt-usa.com/
because of lost their individual genetic transmission chance, but only temporarily serves as a failure. Therefore, CaoLvChong etc compared with lesser creatures,
MBT

[Mbtmbtshoes]

For example is too much, the legal protection also don't live, became forced public corruption. I saw today related news, roughly belong to this kind of situation.
http://www.mbtusafootwear.com

[Account Deleted]

The new conventional wisdom on globalization emphasizes that reaping the benefits of trade and financial integration is not automatic, and requires better domestic institutions, essentially improved safety nets in rich countries and improved governance in the poor countries.

Property Investment USA
Property Management Firms

[Account Deleted]

There are many online stores having cheap chanel bags, i believe you gonna like it!fdsfds

[Account Deleted]

Nice post. This post is different from what I read on most blog. And it have so many valuable things to learn.Thank you for your sharing!
wedding karachi

[Mbtmbtshoes]

Coach bags
A few days ago, the "American victory", "justice" theory in the world scope shall receive large public,

[Account Deleted]

Raf
raf

Thanks for this ...

[Account Deleted]

Many places and centers offer business and trade promotions to both buyers and supplier.What about the differences in skill intensities across industries? The job losses in the relatively unskilled-labor intensive battery industry should have little effect on the relatively skilled-labor intensive machinery
sexshop
sexyshop
sexshop online

[Fidelcast.blogspot.com]

Appreciate writing this. I enjoy the world-wide-web since you can understand some thing new every day. I'll share this with my buddies, thank you! energy of magnetic

[Account Deleted]

Really i appreciate the effort you made to share the knowledge.The topic here i found was really effective to the topic which i was researching for a long time

organic seo service

[Account Deleted]

The prevailing strategy is predicated on the presumption that insufficiently open markets continue to pose an important constraint on the world economy.

whiteboard videos

[Account Deleted]

powerpoint file corrupted

Thanks for the interesting article!

[Account Deleted]

Awesome, Very interesting issue that after a very successful. Nicely written article good work ! Thanks for the great piece of sharing. Enjoy to read your write . Thanks a lot
Creating History Together With ArenaBetting Piala Eropa 2012 http://seotoolinfo.com/2012/06/creating-history-creating-history-together-with-arenabetting-piala-eropa-2012/
Agenliga Sebagai Agen Bola Online Untuk Euro 2012 http://seotoolinfo.com/2012/06/agenliga-agenliga-com-sebagai-agen-bola-online-untuk-euro-2012/

[Rastia Rigie]

Bank Mandiri Bank Terbaik di Indonesia
Bank Mandiri Bank Terbaik di Indonesia
Promo Bonus 100% Sbobet, Ibcbet dan Casino Online Dalam Rangka HUT BAVETLINE Yang Kedua
Masterbet88 Grand Opening Promo Bonus 50% Sportsbook dan Casino Online

[Sasha]

Good post. Thanks for sharing this useful information with us.
Ultrabook Parts|AU AC Adapters|Global AC Adapter|Ersatz Laptop Akkus

[MSK]

Very useful for every one.!
Water Park in Karachi

[MSK]

Interest to know this article very very helpful.

Hotels in Karachi