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October 12, 2007

Comments

Per Kurowski

I feel you left out the numero uno item on any progressive trade agenda which must be to make certain that the benefits of globalization do not get captured on their way to the consumers.

There can be no doubt that one of the reasons globalization savings are not enough felt in the pockets of the consumer is due to that recent habit of creating so many de-facto monopolies by awarding intellectual property rights without having give a single thought of how to limit the exploitation of those rights to something reasonable…whatever of course that is.

Another capturer might have been the financial systems but the way some things are playing out recently it looks that they together with some of the globalization benefits also captured a lot of hot air.

Kenji

Something I don't quite understand about your logic is why you believe in #1? If isolationism were a realistic option, would you take it? If "gains from trade do not become real unless and until there is compensation," why not shut down free trade so that there is no issue of compensation?

hari

Dani-

I think your summary is right on the fallacies of current WTO framework.

To be "progressive" and same time "realistic" is not a bad position to hold in this debate.

Your objectives are achievable and most likely will be consolidated under whatever becomes of WTO.

Great input on the issue!

wjd123

"A progressive trade agenda would embrace globalization, not reject it, be defensive about it, or be isolationist. Rather than rejecting globalization, a progressive would talk about a broader conception of globalization: globalization plus, rather than globalization minus. This is as much for rhetorical purposes as for substantive ones: progressives are not today’s Luddites, and cannot afford to be perceived as such."--
Dani Rodrik.

The EU embraces free trade. And I suppose globalization with an asterisk. Their pluses, however, imply global minuses. For instance, it's an exclusive organization. Countries can't join without sharing EU values. For example, if a country doesn't have a democratic government it can't join until it gets one. Countries that join have to be able to follow EU laws. Which implies that their culture allows them to do so and they have the means of enforcing the laws. For example, EU laws protecting woman against discrimination in the work place are stricter than any of its member countries. EU membership expands individual civil rights. For instance, a Spaniard living in England can vote in local elections their.

That is internationalism working progressively: expanding freedoms.

China couldn't join the EU because it not a democracy, it doesn't share it's values, it wouldn't enforce it's laws even if it could. In fact, letting China into the EU would be a barrier to internationalism working progressively or expanding freedoms. So even if it were true that globalization is expanding Chinese freedoms that wouldn't be so if it was a member of the EU. However China is a member of the WTO. Which brings us to the question of whether China global membership puts downward pressure on the laws and regulations of countries that have different values and would like internationalism to expand their freedoms. For instance, does China's membership in the WTO make the ability of unions within the EU to expand worker rights that much harder.

I see a tension between free trade done the EU way and free trade done the WTO way, between the internationalism of the EU and the globalism of the WTO. This tension would be a globalization minus. Yet Dani doesn't want us to dwell on tensions like this one. He wants progressives to embrace globalization and turn these minuses in to pluses. I don't think you can do that without changing the system.

I've suggested international trading organizations between countries that have like values and expanding trade between these diverse international organizations when it is possible to do so without destroying freedoms. The more civil liberties the greater the trade between organizations. The more trade between organizations the more material capital to support civil liberties. That's a plus-plus system for globalization.

It would also be helpful in bringing about the compromises Dani wants. However, we would know on what criterion we were basing those compromises: A liberty that would lessen tensions between internationalism and globalism. Expanding liberty along with trade should be a criterion which both progressives and conservatives can embrace.

Dani thinks that a EU approach globally is unrealistic. But I think it's more realistic that the grand compromises Dani favors because the EU system doesn't try to avoid the minuses.

agdsgsdjl

I mostly agree with Dani's proposal (but I am a pro-trade-liberalization liberal). However, I think a pro-democracy tilt to trade liberalization will (A) be difficult to adopt, much less implement and (B) may be counterproductive if its incentives fail to change regime behavior.

notsneaky

wrt #2. I think compensation may make some sense as a political strategy which allows the implementation of the other points of the program. But I don't see any moral reasons for compensation taken on its own. I've never heard anyone who advocates trade barriers even mention compensation for those who fail to realize gains as a result of these barriers. More to the point, if what you care about is income distribution then talk about income distribution and (liked you did) social safety net, not compensation. There seems to be this presumption that more trade always leads to more inequality and while that may be true at the moment and for the US there's nothing that tells us that it must always be necessarily so.

If removing trade restrictions made Bill Gates ten dollars poorer while making everyone else a dollar richer would you still advocate compensation?

This is the more general point that income distribution issues should be dealt with domestic instruments and trade should be just left alone.

Of course political considerations and the way most people think about trade may make the 'bundling' of compensation, with safety net desirable (though I sort of doubt it. People will never feel like the compensation's enough).

hari

Dani-

wjd123 is raising some interesting issues and getting into gritty/nitty elements of "Acquis EU" laws and social framework of policy throughout its domain.

He's contrasting globalism with internationalism - which is NOT the issue inside EU system.

Inside 'acquis european' is a compact on social market economy; namely, a redistribution system or a social welfare system.

Good governance under Cotonu Agreement with ACP countries has now become a prerequisite to grant/aid.

Military coups, etc. will inevitably stop process of transfers from EU kassa.

I considered your summary to be relevant because of its progressive tone - implicit in your assessment is some form of trade adjustment, I suppose.

WTO has gone off on a tangent - pushed on by US ideologues of laizzez-faire
capitalism (irrespective of how it affects the poor countries who may or may not be able to adjust to an "open" trading system).

Right now EU has to tackle its EPA proposal with African, Caribbean and Pacific (ACP) partners. The (draft) economic partnership agreement is along the lines of CotonuAgreement,except that Lome Convention (its predecessor) did not allow reverse preferences!

Now, the EU is proposing "open" trading agreement with ACP states (with some protection, eg. LDCs).

How this EU/ACP/EPA partnership or trading arrangement is finally resolved will have direct impact on EU stance within WTO negotiations.

Internationalism vs. globalism? Yes, wjd123 is raising some interesting points.

Barkley Rosser

Aside from perhaps being a bit careless in allowing for compensation to the wealthy, looks pretty good to me. Keep up the good work. I fear we are going to get some pretty strange stuff out of a likely incoming Dem administration. It is bad enough that the Republicans have been all gung-ho to tear up international treaties, now it will be turn of the Dems, with probably as much respect for the "good opinions of mankind" as the GOPsters.

Both parties look effectively Leninist to me: "treaties are like pie crusts, made to be broken."

Nathan Smith

Trackback doesn't seem to be working, so here's my response. http://freethinker.typepad.com/the_free_thinker/2007/10/dani-rodrik-hal.html

KHyde

Readers who'll be in NYC WED. OCT. 17 may be interested in a evening program at JAPAN SOCIETY titled "Multilateralism in Asia: Measuring Risk & Rewards for the U.S. and Japan" - speakers are Robert Hormats of Goldman Sachs, Glenn Hubbard of Columbia Business School and Evans Revere of Korea Society.

To register visit www.japansociety.org --click on the lecture title, or click on top-menu item Global Affairs and then Upcoming Corporate & Policy Events. (Japan Society is at E. 47th St. betw. 1st & 2d Aves.)

DRR

Although you had no hope but to come off as squishy at a forum hosted by essentially the left-wing of the economic nationalist school (was Jeff Faux there?), it is remarkable that the most pre-eminent trade sceptic economist of late basically offers something you might get from the Hamilton Project folks. Very conventional politics indeed Prof. Rodrik!

As for "Internationalism vs. Globalism", something I think poorly relates to an institution like the EU. That has nothing to bear on the current economic realities that make international trade such a contentious issue. The EU doesen't practice Free Trade with China and neither does the the U.S. for that matter. China isn't given the market access privileges afforded to fellow EU countries. Yet Chinese products are still flooding into the EU at an ever increasing rate.

I don't think Trade has a progressive solution. EU workers can't compete with China labor even with modest tariffs and American workers can't compete with anyone apparantly. The only solution is probably protectionism.

Dani Rodrik

DRR --

You give the Hamilton Project folks too much credit. Mention "policy space" or democracy as a precondition of full WTO privileges to them, and you have lost them already.

dale

Are the gains from our current trade regimes large enough to be worth the effort? Given the threats to our state and local democratic automony, the growing inequality and insecurity- what makes these sort of trade regimes even worth the effort?

That said, I believe that we should emphasize the primacy of the political in our efforts to shape globalization. Export our ideas of human and civil rights- Democratic process, equality of women, free speech, freedom of and from religion, etc. The gains from this sort of globalization will dwarf whatever economic gains there may be had.

Peter Schaeffer

Mr. Rodrik,

“Progressives need to communicate that social insurance is the flip side of the open economy, that redistribution is logically the flip side of the gains from trade. The gains from trade do not become real unless and until there is compensation.”

Asymmetric capture of the gains from globalization constitutes much of the rationale for it. If the gains are redistributed away, enthusiasm for globalization will markedly fade. Let me be specific. If a progressive shift in the tax code was part of NAFTA who would have voted in favor of the package? Virtually no one.

“In short, non-democracies should not have the same rights and privileges as democracies. And with these two changes, the WTO can become a forum where democracies exchange policy space with each other”

So China is to be expelled from the WTO? I don’t think this is plausible.

“Progressives should be in favor of expanding international labor mobility at the margin, and especially of temporary labor mobility schemes (which would spread the gains around more widely). It is possible to do this without necessarily creating an underclass of foreign workers.”

As your colleague, George Borjas has repeatedly pointed out. There is nothing more permanent than a “temporary” worker. Certainly US experience with Braceros was nothing to be proud of. Nor have “temporary workers” been a success in Europe. In Saudi Arabia, temporary workers really are temporary. However, I doubt you would regard the Middle East as a model in this regard.

More deeply, every analysis of the US economy shows increasing returns to skill to ongoing detriment of the 50% of our population that is “below average”. Why would you want to make this ever increasing disparity worse?

Peter Schaeffer

If you combine mobility for both capital and labor, ordinary Americans are disadvantaged twice. First, they loose as capital moves abroad decreasing the relative per-person capital investment American have traditionally enjoyed. At the same time, they loose as increased wage competition reduces incomes here at home and shifts domestic returns to capital and the upper portion of the skill spectrum.

Why would ordinary Americans embrace such a program? Hypothetical redistribution of the efficiency gains via progressive taxation? Given that it is not happening now, why would any one believe such a prospect in the future?

paine

unite where possible...
in that vein

" expanding international labor mobility at the margin, and especially of temporary labor mobility schemes (which would spread the gains around more widely "

this is not
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and its worth getting to
after the first five

worth it
and then some

push this dani
its a winner on the prog front
if not tops
among the prole-pops

pat toche

Does anyone here know the classic reference on the trade-off between the efficiency gains of trade and the distorting losses of compensation on the losers from trade?

I can't believe my ignorance... thanks for pointers.

Amit Gupta

I have several comments, as follows:
1. The benefits of globalization are largely illusory, since they arise from not fully measuring the added costs of globalization. An example is the added cost of regulation and compliance required to ensure quality of goods manufactured in China and other Pacrim countries.
2. Labor can not be mobile on a routine basis: it prevents building of communities. My son who went to New York to attend school will work anywhere as long as it is in NY! He also has developed a fine sense of outrage at the thought of becoming part of the bridge and tunnel crowd. Again, a more comprehensive accounting of costs associated with mobility of capital and labor shows that benefits are much smaller than are currently believed. Adding a transaction tax is one way to pay for these hidden costs.

wjd123

Durkheim writing about the importance of occupational associations at the turn of the Twentieth Century:

"It is said that for normal economic activity there is no need of regulation. But from what source could it derive such a privilege? How should this particular social function be exempt from a condition which is the most fundamental of any social structure? Clearly, if there has been self-delusion to this degree among the classical economists it is because the economic functions were studied as if they were an end in themselves, without considering what further effect they might have on the whole social order. Judged in this way, productive output seemed to be the sole primary aim in all industrial activity. In some ways it might appear that output, to be intensive, had no need at all to be regulated; that on the contrary, the best thing were to leave individual businesses and enterprises of self-interest to excite and spur on one another in hot competition, instead of trying to curb and keep them within bounds. But production is not everything; and if industry can only bring it output to this pitch by keeping up a chronic state of warfare and endless dissatisfaction amongst the producers, there is nothing to balance the evil it does. Even from the strictly utilitarian standpoint, what is the purpose of heaping up riches if they do not serve to abate the desires of the greatest number, but on the contrary, only to arouse their impatience for gain? That would be to lose sight of the fact that economic functions are not an end in themselves but only a means to an end; that they are one of the organs of social life and that social life is above all harmonious community of endeavors, where minds will come together to work for the same aim. Society has no justification if it does not bring a little peace to people--peace in their hearts and peace in their mutual intercourse. If, then, industry can be productive only by disturbing their peace and unleashing warfare, it is not worth the cost.-- Emile Drukheim, Professional Ethics and Civil Morals.

Per Kurowski

Dani “Progressives need to communicate that social insurance is the flip side of the open economy, that redistribution is logically the flip side of the gains from trade. The gains from trade do not become real unless and until there is compensation.”

Peter Schaeffer: “Asymmetric capture of the gains from globalization constitutes much of the rationale for it.”

There is much too much asymmetric capture going on and so if you do not work on lessen the gross capture you will distribute and compensate yourself to death without being able to make a dent in the pressures for closing the doors. But the rent capture is not only a globalized phenomenon but a very domestic too and therefore we see the labor/world GNP ration dropping like a bomb… and a big bomb it is.

nobody

Pat Toche wrote:
Does anyone here know the classic reference on the trade-off between the efficiency gains of trade and the distorting losses of compensation on the losers from trade?

Pat,

That's a good question... I can't think of a specific paper, but you may want to look through the Panagariya/Srinivasan/Bhagwati text.

parashar

The RELATIVE success of the WTO (liberalisation of trade) and IMF (liberalisation of capital) are evidence that the elites of the world are successfully solving their collective action problem, while the poor of the world who need social security (ILO, ever heard of that organisation) or global labour mobility are far from solving theirs.

Even within the WTO this dichotomy is evident in GATS negotiations: see the progress made by the groups pushing for liberalisation of cross-border trade and capital vis-a-vis labour.

(Dont blame me: Just finished a course on Political Economy by Robinson, and its hard to not get rubbed on....)

Kien

I was once concerned that Professor Rodrik's blogs would help tip the US to isolationism. I'm glad to see Professor Rodrik so clearly embracing the globalisation agenda. I want to learn more about "globalisation plus", but it would seem to be something I fully support.

On democracy, I think perhaps the issue is whether the government is accountable and responsive to people. I'm sure the Chinese government has a long way to go still on this, but the current Chinese political system is arguably the most accountable and responsive in China's long history. China is about to move on to its 3rd generation of leaders post Deng Xiaopeng. That the people of the United States get to chose between two political parties at regular elections is a wonderful thing. However, the "choice" is in practice still limited to two political parties that share a common position on many important issues. I think many Europeans would regard both Republicans and Democrats as "right wing". In that sense, the United States political system is really controlled by a single party with two brands: Democrats and Republicans. The people of the United States don't really have a choice of electing any other political parties. The same is true of many other "democracies". So really, what counts is not "democracy", but political systems that are, in a substantive way, accountable and responsive to the people. How much accountability is adequate is a difficult question and may depend on the country's history and social/economic condition. Perhaps what is easier to judge is whether the country's political system is becoming more accountable over time. Arguably, the Chinese political system has become more accountable over the past decade or so. The US political system, in contrast, would seem to be largely unchanged in terms of accountability, and some might even argue that the US government has become less accountable over time.

pat toche

thanks nobody, I've got the Panagariya/Srinivasan/Bhagwati text right here... While the book is beautifully embellished with countless trivial-looking graphs, I must confess I rarely get passed a couple of paragraphs... Has any reader of this blog actually read it?

Dean Baker

As one of the radical left-wingers at the conference, I would say that Rodrick is insufficiently committed to free trade.

In the last decade, the profit share of GDP has remained roughly constant, even as trade and the trade deficit has exploded. This means that the income lost by typical workers due to trade has gone to the most highly paid workers (e.g. doctors, lawyers, accountants, and of course hedge fund managers and CEOs) not corporate profits.

The best way to reverse this upward redistribution is to design policies that open the door to international competition in these areas. For example, having transparent licensing requirements for professions and allowing any foreigner who meets these requirements to work in the United States at as low a wage as they want. (Current law prohibits competition based on wages.) We can eliminate any problem of brain drain by taxing the earnings of these professionals and sending the money back to their country of origin, allowing two or three professionals to be trained for every one that comes here. We should also encourage the internationalization of capital markets so that smart hedge fund mangers in India and Hong Kong can take away business from the overpaid cronies that control the U.S. market.

Such policies would increase growth and lead to a redistribution toward ordinary workers as the cost of health care, college, and other items involving large amounts of professionals' labor fall in price.

This is policy is what a real free-trader would support.

pat toche

In complete agreement with Dean Baker here.

wjd123

"As one of the radical left-wingers at the conference, I would say that Rodrick is insufficiently committed to free trade."--Dean Baker

Not so fast Dean Baker. Dani Rodrik has written that most of the gains from free trade have already been gotten, and that the big gains that remain would be from the mobility of labor.

I don't know if either Dani or Dean would advocate open borders, but what Dean is suggesting is but a small opening. If a sufficient commitment to free trade means a whole hearted commitment to open borders then which one is the piker when it comes to free trade. I would like to know if either one of them is in favor of open borders? I'd be appalled at the idea.

paul

All this talk of globalization-plus versus globalization-minus seems a little strained to me, because we've already got globalization-minus. Globalization minus the social safet net and compensation. Minus the rights for workers and citizens of low-wage countries, and minus the environmental protections for everyone.

Not only that, the people who are currently profiting from globalization perceive that they would profit less if those negatives were redressed. So how does one provide them with incentives to cooperate in moving to the world of Roderik's "globalization-plus"? If there's no perception of enhanced profit, there has to be a perception of loss to be avoided.

agdsgsdjl

pat wrote:
__thanks nobody, I've got the Panagariya/Srinivasan/Bhagwati text right here... While the book is beautifully embellished with countless trivial-looking graphs, I must confess I rarely get passed a couple of paragraphs... Has any reader of this blog actually read it?__

Not cover to cover, but I did read much of it in grad school. Like a lot of textbooks at that level it is not particularly user-friendly. (Though much more readable than the Dixit book.) But there is lots of good stuff there.

There is a good opening for a low level grad (or high level undergrad) textbook on international trade, something along the lines of Krugman/Obstfeld but more advanced.

Kevin Carson

How's this:

"Free trade" means that the U.S. government allows any person or business in the U.S. to do business with anybody in the world, on whatever terms they can voluntarily negotiate with them--so long as they do it all on their own nickel.

That means eliminating subsidies to long-distance transportation. It means repealing international "intellectual property" [sic] accords that give Western capital a permanent monopoly on the latest production technology, so that Third World countries are locked into the position of supplying sweatshop labor and raw materials; this would mean, likewise, an end to the IP-based business model of most of the thriving sectors in the global economy, like entertainment, software, and biotech. It means ceasing, through World Bank loans and foreign aid, to subsidize the utility and road infrastructure necessary to make overseas capital investments productive. It means government ceases to underwrite the risk of foreign expropriation or to conduct a foreign policy aimed at putting pro-corporate regimes in power: the CIA and SOA/WHISC are no longer in the business of making the world safe for United Fruit Company and ITT.

My guess is that this genuine free market and free trade agenda would result in Americans buying a lot more stuff produced close to where they live, and Third Worlders doing likewise. It would result in a much better standard of living for the average working person in both the U.S. and the Third World, and a much (much, much) lower standard of living for the corporate welfare pimps who currently talk the most about so-called "free trade."

Mostafa

Dani,
Have you documented your ideas about the WTO in more details? Your suggestions are quite interesting, and I would like to know more about it. Is there any article where I can read more about your ideas?

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