On Larry Summers and being an anti-globalizer

Larry Summers' column today in the FT is quite striking for what it reveals about how far mainstream views on globalization have shifted. The following lines may well have been written by, say, Robert Kuttner or Tom Palley:  

The domestic component of a strategy to promote healthy globalisation must rely on strengthening efforts to reduce inequality and insecurity. The international component must focus on the interests of working people in all countries, in addition to the current emphasis on the priorities of global ­corporations.

First, the US should take the lead in promoting global co-operation in the international tax arena. There has been a race to the bottom in the taxation of corporate income as nations lower their rates to entice business to issue more debt and invest in their jurisdictions. Closely related is the problem of tax havens that seek to lure wealthy citizens with promises that they can avoid paying taxes altogether on large parts of their fortunes. It might be inevitable that globalisation leads to some increases in inequality; it is not necessary that it also compromise the possibility of progressive taxation.

Second, an increased focus of international economic diplomacy should be to prevent harmful regulatory competition. In many areas it is appropriate that regulations differ between countries in response to local circumstances. But there is a reason why progressives in the early part of the 20th century sought to have the federal government take over many kinds of regulatory responsibility. They were concerned that competition for business across states, and their ease of being able to move, would lead to a race to the bottom. Financial regulation is only one example of where the mantra of needing to be “internationally competitive” has been invoked too often as a reason to cut back on regulation. There has not been enough serious consideration of the alternative – global co-operation to raise standards. While labour standards arguments have at times been invoked as a cover for protectionism, and this must be avoided, it is entirely appropriate that US policymakers seek to ensure that greater global integration does not become an excuse for eroding labour rights.

To benefit the interests of US citizens and command broad political support, US international economic policy will need to focus on the issues in which the largest number of Americans have the greatest stake. A decoupling of the interests of businesses and nations may be inevitable; a decoupling of international economic policies and the interests of American workers is not.

Read this sentence in particular again: "While labour standards arguments have at times been invoked as a cover for protectionism, and this must be avoided, it is entirely appropriate that US policymakers seek to ensure that greater global integration does not become an excuse for eroding labour rights."

With Martin Wolf and Larry Summers getting to be so reasonable all of a sudden--by my standards at least--the number of really smart people with whom I can still debate these matters is getting smaller by the minute.

Which reminds me of an exchange I had with an Economics Department colleague last week.  I was complaining about being pigeonholed as an anti-globalizer in a lecture he gave to Harvard undergraduates, to little avail. (His retort: "Stiglitz doesn't think he is an anti-globalizer either.")  But he did say that he would drop me from his lecture. No big loss. He can just substitute Larry Summers' name instead.

Comments

[Anh Tran]

I think the polarization of the debate on globalization is harmful and ideological at best. It is dangerous to blindly protest globalization without regarding to its benefits. Globalization is an engine for peace and prosperity when it is embraced appropriately. Exchanging goods and services is much better than exchanging gun shots. On the other hand, it is also equally dangerous to embrace globalization without regarding to its harmful effects, including environmental degradation, corporate abuse, market failure, worker exploitation, etc.

Lary Summer is moving in the right direction. His piece is thoughful. I hope all important policymakers and academics are willing to put away their ego, self-interest, and ideological blindfold to have a constructive debate on globalization. It is here to stay. The challenge is how to make it acceptable to people everywhere.

[Dioktos]

Well, unless you discount Willem Buiter from the "really smart" category, there is still a debate to be had with him:

http://blogs.ft.com/maverecon/2008/05/economic-internalionalism-101-for-us-presidential-candidates/
"Labour rights, like environmental rights and human rights are a dangerous fig leaf for protectionist organised labour lobbies. They should be deposited in the dustbin of corrupt ideas."

[Robert Bell]

What about Greg Mankiw?

http://gregmankiw.blogspot.com/2008/05/summers-on-tax-competition.html

[Nicholas Shaxson]

While your/Summers' point about labour standards is valid, the point Summers makes about taxation and international competition on tax and regulation may be the most important one to highlight. International taxation is of course an arena of great complexity - and there is now a high-level civil society organisation working on this - the Tax Justice Network (TJN), led by accountants, lawyers and economists. Over the last two or three years it has been putting together a large and detailed (and unrivalled) body of proposals for change - TJN's recent comment piece in the FT gives a flavour of just some of these - http://www.ft.com/cms/s/0/63cdb642-ea03-11dc-b3c9-0000779fd2ac.html. If you are looking for a place to start investigating this issue, look no further. www.taxjustice.net

[Nicholas Shaxson]

In my comment above it seems to be connecting to the wrong link for the FT piece (though the link looks as if it's the same one) - the correct one is here: http://www.ft.com/cms/s/0/63cdb642-ea03-11dc-b3c9-0000779fd2ac.html If that doesn't work try google searching on "Stop this timidity in ending tax haven abuse."

[Dan]

"Exchanging goods and services is much better than exchanging gun shots."

Can anyone offer some citations for this 'trade = peace' argument? Apart from, that is, the West Wing!

I know Monnet used trade as a route to political entanglement in the newly forming EC after World War Two (through the European Coal and Steel Community) but I've no idea who else has written explicitly about trade as a tool for guaranteeing peace... Any ideas?

[Sebastian]

@Dan - this is actually a widely discussed hypothesis in political science/international relations, often referred to as the "liberal peace" hypothesis, something of a little brother to the better known democratic peace hypothesis (i.e. democracies don't go to war with each other).

Here's probably the standard citation on liberal peace
http://jpr.sagepub.com/cgi/content/abstract/36/4/423
Russet is a major authority in quantitative conflict studies, but the issue is very messy and clean identification all but impossible (I don't really have a strong opinion in either direction) - but anyway, you wanted a more academic source than WW and here it is.

[wjd123]

I don't want a world government. I want an international government that not only incorporates democratic values but protects my rights and expands them. That means that China is out.

I don't want to end up desperate by allowing the practices of corporations or their influence over governments seeing that I do.

I don't want to be told by economist that I'm better off than the Chinese worker because capital has invested more in my work place to make me more productive while skipping over the sacrifices others have made to create our political economy.

I don't want to compete with workers making $2.00 a day. I can't, and that I have to offends me.

I don't want to be told that free trade improves my life by providing me with cheap goods to make up for my shrinking wages, not when I'm being nickled and dimed to death with the inflated cost of necessities partly due to increased global demand. I don't begrudge other people a higher standard of living but don't lie to me and tell me free trade evens things out, not when you subtract the higher cost of energy and food.

Therefore:

I want to belong to an international government, government X, that protects and expands my rights. I don't want corporations playing off nations with different standards against each other. Think EU.

I want to be able to keep out of the country goods made by denuded labor, in lands that subsidize corporations with tax breaks, lax environmental standards, and use currency pegs as informal tariff. Think real tariffs.

In conclusion:

What I want is for democratic countries with like political economies to band together allowing free trade within their purview. Whoever else it extends trade privileges to will depend on how much the rules of other political economies end up undermining the rules of X's political economy, society, and values. Normal trade relations here at home could do the same but it wouldn't solve the problem of corporations benefiting from playing off countries against each other.

Protecting the writ-large rights of stakeholders in our political economy must start with staunching the damage done here at home by corporate practices and trade agreements. How we trade is a deliberate decision. (New technology is only tangential to it.)

If it is only meant to boost free trade as practiced today, I don't buy the argument that we have to trade or perish. We have to get a hold of trade practices or perish.

For instance, if corporations want to use denuded labor to destroy a sector of X's economy, tariffs should be used to keep them from selling into it. Those nations that allow their stakeholders a fairer shake can appeal to have X's tariffs reduced. This would work as a carrot for countries to put into place rules and regulations that would even the power of all stakeholders in their economies.

When politicians and economist tell Americans that jobs are not coming back I take it as an admission that they are not willing to change the way we do trade. If there is a market here and tariffs make it profitable corporations will build new factories and hire new people to meet the demand. I don't know how much demand there is in countries whose people make $2.00 a day, but let corporations find out.

If economist start pointing to opportunity cost and wasted resources, point back to a political economy we have built up over hundred of years being attacked by politicians captured by the interests of multinational corporations and their money.

Elect politicians that can show you the teeth in their free trade policy. Elect politicians that haven't allowed economist to impair their vision: Economist who believe that we have to destroy the village in order to save it. They are a menace.

Economist know that new economic forces will call for new social needs. However they tend to believe that new social needs will create new answers. Needs don't create answers. Just because there is a need doesn't mean a way will be found to answer it. There is no creative invisible hand.

Because there is no creative invisible hand to build things up again, and because it took a long time to build the particular village in which we live, we should be careful that we don't blindly push for practices that we have no control over.

I'm happy Larry Summers is looking at the consequences of trade as it is practiced today. I'm not happy that his suggestions for fixing its problems have no teeth.

[Clyde Prestowitz]

I couldn't agree more with Dani Rodrik. I am glad to welcome Larry to the club of smart globalists who understand that globalization can be a good thing, but only if you do it right.

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