Dani Rodrik's weblog

Don't cry for Doha

Well, the Doha trade talks have collapsed--yet again!  So what happens next?

Actually, not much. There was not a whole lot at stake to begin with for poor nations as a whole. (Cotton is a somewhat big deal for West Africa, but pretty much everything else is a mixed bag.) And if the taxpayers and consumers of the U.S. and EU want to reap the considerable benefits of reducing farm supports, they can surely do that on their own without having to be bribed by increased market access abroad.  So don't listen to trade officials and editorialists who will bemoan the huge downside risks. 

(Sample non-sequitur from the New York Times the other day: "Locking in lower farm subsidies would encourage direly needed agricultural investment in Africa and in poor nations that are struggling with soaring food prices."  Hello?  Lower farm subsidies will mean even higher world prices...)

So hang tight. Panicky statements about dire consequences and protectionist spirals will be more damaging than the actual effects of the collapse of the trade talks. The only thing we have to fear is fear itself.

Simply the best economic development blog

I have been following Chris Blattman's blog for a while and I am just incredibly impressed by how good it has become. It focuses on Africa--but not exclusively--and contains the most intelligent and timely commentary on economic development around.  I just felt I ought to say it.  And no, Chris has not asked for a plug.

Just reassure me Chris that you are not doing this in lieu of working on your journal articles...

What do you do when the markets are down?

In Pakistan you storm the stock exchange, smash windows and wreck the furniture. 

The story is actually a bit more complicated than that. Stock prices have been on a continuous slide in the Karachi stock exchange, and are down 38 percent from April.  The angry investors apparently wanted a halt in trading, which the exchange officials denied. 

Pakistani investors have good reasons to feel that the markets are manipulated.  My colleague Asim Khwaja and his co-author Atif Mian came up with a remarkable result when they analyzed finely disaggregated trading data from the Karachi Stock Exchange. They found that when brokers trade on their own account they make net returns that are 50-90 percent higher than those reaped by outside investors. 

Neither market timing nor liquidity provision by brokers can explain this profitability differential. Instead we find compelling evidence for a specific trade-based ‘‘pump and dump’’ price manipulation scheme: When prices are low, colluding brokers trade amongst themselves to artificially raise prices and attract positive-feedback traders. Once prices have risen, the former exit leaving the latter to suffer the ensuing price fall. Conservative estimates suggest these manipulation rents can account for almost a half of total broker earnings.

In other words, a casino where the house holds all the good cards.

Until recently, I would have assumed that this kind of manipulation occurs only in the under-developed, poorly governed financial markets of poor nations.  But after everything that we have been learning in the wake of the sup-prime crisis, I wonder...

When the state does not enforce property rights

... the Mafia--or, as happens in this case, the Taliban--will.  The setting is Ziarat in the tribal northwest territory of Pakistan and its potentially profitable marble quarries. The region's tribal groups have been unable to sort out competing property rights over the quarries, and the Pakistani central government has been powerless to assert its authority despite repeated attempts. Who steps in to assign and enforce property rights--at a price, of course--but the Taliban: 

The Taliban decided that one mountain in the Ziarat area belonged to the Masaud division of the main Safi tribe, and said that the Gurbaz subtribe would be rewarded with another mountain, Mr. Zaman, the contractor, said.

The mountain assigned to the Masauds was divided into 30 portions, he said, and each of six villages in the area was assigned five of the 30 portions. Mr. Zaman said the Taliban demanded about $1,500 commission upfront for each portions, giving the insurgents a quick $45,000.

The Taliban also demanded a tax of about $7 on each truckload of marble, he said. With a constant flow of trucks out of the quarry, the Taliban are now collecting up to $500 a day, Mr. Zaman said.

After four years of lying dormant, the New York Times reports the mines are making brisk business.  Three cheers for third-party enforcement of property rights!

The death of the globalization consensus

That is the title of my new column for Project Syndicate.  Here is an extract:

There was a time when global elites could comfort themselves with the thought that opposition to the world trading regime consisted of violent anarchists, self-serving protectionists, trade unionists, and ignorant, if idealistic youth. Meanwhile, they regarded themselves as the true progressives, because they understood that safeguarding and advancing globalization was the best remedy against poverty and insecurity.

But that self-assured attitude has all but disappeared, replaced by doubts, questions, and scepticism. Gone also are the violent street protests and mass movements against globalisation. What makes news nowadays is the growing list of mainstream economists who are questioning globalisation's supposedly unmitigated virtues.

So we have Paul Samuelson, the author of the post-war era's landmark economics textbook, reminding his fellow economists that China's gains in globalisation may well come at the expense of the US; Paul Krugman, today's foremost international trade theorist, arguing that trade with low-income countries is no longer too small to have an effect on inequality; Alan Blinder, a former US Federal Reserve vice-chairman, worrying that international outsourcing will cause  unprecedented dislocations for the US labour force; Martin Wolf, the Financial Times columnist and one of the most articulate advocates of globalisation, writing of his disappointment with how financial globalisation has turned out; and Larry Summers, the US Treasury chief and the Clinton administration's "Mr Globalisation", musing about the dangers of a race to the bottom in national regulations and the need for international labour standards.

While these worries hardly amount to the full frontal attack mounted by the likes of Joseph Stiglitz, the Nobel-prize winning economist, they still constitute a remarkable turnaround in the intellectual climate. Moreover, even those who have not lost heart often disagree vehemently about the direction in which they would like to see globalisation go.

...

The first three decades after 1945 were governed by the Bretton Woods consensus – a shallow multilateralism that permitted policy-makers to focus on domestic social and employment needs, while enabling global trade to recover and flourish. This regime was superseded in the 1980's and 1990's by an agenda of deeper liberalisation and economic integration. That model, we have learned, is unsustainable. If globalisation is to survive, it will need a new intellectual consensus to underpin it. The world economy desperately awaits its new Keynes.

You can read it in its entirety here.

Cleansing the blogger's mind

I once had a fantasy. I would devote a whole year, perhaps a sabbatical, just to reading and thinking, and would not write anything.  I mean really nothing: no papers, no articles, no op-eds, no contributions to collected volumes. I would turn down all invitations to contribute papers to conferences or books by saying "Thank you. but I am just reading and thinking this year, not writing."  The idea was to force a fundamental correction in the balance of trade between what went in my head and what came out.

I thought this had to make my subsequent writing better. After all, I would have had a long time to think about the literature and develop my ideas, without the pressure of having to spill them out. 

And then there were also the inevitable narcissistic thoughts: Would anyone notice? Would anyone care? Would the world be a worse place as a result?  

Call it an academic's fantasy.

Of course I never came close to fulfilling this fantasy. In fact, starting a blog was a move in exactly the opposite direction. With a blog, you have to write something most days--or at least you feel the pressure to do so. 

It wasn't exactly by design, but perhaps the recent hiatus of activity on this blog was a small-scale acting out of my fantasy. At the very least, I have proved to myself that I can stay away--and not feel terribly guilty about it.

Thanks very much to those readers who urged my speedy return, provided justifications for my absence, or warned of dire consequences if I did not reappear soon. I hope they get a vacation too.