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March 10, 2012

Free trade and procedural fairness

My colleague Lant Pritchett teaches a course on globalization with Larry Summers, and he invited me to his class recently to debate Summers on free trade. I used a few thought experiments to get students to understand how thinking about trade policy requires going beyond economics to considering questions of procedural fairness and distributive justice.

Here is what I did.

Posted at 12:07 PM |

Comments

Worstall

I understand the point but there's another way at looking at the same facts:

http://www.forbes.com/sites/timworstall/2012/03/10/dani-rodrik-on-the-distributional-effects-of-free-trade/

"I would start arguing from entirely the other end of that same argument. Free trade is the natural state, the distribution of incomes we get from free trade is the natural state against which others have to be measured.

So, I would not ask the question “should we have more free trade and thus take $200 off Nicholas?”. Rather, “what is the justification for our restrictions on free trade which take $300 off John?”"

Posted by: Worstall | March 10, 2012 at 04:07 PM

Account Deleted

I have been following the Project Syndicate debates closely. The votaries of "uninhibited" globalisation as well as State led "protectionism" need to perhaps tread the middle path?

I try to raise some of the concerns in http://treadthemiddlepath.blogspot.com.

Certain issues, perhaps, need to be addressed:
1. The distributional impact of a globalised world is skewed. Rising inequality and concentration of the benefits of the globalised world rest in too few hands.
2. Domestic industry interests are compromised in a globalised world and this impacts the local economy, workers and ultimately the country.
3. Domestic policy space is severely curtailed due to international trade rules in matters that should essentially be a country's sovereign right.

Trade liberalisation and globalisation do offer opportunities for growth and development. But this does not suppose the abdication of the role of the State to intervene more aggressively in areas it should.Domestic policies have to be in place in order to ensure that benefits of free trade and globalisation reach the bottom of the pyramid. Globalisation along with a responsive State that caters to issues of inclusive growth and sustainability is perhaps the way forward? Globalisation, I guess, should not mean an abdication of the State's responsibilities. It would mean a greater engagement to ensure the fruits of a globalised world reach the vast majority rather than being restricted to a few. Do global trade rules give enough room for domestic State policy, including redistributional initiatives, to achieve this balance?

The debate is captured in this piece - http://treadthemiddlepath.blogspot.in/2012/01/free-trade-debate.html.

Procedural fairness and distributional justice are essential ingredients of that balance.

Posted by: Account Deleted | March 11, 2012 at 12:48 AM

Worstall

"The distributional impact of a globalised world is skewed. Rising inequality and concentration of the benefits of the globalised world rest in too few hands."

Yet from Milanovic we know that while in country inequality is rising, global inequality is falling.

So which of the two should we be righteously worrying about?

Posted by: Worstall | March 11, 2012 at 02:20 AM

Account Deleted

Look how leading media in Argentina translate and publish Rodrick papers on free trade:

http://chequeado.com/hilando-fino/961-globalizacion-libre-comercio-y-titulos-enganosos.html

Posted by: Account Deleted | March 11, 2012 at 02:07 PM

Erin00000

I agree that the distribution of benefits from international trade tends to be a neglected aspect of pure economic analysis.

To go one step further, I'd add that the the distribution of benefits from ANY economic activity tends to be a neglected aspect of pure economic analysis. Political economists are far more interested in who gains and who loses from a particular policy than pure economists are. IMHO, anyone interested in exploring this subject would generally be better off turning to political economists, or institutional economists like Mushtaq Khan (redistribution of rents) and Douglass North (transaction costs in relation to benefits from trade).

Posted by: Erin00000 | March 11, 2012 at 02:38 PM

Harryblutstein

Winners and losers occur within a competitive market within a country. Applying the same thought experiment to firms competing within a domestic market would be treated as a nonsense. Why is it different when applied to international trade?

Posted by: Harryblutstein | March 15, 2012 at 02:26 PM

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