Is globalization in danger of going too far?

Dani Rodrik, perhaps my favorite heretic, writes in the FT:

Which is the greatest threat to globalisation: the protesters on the streets every time the International Monetary Fund or the World Trade Organisation meets, or globalisation’s cheerleaders, who push for continued market opening while denying that the troubles surrounding globalisation are rooted in the policies they advocate?

A good case can be made that the latter camp presents the greater menace… If they get their way, they are more likely to put globalisation at risk than the protesters they condemn for ignorance of sound economics.

That is because the greatest obstacle to sustaining a healthy, globalised economy is no longer insufficient openness…

Consequently, no country’s growth prospects are significantly constrained by a lack of openness in the international economy…

If there is one lesson from the collapse of the 19th century version of globalisation, it is that we cannot leave national governments powerless to respond to their citizens…

Rich and poor nations need breathing space for different reasons. Rich countries need it so they can revive the social compacts that underpinned the success of Bretton Woods. They need flexibility to interfere in trade when trade conflicts with deeply held values at home – as, for example, with child labour or health and safety concerns – or severely weakens the bargaining power of workers. Poor nations need room to engage in exchange rate and industrial policies that will diversify and restructure their economies, without which their ability to benefit from globalisation is circumscribed…

There is always the chance that such an approach would slide into protectionism, pure and simple. But the alternative is, if anything, more risky. Historians teach us that globalisation rests on delicate social and political pillars. The first order of business today is to strengthen these pillars, rather than to push market opening further.

Do read the whole thing. Though I have great respect for Professor Rodrik, I am not persuaded by his assessment. If we want to dig into the history, let’s turn to Douglas Irwin:

[The 19th century version of globalization] did not sow the seeds of its own demise; there was no globalization backlash, but rather war and depression disrupted its continuation…

[I]f we do not wish the current era of globalization to be faced with an ending similar to that of the first era of globalization, then a major global conflict and another economic depression should be avoided. This sounds glib, but it is not meant to be. In particular, economic growth and sound macroeconomic management are fundamental reasons why there has not been a globalization backlash despite the increased integration of the world. Economic growth eases the pain of dislocation, creates new opportunities for those who face the downside risks of globalization, and thereby reduces the pressures on policymakers to close markets or render costly assistance. In addition, social safety nets are a feature of economic policy today that helps mitigate any backlash, and these policies were almost wholly absent in 1913.

Indeed, barring a global war or a major depression, globalization today is probably irreversible as the steady march of technology brings economies together.

I don’t see how globalization’s cheerleaders are threatening to undermine the social safety net established since 1913, as the trade policies negotiated at the WTO don’t intersect unemployment benefits or other social insurance schemes. And I doubt that trade liberalization inhibits sound macroeconomic management or economic growth. Moreover, with regard to the particular interventions that Rodrik identifies, I think the cheerleaders are right that it’s inappropriate to use trade agreements to fight child labor. And if economic openness weakens laborers’ bargaining power, it’s hard to believe that halting further liberalization is the properly tailored remedy.

Trade liberalization may need to be paired with trade adjustment assistance to be politically palatable and equitably beneficial, but that is hardly a startling idea. It certainly doesn’t warrant arguing that overzealous cheerleaders are the greatest threat to globalization.

4 thoughts on “Is globalization in danger of going too far?

  1. Emmanuel

    Irwin and Rodrik seem to cleave neatly into the hyperglobalist and transformationalist views of globalization. Perhaps my bias is self-serving as a political science major, but I stick closer to the view that governments still have an ability to shape the progress of globalization. The so-called there is no alternative (TINA) to economic integration can only be enabled by political choices.

  2. Richard Baldwin

    Dani is at it again. This time, though, he has forgotten that Europe has much less problem with globalisation since we do have policies that pre-commit us to sharing the pains and gains.
    BTW, negotiating policy space, that is what they do right now. The rich do it by excluding certain sectors and using AD/CVD and the poor nations do it by not making any committments (and they almost never have on tariffs).

  3. DRR

    The more I read Rodrik, the less I’m enamored of him and the less suspicion I have that he’s arguing in good faith.

    They need flexibility to interfere in trade when trade conflicts with deeply held values at home – as, for example, with child labour or health and safety concerns – or severely weakens the bargaining power of workers.

    I.E. Carte Blanche, with a broad definition of these already broad caveats to close off trade.

    Dani Rodrik is a protectionist & trade reactionary of the EPI school, who by his own admission is a product of reactionary trade policy. Which is fine, except that he keeps pretending to be something else. The only difference between him and Jeff Faux is that he comes from a better school and Jeff Faux is at least honest.

  4. ivan

    I agree with DDR. As Brad DeLong points out: this piece from Rodrik isn’t about economics, it’s about politics: saving social-democracy in the age of neoliberalism.

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