The legion fans of Dani Rodrik will love his new book, Straight Talk on Trade. I’m one of them, and massively respect him for warning all the rest of us economists about the political economy consequences of globalisation long before these became obvious. As he writes in the last chapter of this new book, looking at recent voting trends in many countries, “It is dawning on economists and policymakers that they severely underestimated the political fragility of the current form of globalization…. This backlash was predictable.” He has the sombre pleasure of having predicted this for a couple of decades now.
Regular readers will find many of the thoughts in Straight Talk familiar from previous books such as The Globalization Paradox and Economics Rules, and from papers such as Rodrik’s work on ‘premature deindustrialization‘. The new book updates the issues for the present context of the political success of anti-globalizers, nationalists, statists. It argues that there is little evidence of a major retreat from economic integration, and that the rhetoric and headline measures are a useful safety valve. “What looked to contemporaries like damaging protectionism was in fact a way of letting off steam to prevent an excessive build up of political pressure. … [W]e need to place the requirements of liberal democracy ahead of those of international trade and investing.”
I’m in two minds about this line of argument. It is undeniably true that the dogma of globalization gave cover to a lot of toxic practices, from financialization and speculation to multinational tax avoidance. However, I fear the protectionist, nationalist rhetoric will create its own reality – I found the argument in The Weaponization of Trade by Jack and Rebecca Harding persausive on this. Nor am I as sure about the ‘continued resilience of the nation state’ – and see its potential fracture as a dangerous moment.
On the questions of domestic economic policy and industrial policy, though, I’m 100% with Rodrik’s argument. He points out that the policies labelled ‘structural reform’ (econ jargon for politically very difficult measures) “were only loosely correlated with turning points in economic performance.” There are no silver bullets. Rather, growth take-offs “were associated with a targeted removal ofkey obstacles to growth rather than broad liberalization and economy-wide reforms.” Measures need to be targeted, and political capital and administrative resource needs to be focused on areas where there will be an early return. “In economies that suffer from multiple distortions, small changes can make a big difference.” The best policy advice is to experiment, and try local institutional innovations.
Reflecting on the lessons of past growth take-offs and failures leads into a section on the role of economics and economists – some of this familiar from Economics Rules. Economists must pay more attention to politics if they are giving policy advice, he argues, and in particular to the scope for political innovations – ideas that can durably relax political constraints and enable measures that make people better off without threatening political upheaval. Or in other words, enable the capture of efficiency gains while more or less protecting the economic rents of existing elites. Rodrik draws an interesting parallel with technological innovations, and the role of policy entrepreneurship, learning by doing, learning by experimentation, copying, serendipity and not forgetting the role of crises. “Taking ideas seriously renders the notion of interests slippy and ephemeral. Interests are not as fixed as other economists, such as Daron Acemoglu, suggest. People may need a new idea to appreciate their interests in a different, more accurate, light. “Raising the profile of ideas would also help alleviate the tension that exists today between political economy on the one hand, and normative economics and policyy analysis on the other.”
Looking at the current political context, some new ideas are surely needed, especially when it comes to global trade and investment. Rodrik has written elsehere about the need for New Rules for the Global Economy, and argues again here that the conventional policy suggestions will fail.
Straight Talk ends on a potentially optimistic note, however: “If one lesson of history is the danger of globalization running amok, another is the malleability of capitalism. … It was not tinkering and minor modification of existing policies that produced these achievements [the New Deal, Bretton Woods], but rather radical institutional engineering.” If big, bold ideas can be implemented, the liberal democratic order may be reinvigorated. Looking at the present crop of politicians, this is only a slightly comforting thought, but I for one will take that sliver of comfort.