The Great Game of trade

I was reading about the US-China trade war in Foreign Affairs, an article (The Unwinnable Trade War) strikingly awash with metaphors of conflict – blazing guns, cease fire, détente….) It sent me back to the excellent book by Rebecca and Jack Harding we just published in the Perspectives series, Gaming Trade: Win-Win strategies for the Digital Era. They (an economist and a political risk analyst) use game theory to analyse the interplay between the win-win economics of trade and the zero sum game of geopoltical power. States (and they mean the big blocs, the US, China, Russia, the EU) need to develop strategies simultaneously for military force, information/cyber warfare, and economic soft power. Trade policy is an important weapon in the complicated strategic game.

The book argues that the focus on old-fashioned trade wars is a distraction from the most important front at present (my goodness, impossible to avoid the military metaphors): control of cross-border flows of information, finance and intellectual property. The physical world  and control of material resources is of course still important; but the new frontier is the cyber frontier. Indeed a new column by the digital guru Andrew McAfee highlights the continuing dematerialization of the economy (as I wrote about in The Weightless World, and Danny Quah also back in the 1990s). Russia’s engagement on the cyber-front is all too obvious, with seemingly little effective counter-attack – or even connivance from the Trump family.

I was persuaded by the Hardings’ argument that the current global situation is very dangerous, threatening economic stability, environmental sustainability and peace. The slow growth or worse will encourage the trends toward populism and authoritarianism, and a spiral into more protectionism. If you consider the economic and political whirlwind associated with the collapse of trade in the 1930s, it’s worse now: the World Bank’s new annual World Development Report paints a vivid picture of the extraordinary economic interdependence of the world’s economies. Unravelling these value chains will be catastrophic (Brexit Britain seems to be offering itself as an early test case of the potential damage).

In the end, the book argues, we all lose unless the current great power conflicts – soft, cyber and potentially ‘hard’ – de-escalate. The strategic path from here to the sunlit uplands of a new era of multilateralism is far from obvious. But it does us a favour in drawing attention to the dangers, and to the need for clear strategies to get out of this situation.

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The politics of depoliticisation

A while ago I had one of those brilliant dinners when you sit next to someone new and strike up a fascinating conversation. The occasion was the dinner celebrating honorary graduands of Bristol University (a boast – I had the honour of being awarded an honorary degree there this year), and Prof Paddy Ireland, my neighbour at the table, recommended in the course of a fab two-hour conversation, Globalists: The end of empire and the birth of neoliberalism by Quinn Slobodian.

It is indeed a deeply interesting book, a history of what Slobodian terms the Geneva neoliberals – those, including Hayek, who were globalists avant la lettre because they looked back with nostalgia to their youth in the Austro-Hungarian Empire. I hadn’t known that these folks, many based at the Graduate Institute in Geneva, named themselves neoliberals (at the Walter Lippmann Colloque in Paris in 1938) (although this makes it seem all the more absurd to me that some people now apply the n-term to  *all* economists.)

Slobodian emphasises that this school of neoliberals were by no means against a government role in the economy, seeing it however as a matter of setting the framework for a globalised economy. In particular, private property across borders was to be held sacred. The domain of the global economy had to triumph over the domain of national politics. Geneva neoliberalism was a “project of politics and law”, as the ambition was to create a system of governance that would “encase and protect the space of the world economy”. Individual rights, particular investors’ rights, would gain the protection of the courts against potential expropriation.”The ongoing depoliticization of the economic was a continual legal struggle, one that required continual innovation in the creation of institutions capable of safeguarding the space of competition.”

What I found particularly enlightening about this account is the way this particular strand of thought eventually got embedded in world trade rules in the form of the steady expansion of investment protections and third party arbitration. Economists tend to find, not necessarily the arguments against such aspects of trade agreements, but the emotion they arouse, a little hard to understand. I think the historical context helps us.

Another fascinating section covers Hayek’s interest in cybernetics – not so surprising when you think about his views on the role of markets as information-processing devices. Slobodian writes: “Radical in its own right, the neoliberals’ own dream of a new international economic order was a world economy of signals – a vast space of information transmitted in prices and laws.” It reminded me of Chile’s Project Cybersyn in the Allende years (described by Eden Medina in Cybernetic Revolutionaries), the same systemic vision from the left.

As Globalists makes clear, depoliticization – what I’ve termed in another context the ‘separation protocol’ – is a political project too. Its fortunes, having flourished during the mid-80s to mid-2000s, are clearly waning now. Politics is baaaaack, bigtime.

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And for amusement, me in robes…..EAQsyhCXYAcgXcZ

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Globalization 1.0 and 2.0

When I was a moody teenager living in a Lancashire mill town, the nearest bookshop was three bus rides away among the bright lights of Manchester. I’d ready pretty much everything of interest in the local library and school library (and thank heavens for those).

Luckily, the newsagent tucked away – on the bottom shelf in the far corner – some cheap paperback editions of classics. It seemed a more or less random selection but it did mean I devoured almost every novel ever written by Joseph Conrad. So I pounced on the paperback of Maya Jasanoff’s The Dawn Watch: Joseph Conrad in a Global World when I spotted it recently. It’s brilliant. Her basic argument is that Conrad is a novelist of globalisation – his novels: “meditate on how to behave in a globalizing world, where old rulebooks are becoming obsolete not nobody’s yet written new ones.” The term globalization dates from the 1980s but there was a late 19th and early 20th century version.

The Dawn Watch is so well written itself. One example: “History is like therapy for the present: it makes it talk about its parents.” The biographical tale zips along, interspersed with Jasanoff’s own travel adventures in Conrad’s footsteps – her trip to DRC and up the Congo, rereading Heart of Darkness bookends the biography. Jasanoff reflects on Chinua Achebe’s critique of Conrad’s novel as imperialist fiction, agreeing that it is a non-valid window on modern Africa. But she ends by concluding that while indeed the 21st century is not the 19th, the challenges of globalization are fundamentally the same as those Conrad identified: “The heirs of Conrad’s technologically displaced sailors are to be found in the industries disrupted by digitization. The analogues to his anarchists are to be found in Internet chat rooms or terrorist cells.”

I like this observation by Conrad himself, about fiction versus history: “Fiction is history, human history, or it is nothing. But it is also more than that; it stands on firmer ground, being based on the reality of forms and the observation of social phenomena, whereas history is based on documents … on second hand impressions.”

As it happened, I’d recently read Sven Lindqvist’s Exterminate All the Brutes, a quotation of course from Heart of Darkness. That’s an impassioned reflection on the legacy of European imperialism.

The other book I polished off this week was Peter Frankopan’s The New Silk Roads, the sequel to his best seller. Rather than a history, it’s a very readable account of the current context of the Belt and Road Initiative. Given that every day seems to bring some news about China’s initiative and projection of economic power, this is a timely book. I enjoyed its predecessor, The Silk Roads, more as I knew so little about the history of the region. But even if The New Silk Roads covers more familiar material, its Asian and China centric lens makes it well worth a read.

 

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The globots are coming

Richard Baldwin’s latest book, The Globotics Revolution, is a terrific primer on two trends promising to disrupt the world of middle class work in the rich economies. One is competition from ‘Remote Intelligence’ or in other words a tidal wave of talent in countries such as China and India increasingly well able to compete with better-paid professionals in the OECD. The other is comptition from AI, increasingly well able to compete with etc etc. Combine more globalisation and robotics and you get the ‘globotics’ of the title (a terrible word, but never mind). The book argues that the combination is something new and significant in scale, more than just a bit more of existing trends.

The bulk of the book considers each of the two elements in turn, providing excellent, accessible summaries of the economic research and the projections of the likely impact on work. Some of the forces identified may not manifest as fast as expected –  the spread of autonomous vehicles, for instance. The book is also more gung-ho about the continuation of Moore’s Law than many others who pay close attention to the computer industry.

I’m also a little sceptical about the extent to which remote workers will substitute for highly paid professionals, mainly because there is something separately valuable in the know how and experience gained from face to face contact in specific places. With hindsight, it was a mistake for so much manufacturing to be offshored because of loss of engineering know how (see for example this great article by Gregory Tassey); this will be truer in services. Mancur Olson’s point in Big Bills Left on the Sidewalk – that an immigrant to a rich country from a poor one becomes more productive overnight because of the social and physical capital around them in their new environment – applies.

Even so, the bottom line is that job disruption at the lesser and slower end of the range of possibilities will still have a profound impact on people’s livelihoods. We should be getting prepared. Baldwin argues that there is no mystery about the policies needed. He argues for Denmark-style flexicurity, with ease of being fired compensated by significant transitional funding and training – or even for slowing down the pace of change by making it harder to fire people (despite the evidence this contributes to high unemployment rates). With the need to prepare – and to implement far more effective policies than was the case in the earlier phases of deindustrialisation and automation – it’s surely impossible to disagree.

The book ends on an oddly positive note, given the jobs-ocalypse it predicts: “I am optimistic about the long run.” In the very long term it forsees an economy where the things machines (and I guess offshore workers) cannot do: more local, more human and more prosperous (thanks, robots!) society. “Our work lives will be filled with far more caring, sharing, understanding, creating, empathizing, innovating and managing …. The sense of belonging to a community will rise and people will support each other.” This is wonderfully upbeat, a world where machines do all the drudge work and humans brew craft beer and care for each other. It’s hard to see how to get there from today’s fractious world where the absence of a sense of community is pretty manifest in many places and only the few can afford the craft beer. I hope he’s right, though.

Agree with the book’s rosy long-term vision or not, it’s a thorough introduction to the economic debates about globalization and automation, and the forces that are going to change our world in the next few decades, populist backlask or no.

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Straight talk from Dani Rodrik

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.

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