Dani Rodrik’s new world order

Heterodox Harvard economist Dani Rodrik recently posted a list of seven New Rules for the Global Economy. I generally find Rodrik pretty compelling, but this list is particularly fantastic. The whole thing is well worth reading; here are a few of my reactions to individual points, including a rather large open question.

First:

Markets must be deeply embedded in systems of governance. The idea that markets are self-regulating received a mortal blow in the recent financial crisis and should be buried once and for all.

A crucial piece of any necessary reform of the global economy. I continue to believe that reform-minded activists missed a huge opportunity when the financial crisis hit to push for broad changes in the global economy and in the ideological domination of markets in the public consciousness. The moment hasn’t entirely passed, though, and having high-profile intellectuals like Rodrik continue to cite it as an impetus for reform is enormously helpful.

For the foreseeable future, democratic governance is likely to be organized largely within national political communities. The nation state lives, if not entirely well, and remains essentially the only game in town.

Neocons and liberal internationalists alike share a certain “one world” rhetoric that sounds great but has profound implications for the way policy is made. I like Rodrik’s formulation of this idea, in that he doesn’t claim that independent nation-states are necessarily the best form of governance, but he strongly advocates that since they’re not going anywhere, we should respect their sovereignty. That’s a statement that sounds common-sensical but has far-reaching implications.

Countries have the right to protect their own regulations and institutions [… and] Countries have no right to impose their institutions on others.

And these are some of those far-reaching implications. The first part of this should seem fairly straightforward, I hope, although in today’s political climate it is nevertheless a fairly radical thought. The second part, however, is a bit trickier. Certainly it sounds agreeable, but it also perhaps conflicts with Rodrik’s seventh and final rule:

Non-democratic countries cannot count on the same rights and privileges in the international economic order as democracies.

While Rodrik isn’t arguing for the outright imposition of democratic institutions on countries, he’s certainly arguing for a certain kind of international pressure for democratization, which seems to go against the above rule. Also, there are numerous examples of policies that progressives would consider “good” that involve the imposition of values or the imposition of an anti-institutional value system – for instance, the procurement rules and boycotts used to provide international pressure against the system of apartheid in South Africa, or the junta in Burma. Would Rodrik condemn these policies in the same way he would condemn “trade sanctions or other pressure to alter foreign countries’ labor-market rules, environmen­tal policies, or financial regulations”?

While this is a criticism from a logical standpoint, it may not be one from a normative standpoint – I’d probably agree that there are real differences between imposing values that prioritize global commerce and those that prioritize (for example) democratic process or human rights. But it’s not necessarily a completely straightforward, logically airtight argument to make.

WTO failing to help the world’s poor, WTO says

This is near the top of my to-read list, along with the Stiglitz Commission report on the financial crisis: a joint ILO-WTO report titled “Globalization and Informal Jobs in Developing Countries” (warning: big PDF download). According to this In These Times story, and corroborated by my quick scan of the executive summary, the report concludes that globalization has not helped the bulk of the world’s poor. The research presented here focuses on the creation of informal job sectors in developing countries which are unregulated and contribute little to overall development.

One nice tidbit:

Finally, globalization has added new sources of external economic shocks. For instance, global production chains can transmit macroeconomic and trade shocks through several countries at lightning speed, as observed in the current economic crisis. Moreover, in such circumstances developing countries run the risk of entering a vicious circle of higher rates of informality and rising vulnerability. Countries with larger informal economies experience worse outcomes following adverse shocks. Indeed, estimates suggest that countries with above-average sized informal economies are more than three times as likely to incur the adverse effects of a crisis as those with lower rates of informality.

Addressing informal labor markets is one side of the solution, but I am not convinced that this sentence must be as true as it is today: “globalization has added new sources of external economic shocks.” The aforementioned Stiglitz Commission report discusses how WTO-driven deregulation of financial services has made individual economies more exposed to global shocks. Reverse that trend, give countries more options for protecting (oops, there’s that word) their financial markets, and perhaps economic instability would not be quite so wildfire-like, consuming every country in its path in rapid succession. As long as chains of production are global, economic instability will always be global as well, but it seems to me that we’ve made things much worse than necessary by depriving individual countries of many of the appropriate tools for dealing with or forestalling such instability.

I’m sure I’ll have more intelligent things to say after I’ve actually read both of these papers.

Flying Whale