Academic journal article Business Economics

Dani Rodrik: Straight Talk on Trade-Ideas for a Sane World Economy

Academic journal article Business Economics

Dani Rodrik: Straight Talk on Trade-Ideas for a Sane World Economy

Article excerpt

Dani Rodrik: Straight talk on trade--ideas for a Sane World Economy

Princeton University Press

Dani Rodrik makes a key confession in Straight Talk on Trade. Not a personal but a professional one, and one much needed by economists. He confesses the economics community has made a grave mistake in the long-running decision to "champion free trade and not dwell too much on the fine print." Rodrik states that "this reluctance to be honest about free trade has cost economists credibility with the public." And the evidence before us suggests he is right. Economists need to reassess how they approach trade and globalization: its diffuse but widespread benefits, and (importantly) its concentrated and painful downsides. For a profession that cherishes the notion of trade-offs and cost-benefit calculations, it's more than a little puzzling why international trading arrangements are rarely discussed in these terms.

The anti-globalization, populist backlash propelled the Trump win in the U.S., spurred the rise of the right across much of Central and Eastern Europe, the victory of the far right and anti-establishment League and Five Star Movements in Italy, and the shocking Brexit result in the United Kingdom. This fracturing of the status quo has a great deal to do with the failure of economists and politicians to acknowledge the negatives associated with globalization, and act to mitigate them.

Rodrik calls for a re-balancing by elites and technocrats in favor of state action to address the dissatisfaction and disillusionment amongst their voters--a recognition that he terms 'hyper-globalization' makes it harder to achieve legitimate economic and social goals. Rodrik pushes back against those that discount the nation state's relevance. His criticism rings true. Voters are angry because they feel disconnected from political and economic decision making, and they often are, as Larry Bartels in Unequal Democracy (Bartels 2016) and others, such as Luigi Zingales in A Capitalism for the People (Zingales 2014), have made very clear. Technocratic global (World Trade Organization) and regional (European Union and other) solutions have unintended consequences. They increase the distance between the decision makers and the voters, undermine legitimacy, foster distrust, and allow anger to smolder. He is right. It is no accident that voters almost always prefer their local politicians and structures, which they know, understand, and can interact with, while distrusting the shadowy figures in Brussels or Basel. Rodrik asks, "Who needs the nation state?" answering, "We all do."

Rodrik's critiques can sometimes partially miss the mark. He takes aim at the European Union, arguing that structural reforms are not the only response to the after-effects of the global financial crisis and Eurozone travails (true). He then criticizes the European Union for a lack of democratic legitimacy, for a worsening democratic deficit. This is an oft-repeated trope, and Rodrik uses it without reflection. In fact, European elections have turnouts not dissimilar to U.S. congressional elections, and the strength of the European Parliament and its power in the Union has increased in recent years, with the adoption of co-decision (1) and other reforms. A more than cursory glance at how the European Union works would show increasing democratic control, not less.

That being said, Rodrik is right that Europe's technocratic response to anger over the disconnect between leaders and their voters (on banking union for instance) is misdirected. It reminds me of Mario Draghi's response to the June 23, 2016, Brexit referendum result--that only still more European structures could deliver for voters fired up by anti-establishment anger. To the contrary: a devolution of power, a strengthening of local democratic structures and capabilities, is the better response. But European officials are in an almost impossible bind. They must be seen responding to crises, but the solutions need to be national and regional and are outside their control or responsibility. …

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