Dani Rodrik's advice to experts!

"One thing that experts know, and that non-experts do not, is that they know less than non-experts think they do."

Dani Rodrik has a very interesting piece of advice for "experts" in his blog a few days ago quoting Kaushik Basu above.I just have to quote it to re-emphasize the relevance:

"Economists would be so much more honest (with themselves and the world) if they acted accordingly – letting their audience know that their results and prescriptions come with a large margin of uncertainty.  Public intellectuals would do so much less damage if they did likewise.  And if experts are not aware of the limits of their knowledge – well, they do not deserve to be called experts or intellectuals. 

The real point, though, is that the other side – journalists, politicians, the general public -- always has a tendency to attribute greater authority and precision to what the experts say than the experts should really feel comfortable with.  That is what calls for compensating action on the part of the experts."

This applies to all fields of expertise I guess. Any trade law experts listening?

Global citizens and local problems

Dani Rodrik has often argued against the dominance of global institutions on national sovereignty. His book Globalization Paradox epitomized the tensions between national sovereignty, democracy and autonomy in decision making. His recent piece titled "National Government, Global Citizens" highlighted the dichotomy of globalization and domestic political sovereignty.

"Nothing endangers globalization more than the yawning governance gap – the dangerous disparity between the national scope of political accountability and the global nature of markets for goods, capital, and many services – that has opened up in recent decades. When markets transcend national regulation, as with today’s globalization of finance, market failure, instability, and crisis is the result. But pushing rule-making onto supranational bureaucracies, such as the World Trade Organization or the European Commission, can result in a democratic deficit and a loss of legitimacy."

The piece highlighted a trend, albeit minimal, of the rise of "global citizens" pressurizing their national governments to be more accountable. Can global governance be achieved by the enhanced role of global citizens? Citizens today, especially in the developing world are more concerned with issues of local governance and livelihood. Do issues of international law, global governance matter to them at all? Isn't it more pragmatic to look at global governance and accountability through national political representation? If a national government's position in the international sphere is guided and accountable to representational government at the national level (howsoever weak that is) is that not a desirable step? More than being desirable, is it not achievable?

Pascal Lamy speaking recently highlighted the need for more discussion of international issues in the domestic arena.

"The final principle that I would put to you is that since the political “demos” remains essentially national, legitimacy would be greatly enhanced ifinternational issues were to become a larger part of the domestic political debate. The exercise of democracy today needs an international dimension. The fact that citizens elect the governments that represent them in global institutions is not itself sufficient to ensure the legitimacy of international organizations. The fact that in an organization such as the World Trade Organization, decisions are taken by consensus, and are based on one-country one-vote, may not be enough to ensure its legitimacy in the eyes of our global citizenry. More is required. National actors — political parties, parliaments, civil society, trade unions, and citizens — need to ensure that the issues discussed and decided at the “global level” are carefully explored, first, at the “domestic level.”

Is this more feasible? 

Globalization and inequality - Middle path?

One of the questions about the impact of globalization is its impact on inequality? Does it aggravate it or lessen it? How should a State deal with pursuing a globalized agenda as well as addressing the inequities it breeds? Is there a path to find that equilibrium or are they incompatible goals?

Dani Rodrik in a not so recent interview asserted that globalization does lead to increasing inequality but also alluded to a possibility of open economies reducing inequality. 

"There is no question that globalization has aggravated inequality within countries.  But we need to think of globalization in this context as part of a cluster of developments: new technologies, greater emphasis on markets, decline in unionization, and fiscal paralysis of many states. All these have had the consequence of raising the returns to skills and talents and reducing the bargaining power of blue collar workers and those who are unable to move across national borders with the same ease as capital. 

But there are exceptions too.  One of the most encouraging trends in the last couple of decades is the decline in inequality in Brazil, Chile, and many other Latin American countries, which have traditionally been among the most unequal in the world. This shows that broad social programs as well as more narrowly targeted anti-poverty programs can still be pursued and are effective in open economies."

A welfare state pursuing globalization is a distinct possibility? If one does not seek extremities, there is perhaps a way which seeks an open economy based on a strong interventionist state to address poverty alleviation and inequality. How this balance is sought and implemented is where the problem lies. the devil is normally int he details and the path to finding that balance often leads to excesses. One would have to understand and contextualize the roles of the State and market to find this balance.

Decline of the nation in a globalized world?

An interesting piece on the boundaries globalization is breaking down for the global players and technological players is "The decline of nations" by Francisco Dao. He states that global players, especially multinational corporations, are not affected by national boundaries and state of the economies as much as local actors are since they can move from one jurisdiction to the other. The same is with the technology world that gets its services from across the globe.

"As global players disassociate themselves from individual countries, it results in a bifurcated global economy made up of a global class that is able to leverage international labor and markets, and national classes who are more reliant on the well being of their respective nation. Countries are left to compete for relevance in an economic world that has no respect for national borders. In this scenario, nations have two choices both of which lead to their eventual ruin. 

The first option is to hold the line on taxes and regulations and watch their global players depart (or obfuscate profits) for countries offering a more favorable environment. The second option is to offer incentives to keep global players within their tax base. However, this ultimately produces a race to the bottom, as nations bend over backwards to the demands of global players who have no reason to be loyal to any individual country. Either way, nations are faced with eventual decline."

Dani Rodrik, on the other hand, reiterates the dominance of the nation state even in an increasingly globalized world about which I had blogged about here. He states the myth of the fall of the nation state needs to be resisted.

 Are there extremities in this debate?While globalization is gradually impacting various sectors, the action and focal point is still very much local and national. Countries respond to globalization in myriad ways in varying situations from outright protectionism to open arms free trade. Even today large populations are outside the circle of benefitting from globalization. Nevertheless, the world has been impacted by globalization and reduction of barriers. While no one can predict the way the global economy will take, this constant tension between national imperatives with global pressures is a constant definitive.

An interesting debate in the context of domestic policy space and growing international trade.

Dani Rodrik, national sovereignty and globalization

The issue of domestic policy space in the context of globalization and international trade rules has often been a subject matter of this blog. Does the international legal framework severely restrict national decision making abilities? Does it infringe upon democratic politics? I had blogged about this issue here.

Dani Rodrik has argued that hyper globalization, national autonomy and democracy cannot go together. Calling it a political trilemma, he is of the opinion that increased economic integration leads to a loss of national sovereignty and democracy. Increased globalization leads to a loss of democratic policy space.

Writing in the Project Syndicate and citing the example of the Eurozone, he argues:

"The conflict between democracy and globalization becomes acute when globalization restricts the domestic articulation of policy preferences without a compensating expansion of democratic space at the regional/global level. Europe is already on the wrong side of this boundary, as the political unrest in Spain and Greece indicates. 

CommentsThat is where my political trilemma begins to bite: We cannot have globalization, democracy, and national sovereignty simultaneously. We must choose two among the three.Comments 

If European leaders want to maintain democracy, they must make a choice between political union and economic disintegration. They must either explicitly renounce economic sovereignty or actively put it to use for the benefit of their citizens. The first would entail coming clean with their own electorates and building democratic space above the level of the nation-state. The second would mean giving up on monetary union in order to be able to deploy national monetary and fiscal policies in the service of longer-term recovery.

Comments 

The longer this choice is postponed, the greater the economic and political cost that ultimately will have to be paid."

While "globalization" or economic integration in the context of the Eurozone may have different connotations of domestic sovereignty, Joel Trachtman has argued that global trade rules do not severely curtail national will. By consenting to international agreements, countries do exercise their democratic choice. Further, the trade agreements themselves have tremendous scope for interpretation. Hence, even though a country is a part of an international legal system, the fine print of the agreements must be carefully engaged with to protect legitimate domestic space and national choice. While it is nobody's case that globalization does not have an impact on sovereignty, the extent and severity is the critical question. In times of crisis, the impact is played upon. However, global supply chains and interdependence on imports downplays the negative impact of globalization. Is it ever possible for countries to shun international mulitlateralism and become "protectionist" again? Will democratic will prevail on international economic realities? Are they irreconcilable? What do we make of examples of China which have actively participated in the globalized world after its entry into the WTO but at the same time maintained its national goals and commitments? Is there a middle path which carefully guards national democratic will but at the same time engages with the global framework?

Will countries increasingly look inward?

A recurring theme is this blog is the domestic policy space available to countries in the multilateral trading system. How much national autonomy do members have to craft their own domestic development agenda? How much are they constrained by the rule based trading system? opinion is divided on the issue and experts tend to argue that the multilateral trading system epitomised by the various multilateral agreements offer enough space for countries to pursue their respective agendas. How much of this domestic agenda is "protectionism" is another debate. Are these developmental agendas non-discriminatory and justifiable? Are countries looking more and more inward to find solutions to pressing economic problems rather than relying on the multilateral system?

Dani Rodrik, a critique of unhindered globalization, has recently written a brilliant piece in Project Syndicate indicating that in the future countries will increasingly look inward in terms of relying on their internal market instead of global, overseas markets. He, thus, implies that the multilateral trading system will lose its significance as countries will trade more internally than externally thus making the domestic policy debate redundant in a sense.

"Countries that rely excessively on world markets and global finance to fuel their economic growth will also be at a disadvantage. A fragile world economy will not be hospitable to large net foreign borrowers (or large net foreign lenders). Countries with large current-account deficits (such as Turkey) will remain hostage to skittish market sentiment. Those with large surpluses (such as China) will be under increasing pressure – including the threat of retaliation – to rein in their “mercantilist” policies.

Comments

Domestic demand-led growth will be a more reliable strategy than export-led growth. That means that countries with a large domestic market and a prosperous middle class will have an important advantage."

Forecasting that countries with low levels of public debt, reliance on local markets instead of global markets and strong institutions of democracy would do well in the coming years. India, Brazil and South Africa, according to Dani Rodrik, would fit this bill and will be in a better position to address the challenges of an inequitable global order. Are we going to see a reduced interest in the urge for countries to be part of the globalised economy? Is being integrated or taking advantage of the international supply chains going to reduce? Does the strategy to rely more on internal markets signal a legitimate use of protectionist measures for growth and equity? Recent trends of Argentina indicate that countries are looking at inward looking policies to further economic agendas. Will this be a long lasting trend? How would the WTO system react to this? How would the Dispute Settlement mechanism react to this development? Can it be achieved within the ambit of the multilateral trading system?

I read an interesting UNCTAD paper on finance-driven globalisation that echoed a similar view in the context of globalization in financial investments and countries reaction to it. Titled the "Paradox of Finance-Driven Globalization" it has come to the conclusion that countries that have pursued heterodox, innovative, local policies suited to their national conditions have been able to do better than countries that have followed a "liberalised", uninhibited finance-driven globalization model.

"Without going into detailed country profiles,success stories have been able to adopt creative and heterodox policy innovations tailored to local conditions. Many have established a strong investment–export nexus by managing their outward orientation with strategic policies including high (but temporary) tariff and non-tariff barriers, publicly owned development banks, directed credit, domestic content requirements, and capital controls. In addition, some have used targeted industrial policies to diversify their economies, developing a wider range of more productive activities. Such diversification appears to be closely linked to improving employment conditions and to build resilience against adverse shocks."

It appears that this paper reflects the notion that countries should exercise more domestic policy space in the multilateral trading agenda to pursue national goals. How much of this would violate WTO obligations is another issue.  Would using domestic content requirements or increasing protectionist measures be a permitted measure? Where does one draw the line?