Law Schools and the logic of the market!

Came across this an engaging read titled "The Real Problem With Law Schools" about the proliferation of law school graduates in the US and the economic analysis of law school education by Eric Posner:

"The only realistic way to help lawyers today is to increase the demand for legal services—somehow convincing governments, for example, to pay for adequate representation of indigent defendants—but in the long term, greater demand will create the expectation of yet more job growth, and that could lead to another bust. The critics seem to think the legal profession can escape the logic of the market. It can’t."

Law and Economics are so inextricably linked - even law school graduates are not spared the vagaries of the market!

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.

Is economic nationalism and protectionism the same?

I have often written about the issues of protectionism, globalization and the role of the State in this blog here and here.Often, the role of the state and market are seen as mutually exclusive. Increasing globalization and integration of markets is seen as a natural corollary to the reducing influence and role of the State and government. However, is this analysis true? China is often taken as an example that defies this logic of increasing connectedness to the globalized market while retaining strong state presence. Is there a middle path where the role of the State and market and co-exit which is not antithetical to world trade rules? Is there a legitimate role for the state to play apart from being a facilitator and regulator? Is state intervention always protectionism? Can protectionism also exist in highly liberalized markets with other forms of State support?

Yale GlobalOnline has a refreshing piece by Anthony P. D’Costa on economic nationalism, role of the state and globalization. He essentially avers that the state can play a role of a promoter instead of being "protectionist" in a globalized world.He brands this as 'economic nationalism" wherein the State does not necessarily retreat but plays a more constructive role in promoting the welfare of its citizens.

"The concept of economic nationalism is used for selective engagement with the world economy. Rather than the orthodox notion of economic nationalism, defensive in nature and nation-centered, I offer a more dynamic understanding – economic nationalism in motion. This version, first proposed in theReview of International Political Economy, 2009, suggests that the practice is influenced by pragmatic considerations rather than ideology – akin to Deng Xiaoping’s proverbial cat that catches mice irrespective of its color – especially under fluid circumstances of economic growth, emerging competitive industries and, most importantly, as national capitalists mature. Earlier economic nationalism meant protection; today it’s promotion, though the basic motive for both is ensuring national economic interests. This ability to navigate changing circumstances and priorities pragmatically contributes to the dynamic movement of the practice of economic nationalism. 

Behind economic nationalism in motion is a particular kind of state-business nexus where the two operate in a public-private partnership. The key difference with this form is that the state explicitly promotes national capital at home and abroad for national economic gain, although prestige can also play a role, when a public-relations agenda drives hosting a major sports events or acquiring state- of-the-art technologies for pet projects without thorough cost-benefit analysis. 

Fostering national economic development and competitiveness, promoting national companies and brands, is part of the economic-nationalism-in-motion portfolio. Market-driven globalization is not incompatible with state intervention. States must identify the conditions under which such economic nationalism can be undertaken and the instruments at their disposal to negotiate the forces of economic globalization."

Thus, in this model all state intervention and promotion is not necessarily viewed as protectionism. Active state involvement to safeguard national interest, branding, promotion of national corporations (State Capitalists) are all part of this mission. Is this compatible with WTO rules? Is there anything in the GATT/WTO that prohibits this? Is this the middle path that emerging economies should undertake to negotiate globalization without abandoning it? However, there is a thin line between State involvement and control - and one must tread that line very carefully.

Random musings on Protectionism, Globalization and the Third Way

                                      (Photo Credit: loco's photos - Flickr)

The respective roles of the State and market has long been a subject of intense debate in a globalizing world. Closely linked to this is the role of free trade and protectionist policies in a country's developmental agenda. Are there any "right" answers in this debate? Or are the contours of this debate blurred? This blogpost does not seek to offer any answers to the complex issue of the role of the State, free trade and protectionist policies in international development. I came across a few pieces that do touch upon this topic that I thought would be worth sharing:

1.No Third Way to the Market: Milton Friedman has argued that privatization should go the whole hog in sectors which require it. Critical of the role of the State in a market economy, he argues against piecemeal privatization that, according to him, is more counterproductive. Offering examples of partial privatization of the airline industry and the Postal Industry in the U.S. he concludes:

"Few rules exist for overcoming this tyranny of the status quo. But one is clear: if a government activity is to be privatized or eliminated, do it completely. Do not compromise by partial privatization or partial reduction of state control. That simply leaves a core of determined opponents in place who will work diligently (and often successfully) to reverse the change."

 2.Is the Great State debate Outdated: Arguing that appropriate policy decisions should be taken at appropriate levels of local, state, national and global governance, Kemal Dervis has argued that public policy must take into account these stratification.

"In today’s interdependent world, the debate about the role of public policy, the size and functions of government, and the legitimacy of public decision-making should be conducted with the four levels of governance much more clearly in focus. The levels often will overlap (infrastructure and clean energy issues, for example), but democracy could be greatly strengthened if the issues were linked to the levels at which decisions can best be taken."

3. Stop Complaining about Outsourcing: Relying on the positive impact comparative advantage and good old division of labour has on the economy, Sheldon Richman argues that there is no alternative to liberalizing trade and reducing the role of protectionism since the latter hurts the less privileged more than the rich. It concludes by saying :"Global cooperation beats trade war every time."

4. Seven Moral Arguments for Free Trade: This 2001 Cato post summarizes the arguments in favor of free trade and open markets. While some of the points are definitely contestable, the general thrust of the arguments seem to suggest that a protectionist, state led model hurts the poor more than the well off.

"When all of the arguments are weighed, it should become clear that a policy of free trade is moral as well as efficient. Free trade limits the power of the state and enhances the freedom, autonomy, and self-responsibility of the individual. It promotes virtuous and responsible personal behavior. It brings people together in “communities of work” that cross borders and cultures. It opens the door for ideas and evangelism. It undermines the authority of dictators by expanding the freedom, opportunity, and independence of the people they try to control. It promotes peace among nations. It helps the poor to feed and care for themselves and creates a better future for their children. For which of these virtues should we reject free trade?"

5. Free Trade is Not the Same Thing as Protectionism: Finally, I had to end with Simon Lester's pick questioning an article that equated seeking increased access to markets with protectionist tendencies of imposing antidumping and countervailing duties. Though not related to the debate, it underscores the need to be consistent with policies that impact local markets as well as access to outside markets.

6.The Economics of Outsourcing: America need to understand and adapt to such developments: Essentially arguing for free trade, this piece emphasizes that the globalized world is here to stay and the response to it is not protectionism but participating in it.

"Freer trade and cheaper communications have spurred globalization in recent decades, exposing once-insulated parts of the economy to foreign competition. Americans can’t cling to the jobs of the past. We need to find the best opportunities in the global economy. In the new international division of labor, we can be the managers, consultants, and even facilitators of outsourcing.

Trade and new technologies are a lot alike. They both upset the existing economic order, undermining some products, industries, and professions while giving rise to new ones. America’s prosperity has been built on wave after wave of such upheavals, with new jobs continually replacing old ones. That’s why American workers are insurance salesmen and dentists, not blacksmiths and buggy-whip makers. We don’t have to know exactly where the new jobs are. We only need faith in the American people and the capitalist system.

Politicians’ attacks on outsourcing won’t work any better than the Luddites’ assaults on technological innovation. If their argument prevails, it is a path to decline. America will be better off if we grab the opportunities arising out of globalization. That is the only thing that will work."

The random musings throw open myriad issues related to the role of the State, markets and international trade in the developmental trajectory of a nation. Do international trade, reduced barriers ipso facto lead to improvements of living conditions of the marginalized? Does trade enhance the capacity of people to engage in the market? For people outside the formal economy, what role does international trade and access to markets have in improving living standards? Does the role of the State always create negative impacts? While questioning State capitalism or other forms of State support, it is often forgotten that large industrialized economies of today were also built on heavy State support and encouragement. It is often brought to light that State subsidies in free market economies are also pretty large. Thus, is the debate of State vs. markets a simplistic one? Does the WTO framework prevent the State from being an active partner in the developmental path? Can their be a constructive role of the State in the globalized world which recognizes the power of the market and global interconnectedness but harnesses the regulatory intervention of the State? For some the State is a bad word while it is the market for others. Can we go beyond these constructs to find the middle path? Is there a middle path at all?