Dani Rodrik - 3

Focusing on the tension that underlies democracy and globalisation, Rodrik says it is important to distinguish between the genuine tension and the tension that is misrepresented. 

There is version that the tension between globalisation and democracy arises because global rules constraint domestic policy space; governments have to maintain openness to enhance trade in goods and finance and that in itself limits democracy. Rodrick emphasizes that this in itself doesn’t undermine or constraints democracy. Democracies can often benefit from such constraints because the sovereign can constraint its action in a way that can improve democracy.

For instance, with respect to monetary policy and inflation control, the executive – the parliament – sets the monetary policy for the sovereign, and the parliament may constraint it. That by itself is not undemocratic. If the monetary policy is subject to the pulls and pressures of day-to-day politics, it would create a crisis in the economy. Similarly, a sovereign can enter into international agreements without these becoming a constraint for democratic values.

Rodrick observes that global rules can enhance the powers of democracy because they limit the powers of special interests and enhancing quality of democracy deliberations; global rule about transparency in decision making would enhance democracy. But the problem is that just because international agreements of the world economy can do that doesn’t necessarily enhance the functioning of democracy.

Rodrik claims that hyper globalisation empowers certain interests – multinational, big pharma, big tech, and big banks, and these entities give advantage to one set of distribution interest against another. “We need to distinguish between international norms that enhance democracy and to those that undermine democracy. We also need to distinguish between how the global rules are impacting domestic policies such as the monetary policy or whether they are just strengthening special interests in the economy,” he says.

He contends that the unease with the globalisation since the 1990s is that it has encouraged special interest agenda. “You have to ask what sort of globalisation we would have had had the policies not been designed by the US Treasury, the OCED, the IMF and WTO, instead by the UNESCO, the ILO or the World Migration Organisation,” Rodrik asks.

The main issue is really about who is being empowered and the degree to which the rules are privileging a certain interest group against the democratic delegation argument through which all interests would be more equitably served.

He believes that the reason the populists are winning in Europe is because they are only ones who are talking the truth. They realise that the three principles of trilemma cannot be maintained, but the populists are clear about national sovereignty and they are happy about keeping hyper globalisation outside. This is what white nationalists are espousing globally and matched by their nativist, exclusionary policy agenda.

Rodrik explains that it does not have to be so. The late 19th century populist movement in the US was a distinctly left oriented movement against big corporate interests and not necessarily against immigrants, or foreigners or minorities.

The New Deal is a left wing in its orientation, it has no economic orthodoxy at all. FDR had no economic training. His views including abandoning the gold standard would have been rejected by the dominant view of the economists of his time.

In present time, too, the space that national sovereigns need to develop economic policies that would benefit their domestic constituents need not leave a section of people out. But it often has especially in the European context.

What kind of economic globalisation should we want?

Rodrik says, it should be inclusionary and there should be compensatory mechanisms built in for that section of the population that would lose from the process of globalisation. “We have to look at the gains and not the type of gains that resulted from the post 1990s trade agreements which were largely redistributed.”

And the second criterion is this model of globalisation should leave room for policy autonomy and institutional diversity and discipline the beggar-thy-neighbour policies in which countries formulate policies where they can only gain at the cost of another country.

Large inclusive benefits and space for institutional diversity. In the area of international trade – he advocates that the main principle should be peaceful coexistence especially in the context of US-China trade dispute.

Both need to understand they have to live and let live. They should be allowed to develop their own social, economic, and political policies without these policies leading to adversities in the other economy and be construed as trade barriers.

He advocates that the global economy should go back to the spirit of GATT globalisation. The expansion the idea that the degree to which the domestic economic and social policies should be constrained by trade agreements and that we need to go back to that era at least in spirit.

This would give countries to maintain social contracts and develop their own economic policies more suited to their conditions. Sustainable healthy economies will lead to healthier economies which will need globalisation.

International finance – we have gone too far and rapidly; financial globalisation has not paid off in terms of increased growth and increased investment, but it has led to increased financial crises. It is going to be important to have some oversight over global tax heavens, and that there is global cooperation to curb tax evasion.

He forcefully advocates for the free movement of labour is one area there are still many gains to be had by encouraging globalisation. Greater globalisation in the area of labour will lead to many gains and we need to distribute these gains equitably.

If you are pushing frontiers of globalisation it should be inclusionary and should include labour. Movement in the direction of pre-1990s type of globalisation with a twist that free movement of labour should be included in this process in the next 10 to 20 years.

More sustainable globalisation with new traffic rules that will allow advanced countries to address inequalities and social contracts and for the developing countries to devise their own growth strategies and economic restructuring.

This envisages governments negotiating for policy space rather than negotiating for market access. The world economy is fairly open right now and the main constraint is the legitimacy constraint, which can be removed by giving space to national governments to construct their own economic and social policies.

That will pave the way for cooperation on issues where globalisation has a lot to gain – climate change, cross border movement of labour, international coordination on tax havens, arms trade, health pandemics – these are areas in which cooperation can lead to major advantages.

Paradoxes of the last 30 years is that we have had more international economic integration but this has come at the cost of more domestic disintegration. Our national elites who are globally networked and are better positioned to benefit from the global economy have become dislodged from their societies, leading to unhealthy politics; healthy politics is going to require reintegration of national economics.

In the process of this transitions will lead us to saner globalisation and global order. Capitalism often reinvents itself and devises methods that don’t always respect the orthodoxy of capitalism.

These policies may seem populist in the traditional sphere, but economic populism may still be the best bet we have to save globalisation and forestall political populism, which is damaging to the world, leading to the decline on independent judiciary, free media and rise of autocratic politics. Restoring liberal democracies and pluralistic policies will require us to reimagine what the role of international economics is in the conduct of our economic policies.