Dani Rodrik, ‘Straight Talk on Trade’

After three decades of unprecedented success, free trade and free markets are once again under attack. This makes some people frightened and others excited. Dani Rodrik is an interesting voice to listen to on this – he’s been warning of the dangers of excessive free trade for twenty years. But he’s also aware that free trade has brought many developing countries enormous benefits. Read this book if you value balanced debate about the upsides and downsides of free markets and free trade, as well as a few ideas for how the world economy could be organised better.

There’s a famous anecdote about President Dwight D Eisenhower. Frustrated by all the complex, uncertain, “on the one hand, on the other hand” advice his economic advisers kept giving him, the President is said to have asked for a “one-handed economist”. Some 60-odd years later, according to Dani Rodrik, it seems the President’s wishes have finally come true. Rodrik argues that economists have become much too “one-handed” in recent years, especially on the subject of international trade. Although they may be cautious about the effects of trade within the private walls of the university seminar room, in public almost all economists keep to the script that free trade and free markets are always and everywhere a good thing.

Rodrik’s main argument is that whilst a broadly open world economy is good for most people, in the last few decades globalisation has gone too far. He argues that a modest retreat from ‘hyperglobalisation’ would be sensible now, and that far from leading to some kind of ever-increasing tariff war, it might actually save the open world economy. Rodrik wants the world to move away from a system where everything is the same – the same trade rules, the same regulations and so on – and towards a system where there is more ‘policy space’: that is, where different countries have the ability to choose the best economic strategy to suit their particular needs and preferences.

Rodrik is a staunch defender of the role of the nation state in the global economy. It’s become fashionable to argue that the nation state is outdated or even actively unhelpful in addressing today’s problems, but Rodrik argues that we can’t do without it. It’s not only that people’s attachment to nation states are still much stronger than our attachment to local communities or the world as a whole, it’s also that the global economy depends to a large extent on national governments, both in good times (for things like building roads and enforcing contracts) and especially in bad times (think of Meryvn King’s famous phrase “global banks are global in life, but national in death”). Rodrik accepts that some problems do demand global solutions, such as climate change – though he seriously downplays the importance of climate change in my view. But he advocates for economic policy being decided at the national level, as he believes that most effects of economic policy stay at that level.

A good chunk of the book is devoted to criticism of economists and also, perhaps more surprisingly, political economists. Rodrik’s beef with economists is that they are too publicly one-sided about free trade, and too focused on finding the “right” economic model rather than recognising that there is value in having a range of different models which will apply in different circumstances. He has no time for economists who criticise democratic politicians for taking the “wrong” economic decision, recognising that sometimes politicians’ refusal to implement unpopular economic policies is absolutely justified.

Frustration with mainstream economics, he argues, pushed some economists into political economy, where they started to use their economic models on politicians (the ‘rational choice’ school). These models led to a complete switch in assumptions about how politicians behave: one moment they were benevolent rational economic planners, the next moment they were “income/ power maximisers”, only interested in themselves. While political economy studies have given some interesting insights, Rodrik finds this work ultimately too pessimistic: it is too easy to use this kind of thinking to explain every failure to implement an economic reform, and when reforms are brought in then the political economists simply argue that they must have been in the interest of the elite. “Interests” of particular groups including elites are anyway not set in stone, he argues, but are influenced by ideas of what those interests are – and those ideas can change over time. This leaves more space for debate about possible policy options than the political economists might think. (This part of Rodrik’s argument could be worth a whole review in itself – I’m not really sure that he can dismiss political economy so easily just because it is too pessimistic, but on the other hand it’s true that some political economy work can downplay the role of ideas, ideologies, and religion in influencing decision-making).

The book finishes with Rodrik’s ideas for reforming the world economy. Most of them are sensible, if not exactly radical: he argues in favour of acknowledging the role of the nation state in sustaining the global economy, allowing states to pursue their own ways to prosperity, and preventing any states from imposing their institutions on others. It should be legitimate to raise barriers at the border if necessary, not only for economic reasons but also in cases where states believe their institutions or regulations may be under threat from imports. So far, so relatively uncontroversial, although it does push against the current free trade orthodoxy. But then comes a shock: “Nondemocratic countries cannot count on the same rights and privileges in the international economic order as democracies.” Rodrik’s argument is that global economic arrangements should support democracy rather than undermine it: so while democracies should have the policy space to develop their own economic policies, it can’t be assumed that nondemocracies’ policies will benefit most of their citizens, so they shouldn’t necessarily have the same freedom. Whilst the idea of safeguarding democracy from the pressures of globalisation is attractive, this seems a completely crazy way of going about it. It assumes democracies will decide world economic rules in the absence of nondemocracies – imperialistic and anyway highly unlikely – and would also involve a whole industry of defining what counts as a democracy that would be impractical and, paradoxically, probably rather elitist.

Aside from that somewhat pie-in-the-sky idea, Straight Talk on Trade is a good read and sets out a sensible agenda for a modest turn away from the hyperglobalisation of recent years. Perhaps its main weakness is the fact that it is so level-headed in an era when many are looking for more radical solutions. But then again, someone who talks sense in an era of demagogues and ideologues – both free trade and protectionist – may be exactly what we need.

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