Friday, June 19, 2009

More of the Same, Please

. Friday, June 19, 2009

Dani Rodrik wants to see some sand thrown in the gears of globalization:

The conundrum of global reform is that the proposals that go far enough, such as establishing a global financial regulator, are wildly unrealistic, while those that are realistic, such as reform of the IMF, fall far short of what is needed.

What we need is a vision of globalization that is fully cognizant of its limits. We can start with a simple principle: We should strive not for maximum openness in trade and finance, but for levels of openness that leave ample room for the pursuit of domestic social and economic objectives in rich and poor countries alike. In effect, the best way to save globalization is to not push it too far.
From this essay, it is not clear what Rodrik specific changes has in mind. But given Rodrik's recent talk at LSE, there appear to be four main thrusts:
1. Markets need to be embedded in systems of governance
2. Political communities will remain predominantly in nation states
3. No "one way" institutional design
4. Countries have the right to protect social institutions, but not impose them on others
Rodrik calls this "Capitalism 3.0" (1.0 was the laissez-faire system that ended after WWI; 2.0 was the rise of the Keynesian welfare state). The hallmarks seem to be a system in which institutions vary by country, reflecting national priorities and interests, varying demographics, and the endowments of each state. In other words, no more "Washington Consensus", nor one-size-fits-all capitalism. Markets are international but governance must be national. We should give states a lot of slack to govern as they see fit rather than forcing a specific agenda on them

Obviously I wasn't at the LSE talk, and Rodrik hasn't posted any slides/video/audio/transcript, so I can't be sure that the talk was as described above (although Rodrik endorses the account here), but it strikes me that that was a feature of Capitalism 2.0. While it is true that in the past IMF loans and World Bank development assistance have come with strings attached that reflect the dominant neoliberal paradigm, overall there is plenty of institutional divergence across capitalist countries. Indian capitalism looks little like Brazilian capitalism. Danish capitalism looks nothing like Estonian capitalism. Singaporean capitalism has little in common with French capitalism.

Indeed, as Rodrik notes, the pervasiveness of actual governance on the international level is often overstated, and achieving more of it is exceedingly difficult. Rodrik goes so far as to assume that it is impossible to get a truly global system of governance. Rodrik's argument is that a global governance system is not only infeasible, but also undesirable. He wants to see globalization scaled back; he wants more sand in the wheels. In fact, what he is proposing is less a new creation, but a return to a modified version of the original Bretton Woods arrangement.

The world I see is less uniform than the world he sees. I see plenty of institutional divergence, and plenty of flexibility for countries to set their own policy. I see countries responding to changes in their macroeconomies on an ad hoc basis rather than accepting top-down institutional demands from the United States or international institutions. In other words, I see a world that largely conforms to Rodrik's standard already. What few specific changes he would like to see are on the margins, unlikely to be implemented (e.g. the WTO may not succeed in a further lowering of tariffs in Doha, but they are even less likely to give more rope for countries to pursue protectionist policies), and represent a movement back to the old Bretton Woods system rather than the creation of a new system.

In short, I see the New Economic Order as the same as the Old Economic Order. And, on balance, that is a good thing.

[UPDATE: Marc Dotson posted a link to video and slides from Rodrik's presentation in the comments. They are here. After reviewing the slides my substantive thoughts haven't changed.]


Marc Dotson said...

LSE has posted a podcast of the event along with Dr. Rodrik's slides:

More of the Same, Please
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