Dani Rodrik has managed to be able to debunk the economic orthodoxy, most notably in his area of expertise, namely trade and development, and still retain the respect of his peers. Of course, having tenure at Harvard (Kennedy School) doesn’t hurt. But Rodrik is also unfailingly articulate, fair-minded, and rigorous.
His latest post takes issue with a New York Times editorial today bemoaning the protectionist leanings of the leading Democratic Presidential candidates. Rodrik correctly points out that questioning our current trading arrangements or seeking better trade outcomes for the US isn’t protectionist.
In an earlier, and important post, Rodrik pointed out that the economic benefits of trade were almost certainly exaggerated by its advocates. Mind you, no one is saying free trade doesn’t produce gains in national incomes, but those gains are typically accompanied by dislocation and redistribution of wealth. That’s why the great unwashed economically illiterate are unhappy about it. They have legitimate issues that aren’t acknowledged until a backlash develops. Moreover, other countries seem to play the game to reach other objectives, namely, produce trade surpluses and protect their workers (via attenuating the disruptive effects of trade liberalization) while the US gives top priority to promoting corporate growth and profits. Those objectives bear examination.
The New York Times bemoans the lack of support that the existing trade regime gets from the field of Democratic presidential candidates:
Many Americans are experiencing economic anxiety. Wages for most workers are going nowhere. It is a sad fact that despite enormous gains in productivity over the past few decades, the wages of typical workers are only marginally higher than they were a quarter of a century ago. But throttling trade — say, by reconsidering existing agreements — would hurt a lot more people than it helped. There is scant evidence that trade has played a big role in holding down typical workers’ wages. There is abundant evidence that it has contributed substantially to America’s overall economic growth. It offers American producers access to foreign markets. It multiplies choices for producers and consumers. Foreign competition spurs productivity growth at home.
Trade, like technological change, can produce wrenching dislocations that hurt some workers. But trade barriers are not the proper tool to deal with these changes. What is needed is a bold strategy to rebuild a functioning safety net, deploying some of the vast wealth this nation has gained through globalization to assist those hurt by the forces of economic change. This will allow Americans to embrace globalization, rather than fear it.
Here’s what’s wrong with this argument:
1. It automatically equates any desire to reconsider trade agreements and take a breather on new agreements as “protectionist.”
2. It fails to recognize the ways in which technology and globalization interact to contribute to unequalizing trends in incomes, taking refuge in the defensive statement that “There is scant evidence that trade has played a big role in holding down typical workers’ wages.”
3. It follows up this statement with “There is abundant evidence that it has contributed substantially to America’s overall economic growth,” ignoring what every student of trade learns, which is that large gains from trade are possible only of there are also large amounts of income redistribution.
4. In portraying the conflict as purely one over incomes, it overlooks what is the greatest strain in the present regime of globalization–namely, the incompatibility between the scope of markets (straining to become global) and the scope of regulatory institutions (still national).
5. And as a consequence, rather than accept the need to rethink the existing rules of the game, the editorial takes refuge in the same stale recommendations that every trade liberalizer has been offering for the last quarter century at least–more safety nets, better training, and more progressive income taxation.
I do think those items in the NYT’s policy agenda have an important place on the policy agenda. My earlier book Has Globalization Gone Too Far? was largely about the need for a serious social-insurance complement to the trade agenda. But it is also time to recognize that the WTO rules need to become much more flexible to provide a better balance between international trade and domestic regulatory and other policy priorities–in other words, to assure domestic electorates that their values and preferences are not being sacrificed to the demands of some globalization agenda constructed, in any case, by a narrow elite.