Tuesday, 3 April 2018

Book Review: The Globalization Paradox

I just finished reading The Globalization Paradox, by Dani Rodrik. The subtitle is 'Democracy and the future of the world economy'. Rodrik is one of the foremost thinkers in international economics, and on that front, the book doesn't disappoint.

The ideas that Rodrik puts forward in the book can be summarised in two points. First, markets and governments are complements, not substitutes. If you want markets to work best, you need more (and better) governance, not an absence of governance. In other words, laissez faire actually works against global welfare. Second, there is no one unique model of successful capitalism, so there is no one formula that will work for all countries. Each country needs to make its own decisions about the rules and institutional arrangements that will work best for their needs and preferences. There is a lot of good to be said for both of those points.

Rodrik is definitely a globalisation-sceptic, but he has a lot of love for China's approach to globalisation. That is, keeping the international economy at arms' length just long enough so that the economy can gain strength:
China's experience offers compelling evidence that globalization can be a great boon for poor nations... China's ability to shield itself from the global economy proved critical to its efforts to build a modern industrial base, which would be leveraged in turn through world markets.
Rodrik spends quite a bit of the book arguing for a more reasoned approach to globalisation. In particular, he presents a trilemma: societies can only be two out of three of: (1) globally integrated; (2) completely sovereign; and (3) democratic. He doesn't nearly devote enough space to this trilemma for my liking, but enough to make the case that full global integration should be the option to be foregone. Rodrik's preferred solution is a new Bretton-Woods compromise - that we should opt for a 'thin' globalisation, if we want to retain nation states (since global government is infeasible) and democratic governance. The examples of financial globalisation that Rodrik uses throughout the book certainly present a strong case that unfettered globalisation has gone too far. However, there are some aspects of integration - communications and information technology, and labour migration in particular, that Rodrik barely touches on.

Despite those omissions, this is an important book to read if you want to see a reasonable argument against 'hyperglobalisation'. There are many great soundbites as well, such as:
...The scope of workable global regulation limits the scope of desirable globalization...
...Trade is a means to an end, not an end in itself. Advocates of globalization lecture the rest of the world incessantly about how countries must change their policies and institutions in order to expand their international trade and become more attractive to foreign investors. This way of thinking confuses means for ends. Globalization should be an instrument for achieving the goals that societies seek: prosperity, stability, freedom, and quality of life...
...But what generates higher incomes, better jobs, and economic progress is not more trade as such... What makes us better off is the ability to consume those goods at lower cost and sell our produces at better prices abroad...
Especially, given this book was published back in 2011, this seems quite prescient:
If China's trade surplus does not shrink, the United States likely will resort to trade barriers directed at Chinese exports, inviting retaliation from China and similar tactics from other countries.
Rodrik's key contribution in the book is seven principles for a 'new globalisation'. Unfortunately, it appears that these principles are being overlooked as the drive for greater global integration (the current US trade tantrums notwithstanding) continues apace. Overall, this book is not an easy read, but it continues to be an important one.

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