Foreign trade, Rodrik notes, generates economic and social changes, but he doesn’t argue against change per se. After all, technology produces a lot of it—and, we might add, technology is probably responsible for the bulk of employment disruptions that America and other societies are experiencing.
What concerns Rodrik is that “trade violates norms embodied in our institutional arrangements.” “Certain kinds of competition,” he writes with foreign competition in mind, “can undermine domestic norms with regards to what’s an acceptable redistribution. … This brings us to a different social and political objection to trade—that trade violates norms embodied in our institutional arrangements.”
I think he is trying to square the circle—to make an argument against international competition without attacking competition per se. That is not an easy task. To pull it off he tries some fuzzy contractarian norms and invokes the dubious concept of “social dumping.”
Disrupting social norms / Rodrik writes that “trade may undercut the social bargains struck within a nation and embedded in its laws and regulations,” and that the consequences of trade generate “stresses … for our social compacts.” The plural of “social bargains” and “social compacts” suggests that he is not thinking of a conceptually unanimous social contract in the sense of James Buchanan or even John Rawls. It is very unlikely that anything like a unanimous social contract could grant Leviathan the power to forbid the importation of fishing rods from China, cars from Mexico, or clothes from Bangladesh.
To rescue his domestic norms, Rodrik argues for broadening the idea of fair trade “to include social dumping.” The concept of “social dumping” has been used by the left as the social equivalent of ordinary “trade dumping,” which is the selling of goods at prices deemed to be below cost. But what’s wrong with that? It would mean that the importing country is getting a bargain that is paid for by the exporting country. Hence the notion that dumping is bad is problematic in any consistent theory of trade. In practice, “dumping” usually refers to foreign suppliers selling at a price that domestic competitors do not match for whatever reason. Dumping may not be good for the domestic suppliers, but it is good for domestic consumers. As Paul Krugman has written approvingly, “The economist’s case for free trade is essentially a unilateral case—that is, it says that a country serves its own interests by pursuing free trade regardless of what other countries may do.”
“Social dumping” is even more problematic. A blurb on one of the European Union’s websites admits that “there is still no clear, universally accepted definition of ‘social dumping,’ ” though it cites “unfair competition” as one possible definition. In this view, a poor country with lower wages would, by its exports, dump its social problems on rich countries. But again, that doesn’t seem like a bad thing for consumers. So we are back to the idea that social dumping amounts to selling at a price that competitors in rich countries do not match.
Rodrik admits that low productivity—that is, the exporting country’s low wages are the result of its having a low-skilled workforce or less capital—is not sufficient to justify the charge of social dumping. He wants to make “a clear distinction between situations where a trade partner’s low wages are due to low productivity, and the abuse of worker rights (including, say, the absence of collective bargaining, or freedom of association).” In other words, the comparative advantage of a poor trading country has to be corrected with what some “domestic norms” in the importing country consider an abuse of worker rights.
These ideas are difficult to fit in the economist’s toolbox and we can sympathize with Rodrik’s struggle. The theory of comparative advantage and its contemporary extensions (by economists such as Eli Heckscher and Bertil Ohlin) suggest that poor countries will specialize in the production of labor-intensive goods precisely because their wages (and other working conditions) are low enough to compensate for their generally bad labor productivity. These countries are poor precisely because they have low productivity. Their specialization, combined with the specialization of developed countries in more capital-intensive goods or goods requiring highly skilled labor, will allow the residents of all trading countries to enjoy more goods and services.
Comparative advantage explains why Mississippi specializes in agricultural products and California in high-tech gear. It would make no sense for California’s government to limit imports from Mississippi under the excuse that average wages are 40% lower in Mississippi or that it is a right-to-work state. But if social dumping isn’t invoked to restrict Mississippi exports to California, then why do some people want to invoke it to restrict Bangladeshi exports to the United States?
It is true that Mississippians can freely move to California if they want to, contrary to Bangladeshis, but this is not an argument against free trade. On the contrary, the capacity of Bangladeshis to export goods to the United States is a substitute for free immigration. Rodrik seems to prefer more temporary immigration, but why let a Bangladeshi who is temporarily working in the United States provide clothes to American consumers but not let him do so if he’s working in Bangladesh? This would be like forcing Mississippians to work in California if they want to produce stuff for Californians.
The norms underlying the concept of social dumping appear to be essentially national and nationalistic. Social dumping comes from international trade that challenges what Rodrik, in the last paragraph of the book, calls “the prerogatives of the national state.”
Favoring the tribe / The very term “social dumping” is baffling. As Hayek argued, “social” has become “the most confusing expression in our entire moral and political vocabulary.” It serves largely as an indicator that whatever it is modifying is deemed very good if it is already considered good—e.g., social justice, social awareness, social responsibility. “Dumping” mostly describes bad things, however—e.g., roadside dumping, trade dumping, dumping on one’s friends, patient dumping. So “social dumping” becomes a sort of sacrilege.
Go beyond the alchemy and social dumping seems to be whatever people close to power do not like, whether these people represent special interests or a tyranny of the majority. And the more tribal or (in its modern incarnation) nationalistic a society is, the more things and ideas coming from outside will be considered social dumping.
Rodrik thinks of trade as “not merely a market relationship, but an intervention into domestic institutions and an instrument for reconfiguring them to the detriment of certain groups.” Consider the implications of this characterization. When the national Leviathan does not act to stop what it dislikes, its inaction is nonetheless considered intervention because it lets private “interventions” run their course. There is little place for free trade in this context.
Ideally, in Rodrik’s perspective, the “social compacts” are the norms imposed by a national majority. His general theory of politics and welfare is rather rudimentary, as it ignores contemporary theories of public choice, welfare economics, and social choice. In practice, the norms will enforce the privileges that special interests grab. One way or another, these norms must not be challenged by individuals importing what they want from abroad. Free trade must not be allowed to interfere. Domestic norms and cartels must be protected.
Conclusion / Rodrik does not succeed in reconciling free trade and arbitrary national norms that interfere with trade. It is just protectionism reformulated in “social” terms. To be fair, he claims that he wants only limited restrictions on trade and he believes those limitations would keep populist demands and demagogues at bay. But “social dumping” is the stuff of what mission creep is made. It is another voice for open-ended populism.
I think that Rodrik’s approach is similarly mistaken from a moral perspective. Any policy proposal is ultimately based on normative values. Free trade, based on “capitalist acts between consenting adults” (to borrow from Robert Nozick) and on the individual’s liberty to make his own bargains, is certainly easier to defend. As Anthony de Jasay would say, this idea “demands far less of our moral credulity.”
Readings
- Against Politics: On Government, Anarchy, and Order, by Anthony de Jasay. Routledge, 1997.
- Anarchy, State, and Utopia, by Robert Nozick. Basic Books, 1974.
- Death by China, by Peter Navarro and Greg Auty. Pearson, 2011.
- The Fatal Conceit: The Errors of Socialism, by Friedrich Hayek. University of Chicago Press, 1988.
- “What Should Trade Negotiators Negotiate About? A Review Essay,” by Paul R. Krugman. Available online at http://web.mit.edu/krugman/www/negot.html.
