Rodrik claims that he is looking for “a better balance” in trade debates. He defines his own “trilemma”: “It is impossible,” he writes, “to have hyperglobalization, democracy, and national sovereignty all at once; we can have at most two out of three.” In his mind, democracy and national sovereignty forestall hyperglobalization. Democracy and hyperglobalization prevent national sovereignty. And hyperglobalization and national sovereignty—well, those two are simply antithetical. So the trilemma is not perfect—but he did write “at most,” and you get the message.
Where he uses the prefix “hyper” is revealing. He also could have claimed that it’s impossible to have globalization, hyperdemocracy, and national sovereignty; or globalization, democracy, and hyper-national-sovereignty. But globalization is his focus—and his villain.
For Rodrik, free trade requires political integration among trading partners. But this is not true. It is perfectly possible for two citizens of two sovereign nations to trade freely with one another provided only that they are not forbidden to do so by their respective governments. As Paul Krugman has argued persuasively, each national government can still regulate as it wishes, tweaking comparative advantages but not killing free trade. In fact, it suffices that your government allows you to trade freely (that is, unilateral free trade) for your side of free trade to work. No political integration or world governance is required for that, nor is it necessarily desirable.
It is true, though, that the more free trade there is, the more difficult it is for a national government to have broad control of the nation’s economy. That is a feature, not a bug. But as we will see, broad government control is what Rodrik wants.
Strange arguments / The author of Straight Talk on Trade does not see the difference between freedom and coercion. One of his memorable sentences is, “Globalization’s rules should not force Americans or Europeans to consume goods that are produced in ways that most citizens in those countries find unacceptable.” The sentence seems to mean that international trade rules should not allow some Americans (say) to consume goods from other countries with different labor and environmental regulations if many other Americans oppose that. In Rodrik’s mind, allowing individual Americans to do so is the same as forcing them to do so.
He often seems to fumble basic economic concepts. For instance, in wondering if developing countries will have anything to export as they become innovative and rich, he forgets that comparative advantage depends on the ratio of domestic costs, and that as long as these ratios are not the same, international exchange is beneficial for all sides. In speaking about the big winners from trade, he ignores the consumers. He often sees the mote of market failures, but not the beam of government failures. To be fair to him, he sometimes recognizes the latter—but as we’ll see, he overlooks them when their existence proves inconvenient.
Rodrik does discuss public choice analysis, which he refers to as “rational-choice political economy.” But he also claims that politics “aggregates a society’s risk preferences.” He thus ignores that the aggregation of preferences is a major problem that requires either incoherent or imposed preferences, as Kenneth Arrow demonstrated in 1951. He also ignores that a voter acts rationally when he votes his ideology instead of his interests, because his single vote will not change the results of the election and therefore will do nothing for his interests.
He is obsessed with manufacturing and public investment, as government planners were six decades ago. He thinks like these planners, calculating productivity and constructing future growth paths. Rodrik advocates a “green industrial policy” and “institutional engineering.” In passing, he gives a little hat tip to Bolivian president Evo Morales, who infamously argued that he had a human right to run for a third presidential term despite what the Bolivian constitution declared and what a referendum confirmed. The fact that development of poor countries did not take off until their governments released their grip does not persuade Rodrik.
Sometimes his logic is fragile or his rhetoric fuzzy. He criticizes current “free-trade agreements” (he himself puts the term into quotation marks) as containing too little free trade, but proposes to make them even less free-trade. He seems to blame businesses for “taking advantage of government subsidies abroad,” but accepts domestic subsidies—as if stealing from fellow citizens is morally superior to accepting gifts from foreign taxpayers.
His memory is sometimes selective. Discussing the role of the state in the Great Recession, he sees only a savior. He forgets that mortgage-backed securities—the financial instrument at the center of the crisis—had been introduced by Ginnie Mae, a federal agency created by Congress for this purpose in 1968. Rodrick sees malignant deregulation everywhere, even though interventionist regulation has been growing nearly non-stop since 1960 at least. (See “A Slow-Motion Collapse,” Winter 2014–2015.) Does he ignore that before last decade’s recession, the New York Fed had hundreds of regulating bureaucrats working onsite at large banks?
In a few astonishing pages of Chapter 5, he seems to argue in favor of 18th century mercantilism over free trade. He recognizes that mercantilism takes the side of the producer against the consumer and that it “offers a corporatist vision.” Yet, he seems to view mercantilism-corporatism as preferable to “the liberal approach”—here taking “liberal” in its classical liberal sense, contrary to what he usually does.
Strange ideology / How can we explain all these quirks, inconsistencies, and errors from an intelligent economist?
I see only one satisfactory explanation. Since the heydays of welfare economics, economists have known that public policy recommendations and evaluations—which are Rodrik’s bread and butter—require that ethical judgments be superimposed on economic analysis. Ideally, these normative values should be clearly identified and should not interfere with the economic analysis proper. This is not always easy to do, and Rodrik proves it.
So what are his normative values? They are very different from the ones that inspire free-trade economists, which are based on consumer sovereignty and economic freedom. He accuses economists of being influenced by their moral values when defending free-trade, but he commits the same transgression in his criticisms of free trade.
What are Rodrik’s values? He usefully distinguishes between mere “majority rule” and “liberal democracy.” However, this “liberal” is not the classical liberal label. It seems to mean anything that conforms to his own preferences as a “progressive” who believes in “social justice,” “social inclusion,” “social purpose,” and “societal welfare” (whatever “societal” means as opposed to the standard term “social”). “Climate change” is another of his concerns. No wonder that he had his social and inclusive feathers ruffled by Donald Trump’s democratic election.
In reality, Rodrik is not so different from Trump or Bernie Sanders. All three oppose “market fundamentalism” and favor “fair trade.” “What makes a populist like Donald Trump dangerous,” he writes, “is not his specific proposals on trade. It is the nativist, illiberal platform on which he seems to govern.” That is, the problem is Trump’s motivation, not his intended results.
Returning to Rodrik’s concerns that some Americans will import foreign goods that challenge his values, he refers to such imports pejoratively as “social dumping.” He idealizes democracy and “democratic deliberation,” apparently unaware of voters’ rational ignorance and the irrationality of their decisions. “Democratic politics is messy and does not always get it ‘right,’ ” he admits. “But when we have to trade off different values and interests, there is nothing else on which to rely.” Nothing else? Has he ever heard about private property and the market as a means to reconcile “different values and interests”?
“Markets,” he says, “require other social institutions.” Of course. And other institutions require other institutions. But the question is, do these institutions include Leviathan? He thinks so. Leviathan incarnates collectivist shibboleths like the “national interest,” “social goals,” “societal demands,” and so forth.
For Rodrik, everything is political and must be decided by the collective—that is, a progressive majority that thinks like he does. To be fair, he does recognize that majoritarian democracy must be restrained, but what is to be restrained is not so much political power as its capacity to produce results that he doesn’t like.
He writes of capital controls (regulating how a state’s own citizens may use their money abroad) that they “may need to be blunt and comprehensive rather than surgical and targeted.” And he compares them to gun control: they must cover all citizens as opposed to only controlling “problematic behavior.” Who will doubt that the author of Straight Talk on Trade is a good, card-carrying progressive?
Member of the failed establishment / It seems that Rodrik only thinks of problems in terms of intervention by some authority. In his mind, the only alternative is between two sorts of authoritarianism: a good one run by leftists and a bad one run by the right. The libertarian notion that authoritarianism should be avoided never seems to cross his mind.
Although he portrays himself as a dissenter against “the establishment,” “the elites,” and “the reigning market fundamentalist ideology,” Rodrik is a good representative of the privileged few who have ruled America and most Western countries since the 1960s: half-capitalist and half-socialist, half-populist and half-elitist, half-democratic and half-authoritarian, half-free-trade and half-fair-trade, half-postmodern and half-moralizing, half-bourgeois and half-punk. Such folks have spent more than a half-century burdening people with a dense network of regulation and surveillance, continually bossing ordinary people around, and pragmatically building a half-police-state. How was that different from the “case-by-case, hard-headed pragmatism” that Rodrik advocates?
Contrary to what he claims, it is not free-traders who have provoked the populist reaction, but the privileged class of which he is himself a member. It is because of people like him that populist and protectionist Trump was elected.
Political wonderland / To be a progressive whose heart bleeds both for inequality at home and poverty in the world must be stressful. Rodrik invents a political wonderland where both problems disappear through the magic of protectionism and dirigisme. But, of course, the correct side must rule:
A crucial difference between the right and the left is that the right thrives on deepening divisions in society—“us” versus “them”—while the left, when successful, overcomes these cleavages through reforms that bridge them.
He is right about the danger from the right, but he is totally blind to the symmetric danger from the left. Both sides are inclusive, it’s just that they don’t include the same people. The Harvard professor defends the nation-state because, at the international level, “we do not agree” on values and tradeoffs. He does not seem to realize that “we” don’t agree at the national level either; witness the outcome of the last presidential election. He does not understand that “live and let live” is the only peaceful solution.
Rodrik also wants voters to be “globally aware and environmentally conscious,” and the state to be perfect, and he has a bridge to sell you in New Jersey.
What does all that mean for international trade? His argument against free trade is basically the following: The democracy I like is incompatible with hyperglobalization, so let’s have less free trade. He defends the old nation-state because that’s where the Leviathan he wants can dwell. The state should be free to impose on its subjects what the majority has decided. Imports and capital flows can interfere with this, so let’s limit those. Less freedom of trade would give all governments more “policy space”—which, Rodrik strangely claims, would fight poverty, inequality, and exclusion.
The state must be free to intervene. Approvingly quoted by Rodrik, Franklin D. Roosevelt said, “Above all, try something.” Just don’t do that individually.
Besides all the problems I have mentioned, Straight Talk on Trade is a loose patchwork of stuff already published elsewhere. Many statements lend themselves to different interpretations, on a spectrum that goes from the soft establishment up to the near-chavismo. Of course, there is always something to learn anywhere. With some books, though, the cost is higher than the benefit.
