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Freedom and the Global Economy

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Freedom and the Global Economy

Economist Dani Rodrik tries to reconcile economic and political liberties. April 15, 2011

The Globalization Paradox: Democracy and the Future of the World Economy, by Dani Rodrik (Norton, 368 pp., $26.95)

Irving Kristol famously defined a neoconservative as a liberal mugged by reality; Harvard professor Dani Rodrik seems more like a liberal mugged by globalization. Like any economist, he likes growth, but he likes democracy more, and his work has often tried to define the relation between those two goods. That task hasn’t been easy, since some nations’ economies grow under authoritarian regimes, like Chile’s under Pinochet, while some democracies don’t promote growth—as was the case in India until 1991, when the country abandoned socialism. As for the reverse effect, Rodrik concedes that economic growth doesn’t necessarily lead to democracy, as both Singapore and China show today. In the 1980s, when Taiwan and South Korea shifted from authoritarian regimes to democratic governments, some scholars, most prominently Samuel Huntington, argued that economic growth eventually generated political freedom in a kind of deterministic process. Rodrik isn’t so sure.

In his new book, The Globalization Paradox, Rodrik tries to devise a middle way between what he calls “hyperglobalization” and democracy. Rodrik does not dispute the well-documented fact that globalization has been a fantastic source of growth for poor and wealthy nations alike. Yet he believes that beyond a certain threshold globalization does more harm than good and becomes hyperglobalization. Consider the global market in cotton, which remains somewhat regulated, preventing entirely unrestricted global free trade. This protectionism, Rodrik writes, covers no more than 5 percent of global cotton production. Liberating the still-regulated portion of the market would have only a marginal impact on the planet’s economic well-being—“a supplement,” he writes, “of 5 percent income for the West African cotton growers”—while doing substantial harm to American farmers. Yet the World Trade Organization is considering lifting the remaining restrictions for the insignificant economic benefit of going from global to hyperglobal.

The WTO has proved unable to reach its desired pinnacle of hyperglobalization, Rodrik argues, because of nations’ democratic (and therefore legitimate) resistance. Citing surveys, he explains that people all over the world see themselves as citizens of their nations first and as global citizens second. Only the so-called “globalized elites,” says Rodrik, prefer globalization, because they draw more benefits from it. This easy shot at the cosmopolitan elites is not always grounded in reality: Rodrik fails to acknowledge that many elites turn protectionist when their business interests are threatened. And further, the non-elites—whether consumers at Walmart or at shopping malls—are the daily beneficiaries of cheap imported goods. Rodrik seems on more solid ground when he writes that most people accept globalization, at least implicitly, but oppose hyperglobalization.

Unfortunately, Rodrik never clearly defines the distinction between the two; he only claims that it is a line that most won’t cross. In Rodrik’s worldview, a balance should be struck between the economic benefits of globalization and the political (perhaps even metaphysical) superiority of democracy. To illustrate his somewhat abstract theory, Rodrik proposes a new approach to the Chinese currency conundrum. Let us assume, as he does, that the Chinese will never accept an increase in the value of the yuan because they need its undervaluation to sustain a high economic growth rate. On the other hand, the United States cannot tolerate Chinese currency manipulation forever. Rodrik suggests a solution that would satisfy, he thinks, all parties: let the Chinese have their own domestic industrial policy, regardless of intrusive WTO rules. As a counterpart, the Chinese would let the yuan float on the global currency market.

Rodrik’s trade-off may look astute, but he ignores a crucial fact: the Chinese government is not ready to accept the convertibility of the yuan because doing so would allow Chinese citizens to buy foreign currencies and to invest abroad—a freedom that the Chinese government refuses to grant its people. Rodrik’s idealism clashes here, as it often does, with the harsh realities of nondemocratic regimes. Rodrik’s idealism also blinds him to the imperfections of democratic states. For example, when he writes that strong states make strong markets, he overlooks the different forms that states can take. It’s true that without a state, there is no rule of law and no free market; it’s also true that more states suppress the free market than support it.

What if a global democratic government were elected and were in a position to impose a more legitimate form of globalization? Rodrik sees no future for global governance. It may be desirable, he writes, but it is not feasible. Even the European Union, the most far-reaching attempt to go beyond national citizenship, is neither terribly democratic nor rational in its decision-making. Moreover, national identity still trumps postnational identity in Europe. Dismissing the idea of a postnational utopia, Rodrik offers a more modest possibility: global standards and information transparency. Globalization is good and legitimate, he says, as long we know what we’re buying and trading for, and under what conditions. American consumers, for example, should be better informed about the origins of what they buy, including the use of child labor or nonunionized workers in the country of origin.

Such transparency might lead to a more enlightened globalization, but it also could disrupt free trade. Rodrik argues that countries should be able to restrict trade—to “opt out”—“when WTO rules threaten to undermine domestic labor and environmental standards.” At this stage, he becomes the perfect apologist for American auto workers’ unions. What kind of cars would we drive today if the United States had “opted out” in the 1980s, arguing that Japanese cars threatened our domestic labor standards? Rodrik’s arguments would not only stop hyperglobalization: they could disrupt normal, “good” globalization as well. Rodrik is also willing to ignore the fact that anti-globalization forces are better organized than are pro-globalization businesses and consumers, who do not constitute themselves as an interest group. This asymmetry plays into the hands of the protectionist camp. Finally, Rodrik fails to acknowledge that citizenship is not the equivalent of democracy. Globalization benefits many workers and consumers in nondemocratic countries, the “enlightened” leaders of which understand the benefits of free trade, even if they don’t bother to consult their citizens.

Eventually, Rodrik is caught in his own dilemma: the relationship between democracy and economic growth is as complex at the global level as it is at the national level. Rodrik espouses the enlightened liberal’s creed: he would like to see growth, globalization, and democracy proceed together, hand in hand. Unfortunately, the dream clashes with reality. It might be more productive to separate these ends. Let us defend globalization, because it has proven to contribute to the wealth of nations, and let us improve domestic regulations and education systems, in order to draw more benefits from a global economy. Eventually, let us also fight for democracy, at home and abroad, as freedom is our goal and free-market economics an indispensable component of that freedom.

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