For a century, economists have driven forward the cause of globalization in financial institutions, labour markets, and trade. Yet there have been consistent warning signs that a global economy and free trade might not always be advantageous. Where are the pressure points? What could be done about them? Kate Saffin finds that Dani Rodrik’s latest book represents another valuable contribution to future debate and research on globalization and the financial crisis.
The Globalization Paradox: Why Global Markets, States, and Democracy Can’t Coexist. Dani Rodrik. Oxford University Press. March 2011.
Dani Rodrik is Professor of Political Economy at Harvard University and has been a vocal critic for over a decade of what he sees as the unbridled tide of globalisation present in today’s worldwide economy. Rodrik’s 1997 book Has Globalization Gone Too Far? was hailed as one of the best economics books of that decade by Business Week, and was a forerunner to The Globalisation Paradox, in which Rodrik sets out the perils of financial globalization without any constraints, as he says perfectly evidenced by the most recent financial crisis and the rapid domino effect that it had around the world.
He cautions that the crisis was predictable and that economists – both academic and practising – became blind to obvious pitfalls because they believed too strongly in their own invented narrative: “markets are efficient, financial innovation transfers risk to those best able to bear it, self-regulation works best, and government intervention is ineffective and harmful”.
Rodrik believes in the power of globalisation to lift millions out of poverty and create widespread good but only if it is done more thoughtfully. The paradox is essentially that in order for globalisation to bring proper economic benefits that are broadly distributed throughout society, national democracies need to be strengthened and international rules need to be in place, that protect all players, whilst still allowing for manoeuvrability and enterprise. This is in contrast to the oft-cited doctrine that the true powers of globalisation can only be harnessed when there is a complete free flow of capital with minimal regulation.
The author sees globalisation as a problem of triangulation. He sets out his trilemma: “we cannot simultaneously pursue democracy, national determination and economic globalisation”. He states that one of these three has to give if the others are to be pursued.
Rodrik starts by looking back. He reminds us that after the Asian financial crisis of 1997 a lot of the analyses told us that, “it is dangerous for a government to try to hold on to the value of its currency when financial capital is free to move in and out of a country”. Rodrik then takes us further to the collapse of the Gold standard era, the post-war Bretton Woods regime and the Washington consensus, and the political discourses that shaped their aftermath and the opening up of the markets in the latter part of the last century, and what roles institutions like the IMF, the WTO, and the World Bank have played in this.
Rodrik sets out that the rights of democracies to protect their own social arrangements should out-trump the requirements of the global economy. If this means that markets should be prevented from over-expanding because in doing so they impinge upon national well-being, so be it.
Rodrik points to countries such as India and China and their sophisticated take on globalization. They have prospered, he argues, by not being dependent on international finance in the era of globalisation, but rather by being selective in which part of the deal they took up; they lent money to rich nations in preference to borrowing, and pursued mixed strategies with strong state intervention and regulation with clearly defined goals for their own societies. He particularly references Latin American countries, who have not had such policies and have fallen victim to the downsides of globalisation.
So what does Rodrik argue for instead? The principles of greater governance, and a more thoughtful balance between markets and institutions are easy to understand. He recognises though that achieving global levels of governance with institutions that reach out of nation states is hard to imagine in the current world picture of wildly varying countries, with contrasting infrastructures, societies and values. What he asks for first is a new narrative, one that looks at fairness and sustainability as well as growth, and has a truly global outlook that allows for individual countries to make their own financial arrangements and models, but within a multinational framework of governance and regulation. He believes that achieving such lofty goals is possible and can avert future crises.
The book is excellently set out and deals with complex issues in a highly readable and easy to understand way, with entertaining and historical facts and anecdotes, making it accessible to any reader. Rodrik’s research to date has looked at what makes up good economic policy, and what the barriers are to achieving it, by studying countries in depth and making valuable international comparisons. In The Globalisation Paradox he may not have all the answers and it is unclear if his ideas are equally as applicable to countries in different stages of development, but he has made another valuable contribution to future debate and research.
Dr Kate Saffin has worked as a medical doctor in London, Sydney and Paris and is a qualified General Practitioner. Most recently she completed the Masters in Public Health at King’s College London and has subsequently worked for a think tank and as a freelance researcher in public and health policy. Her research interests lie in international development and the intersections between health, the environment, economics and politics. Read reviews by Kate.
I have the benifit of the review of the book with title which succinctly pose the issue: challenges faced by economic globalisation from existing political institutions and the ideas underlying the institutions.
The author seems to think the incompatibility or rather incoherency of democracy,nationalism, globalism in the context of reach of technology led economic market globalisation and for the free flow of capital and labor for efficient global market competition.
I disagree with such view.
Take history as guide How the human institions underwent progressive reform process for growth and development.the relationship of technology economics and politics and law is finely woven. The prices and price competition and the incomes,profits and wealth accumulation does not operate in vacume but in an organised societies where rights and remedies in law or custom is recognised. When technology changes be it state regulation,as a result of arts or sciences the relationships of production and distribution values and entitlements of revenues out of prices earned changes and this process more times than demand changes in political and social relationships including institutions to fecilitate growth and fair compete ton. The small societies merge into lager territial societes like modern merger and aquisitions in companies for effecieny reasons take place in societies also and that process is what we see the modern nation states arising out of old tribal or local autonomous socities.
glaring examples are USA,Australia,Canada India,Germany and such process is dynamic though appears to be static at a given point of time.
The forms of government may vary but sinoceousism is a process .
individual liberties and social control is a sinequanon for an orderly social growth and proved in history.
Man is a social animal.he can fulfil his basic necessities only in societies and his existence in society requires rights and duties corresponding to his role in social division of labor and functions.
Now the question is what are his rights and duties and remedies in a societies integrated to economically globalised social division of labor and employments.? His right to enter in any business transaction or other contractual rights in cross border and what legal remedies he is conferred to enforce his rights in cases of such contracts and whether the existing political and legal ideas effective?
In economic relationships of exchange of goods and services for price the free consent with full information and freedom of contract and valid consideration is assumed to be protected by legal regime for effective markets competit ion. In global markets operated on sovereign national territories this could not be effectively enforced.we need a global remedy to any affected person and there is a demand for such reform in the interests of globalisation.
Does nationalism is incompatible with political globalism and global democracy.we have the time tested ideas of federalism protecting local identity and autonomy with global rights,duties and remedies. Reform the UN security council on global democratic electoral basis as executive council of six members for six continents with rotating seventh member as annual presidency to prevent any untoward tyranny and as separation of powers theory may found with existing general assembly members and ICJ to democratically elected legislative and judicial bodies.
It may look as difficult but history proved that if fair and equitable distribution of powers for just and equtable rights of all are devised for the preservation of global federal democracy with independent judicial to protect and supervise the constitional arrangement we may remove many existing irritants to to global economy and polity.
They are some ideas to prevent conflicting global situations between economic and political rights and interests for global peace and good governance and some suppementing ideas to the debate.