Alternatives to Globalization

Economists have a habit of looking at countries' trade policies and scratching their heads. What on earth are all those tariffs and subsidies doing? Not only do they make the world worse off in aggregate, but they even make any given country worse off on a unilateral basis. If Country X were to simply abolish all its tarifs and subsidies tomorrow, we often hear, its economy would grow by some impressive amount. To be sure, there would be pain in the industries currently protected by tariffs and subsidies. But the overall gain to consumers from cheaper imports and higher growth would outweigh it. At this point, the name David Ricardo invariably pops up, and non-economists' minds start going blank.

But it turns out that there might be a good reason why a vast number of people from John Edwards to Lou Dobbs seem to be convinced that such economists just don't get it. Clive Crook explains, as excerpted by Dani Rodrik:

The connection between globalisation and middle-class stress is by now a commonplace. Mr Scheve and Mr Slaughter have taken it one step further by designing a policy that links them explicitly. Their approach seems sensible enough, until you think about it. Globalisation is not an end in itself. If it is failing to raise living standards for the great mass of the public, as the authors suppose, why rescue it in the first place? If you were running for office, you might wonder, why not promise more redistribution, if that is good for most Americans, together with less globalisation, if that is also good for most Americans? Many in Congress have exactly this combination in mind.

Crook, of course, good Davos Man that he is, does not sign on to such heresies. (Hence the "until you think about it" dig.) And Rodrik tries to explain to Crook why the idea is not as silly as Crook thinks it is. But in an important sense it doesn't matter who's right, on some empirical level. What matters is that the standard neoliberal response to globalization ("it's a good thing, and we should make sure to provide help to the losers") has a strong retort ("if there are so many losers, why embrace globalization in the first place?") – and that voters, in a democracy, should at least be presented with a debate on such crucial issues.

In many countries, voters aren't given the choice. John Lloyd reports that UK prime minister Gordon Brown is about as mainstream a neoliberal as you can get (it bears remembering that Brown's political opponents are all to his right):

His favourite book on globalisation is the 2004 Why Globalization Works by the FT's Martin Wolf. Wolf's book is an exacting statement of the case for globalisation and an endorsement of its benign effects on the poor. That view is shared by another favourite Brown author, US-based economist Jagdish Bhagwati, whose strictures against the anti-globalisation movement are even harsher than Wolf's. Brown is not known to take much interest in those authors—for example David Held at the LSE—who have tried to work out a distinctively social democratic approach to globalisation.

In France, by contrast, the recent Sego-Sarko campaign was very much a fight between two opposing views of whether and how the global economic system is working. Such debates are healthy, and it's a pity that the heterodox positions are generally taken by populists who don't spend too much time explaining that they're against increased GDP if it means lower wages, less job security, and higher unemployment for the majority of citizens.

My gut feeling is that Crook and Brown and Wolf are right – and that the middle classes do actually benefit from higher economic growth caused by globalization. But I also think that Rodrik is right that the evidence for such a claim is on the weak side. The problem, of course, is that tariffs and subsidies are a really bad and inefficient way of fighting the ill effects of globalization. There are major downsides to globalization, but it increasingly seems as though fighting it is worse than futile: it's actually counterproductive.