The Free-Trade Malaise

People rarely change their minds. They stick to their positions and invariably interpret new evidence in ways that confirm their prior inklings. Not only does the gut usually win out over the mind, it enlists the mind in its victories: lab experiments suggest that the more knowledgeable people are about an issue, the less likely they are to update their beliefs when faced with conflicting evidence. They have more resources to draw on to convince themselves they were right all along. Which is why, when knowledgeable people do change their minds, it’s worth paying attention.

In his recent book, Dani Rodrik, an economics professor at Harvard, does just that, quietly shifting his view on a question that has been central to his career. Nearly twenty years ago, for a special millennium issue of the Journal of Economic Perspectives, Rodrik was asked to predict how far global integration would go over the next century, and what form it might take. In response, he produced what may go down as his best-known idea: the globalization trilemma. Like all great ideas, it is at once intuitive and unsettling. Rodrik argues you can have any two of the following three things: fuller economic integration, democratic representation, and the nation-state—but not all three at once. If the world chooses to capture more of the gains from economic integration, say, by signing a series of ambitious trade and investment agreements, it must necessarily cede a bit of either the ability to respond to citizens’ demands in democratic fashion (say, on a minimum wage), or the preservation of the state as the locus of politics. At the limit, if we wanted full economic integration—an outcome which, it’s worth noting, has never once come close to arising in modern history—we would either end up in a type of golden straitjacket in which governments simply hew to market demands, or the nation-state would cease to be the relevant unit in global politics, and we’d arrive at some variant of global federalism.

At the time, Rodrik put his money on that last outcome. Over the next century, he speculated, global integration would continue apace, and the nation-state would lose its formal relevance. The democratic process would remain, but it would increasingly be transposed onto a global scale. Labour, environmental, and public health activists would continue to check the interests of exporters and multinational corporations, but all these groups would agree that they were best served by a common set of supranational rules, rather than conflicting sovereign ones. Rodrik was betting on global federalism because, as he conceded, it was also his preferred scenario. And while predictions are quickly tweaked, ideals usually aren’t.

Yet in Rodrik’s most recent book, Straight Talk on Trade: Ideas for a Sane World Economy, global federalism gets no mention. Instead, we’re told about the “false promise” of global governance—the term more commonly used today—and that “the best way in which nations can serve the global good…is by putting their own economic houses in order.” Rodrik now claims that the economy is not truly a global commons, the way the ozone layer or the oceans are, and that the economic problems of our day have little to do with a lack of global cooperation. In an era of “America First,” where the U.S. imposes high tariffs on its trade partners under the pretence of “national security,” this makes for jarring reading, coming as it does from a worldly, left-leaning economist. In this new telling, the nation-state has unique legitimacy, and any attempt to transpose decision-making onto the global level will backfire.

That initial hope in global governance and its recent rejection have a common origin in this case: the European Union. The EU is both the most ambitious bout of international integration ever attempted, and a perfect illustration of the trilemma. Its great achievement is the unprecedented creation of the European single market. But, as the Greek fiscal crisis has revealed, the EU is far from a unified democratic entity. Its supranational bodies are not meaningfully elected, and they allow a country like Germany to impose its preferred remedy of austerity on the Greeks, under the guise of a morality play where responsible Germans would be left to pick up the tab for Greek profligacy. All of which has contributed to Greece shedding a fourth of its economy since 2009. Germany never had to internalize those costs, because while the EU is a prime example of economic integration, it features no real political integration—or fiscal integration, for that matter. As long as that’s the case, cracks will appear in the union. Political constituencies in either Germany or Greece will push back. And recently, that pushback has taken the form of far right-wing nationalism. All this in what should have been the most likely setting for success: 28 neighbouring, relatively culturally homogeneous countries, united by a deep common interest in avoiding a return to centuries of warfare by tying their fates to one another. If democratic supranational politics couldn’t function here, its prognosis anywhere else seems unfavourable.

https://reviewcanada.ca/magazine/2018/03/the-free-trade-malaise/