March 19, 2008: A moment with...
Dani Rodrik *81 *85
For several decades, developing nations have been advised to liberalize their economies and embrace free trade to speed up their economic development. But in a new book, One Economics, Many Recipes: Globalization, Institutions, and Economic Growth (Princeton University Press), Dani Rodrik *81 *85 challenges the assumption that free trade necessarily sparks economic development. Extending Rodrik’s culinary theme in a review, Nobel laureate George Akerlof wrote that the book “does for economic development what Julia Child did for French cooking. Child taught would-be cooks how to be excellent chefs. Dani Rodrik teaches economists and policy planners how to construct successful, sustainable development programs.” Rodrik, the Rafiq Hariri Professor of International Political Economy at Harvard’s John F. Kennedy School of Government, recently spoke to PAW’s Mark F. Bernstein ’83.
You wrote a paper last fall titled, “How to Save Globalization from its Cheerleaders.” Who are the cheerleaders, and how do we save globalization from them?
The cheerleaders are a lot of my economist colleagues, I’m afraid. I try to make economists respect the concerns held by the so-called person on the street, which economists tend to pooh-pooh as selfish grumbling. At this point, pushing single-mindedly for more liberalized trade and more financial globalization will exacerbate risks but get us very few rewards.
Has trade liberalization been a good thing?
On the whole, it has been a good thing. But it is also quite clear that there are significant parts of the population that have not benefited from globalization and feel ill at ease with the loss of control over the outcomes that shape their lives.
Should the United States continue to extend free trade?
Expanding regional trade agreements on the NAFTA model is largely at a dead end. And NAFTA really was small potatoes for the United States. The burdens were not as bad as some have made out. If you were a worker in a TV plant or an auto-assembly plant that got outsourced to Mexico, you probably did get displaced, but the numbers really aren’t all that huge. On the other hand, the benefits of NAFTA were also oversold by a bunch of think-tank economists who made up numbers on what a big deal NAFTA would be for the United States.
How much has trade liberalization contributed to China’s growth?
China has taken full advantage of globalization while marching to its own drummer. It has done all kinds of things it would not have been able to do if it had been bound by World Trade Organization rules or if it had listened to North American economists about the right way to reform. I think China is a case that shows you must act in a pragmatic way to diversify your economy and empower your producers, rather than just leave everything to the market.
What should American trade policy be toward China?
This is as much a question of what the Chinese policy should be toward the United States. The degree of interdependence now is such that one hopes these differences will be resolved multilaterally rather than unilaterally. You need to balance the needs of each economy. China needs to keep growing because it has a very fragile underlying social infrastructure. The United States needs to reconstruct its domestic social bargain, which has frayed a lot because of globalization.
Which social bargain is that?
If you go back to the 1950s and ’60s, the bargain was that workers would support a fairly free-market-oriented set of policies that would then produce the kind of productivity growth in the economy in which they would be full participants. But that is not what has been happening over the last quarter-century. There has been widening income inequality, along with a sense of increased risk and uncertainties. Then you add a layer of unease with respect to whether the rules are being made by our elected representatives or by trade negotiators in Geneva.
In general, what should American trade strategy be?
We need to stop pushing so hard to drive down trade barriers that are already lower than they have ever been in history, and instead spend our political capital on trying to design room for countries to follow their own domestic economic priorities, but to do so without imposing significant costs on other countries.
What would be the cost of not following such a strategy?
The danger is that the backlash against free trade will be so severe that it may be too difficult to maintain what we have. It is quite astounding what a bad word “globalization” has become in the United States. The number of people who think that globalization has not benefited them has increased significantly.