Thursday, October 13, 2011

#OWS & Dani Rodrick Agree: Free Trade/Free Market Fundamentalists Are Fanatical Dumbasses

The revolution has begun, see it here.

The oligarchs & plutocrats, of course, don't like it one bit, and have unleashed their hounds in Congress to criticize the protesters' perceived lack of message clarity.  "Class Warfare!" they bray at the moon... hoping to distract us all from the subtle but pervasive class warfare that conservatives & laissez-faire free market fundamentalists have been engaging in for at least the last 30 years.

Their feigned indignation & superficial critique is hypocritical, disingenuous nonsense, of course.  But, it has had its effect: beyond red meat for blinkered true believers, it has served to further occlude confused, wooly-headed centrists who might otherwise wake up to the realities of what conservative ideology has wrought.

So, I offer a nugget from Dani Rodrick to dispell the fog. 

At least as far back as 2001, Rodrick - a professor of international political economy at Harvard University - has been writing about the failed promises of so-called free trade policies (e.g., here).  More recently, in his latest book "The Globalization Paradox", Rodrick makes the forceful point that:
... open markets succeed only when embedded within social, legal and political institutions that provide them legitimacy by ensuring that the benefits of capitalism are broadly shared.
And THAT is the message that OWS has been sending, loudly and clearly.

In his review of Rodrick's book, Steven Pearlstein gets it right:

It is dogma among economists and right-thinking members of the political and business elite that globalization is good and more of it is even better. That is why they invariably view anyone who dissents from this orthodoxy as either ignorant of the logic of comparative advantage or selfishly protectionist.

But what if it turns out that globalization is more of a boon to the members of the global elite than it is to the average Jose?
What if most of the benefits of the free flow of goods and capital across borders have already been realized, and any gains from additional globalization will be outweighed by the additional costs in terms of unemployment, reduced wages, lost pensions and depopulated communities?
What if global markets, to be widely beneficial, require the kind of global governance structure that does not yet exist and that most people would oppose?
What if it turns out that the countries that have benefited most from free-market globalization are not those that have embraced it wholeheartedly, but those that have adopted parts of it selectively?
In answer, Pearlstein digests & regurgitates Rodrick's thesis thusly:
Defenders of globalization have always noted that the richest countries tend to be those most open to the rest of the world in terms of trade and investment. Rodrik goes a step further by noting that the most open countries are also the ones with the biggest governments, the most extensive and effective regulation, and the widest social safety nets.
The reasons for that should be obvious, says Rodrik. Globalization, by its very nature, is disruptive - it rearranges where and how work is done and where and how profits are made. Things that are disruptive, of course, are destabilizing and create large pools of winners and losers. Any society, but particularly democratic societies, will tolerate such disruption only if there is confidence that the process is fair and broadly beneficial. That's where government comes in: Markets and government, Rodrik asserts, are "complements."
And there it is:  the Delphic Optimalist concept of BALANCE.

I do not hate capitalism, and I do not sbelieve that ALL free market policies are always utterly devoid of any value whatsoever.  But, the pendulum has swung too far - to the right - for too long, and capitalism is in danger of committing suicide.  It needs to be saved from itself.

But I digress... Pearlstein continues:
As Rodrik sees it, globalization began to run off the rails when it got hijacked by the notion that any restrictions on the flow of goods or capital across borders would result in great sacrifice to efficiency and economic growth. Not only was this free-market ideology imposed by the United States on developing countries through the interventions of the World Bank and the International Monetary Fund, but it was also imposed on the United States itself through a succession of free-trade treaties, the deregulation of finance and the retreat from any semblance of industrial policy.
The irony, Rodrik notes, is that the countries that experienced the greatest growth during the heyday of the "Washington consensus" were Japan, China, South Korea and India, which never embraced it. For years, they had nurtured, protected and subsidized key industries before subjecting them to foreign competition. They had closely controlled the allocation of capital and the flow of capital across their borders. And they flagrantly manipulated their currency and maintained formal and informal barriers to imports. Does anyone, he asks, really think that these countries would be better off today if they had played the game, instead, by the Washington rules?
The paradox, as Rodrik sees it, is that globalization will work for everyone only if all countries abide by the same set of rules, hammered out and enforced by some form of technocratic global government. The reality is, however, that most countries are unwilling to give up their sovereignty, their distinctive institutions and their freedom to manage their economies in their own best interests. Not China. Not India. Not the members of the European Union, as they are now discovering. Not even the United States.
In the real world, argues Rodrik, there is a fundamental incompatibility between hyper-globalization on the one hand and democracy and national sovereignty on the other.
But, what to do about it?

There is, of course, no simple solution.  If there were, we would have already implemented it - howling conservativism notwithstanding - and there would be no OWS movement.  Rodrick himself struggles to come up with a new framework for Global Capitalism 3.0.

But here's a few places to start thinking about making it work for the good ol' U.S. of A.:
  1. Nurture, protect and subsidize key industries before subjecting them to foreign competition.
    • Green Energy, among others... Obama's mistake with Solyndra was not [necessarily] the investment decision, per se, but rather the failure to recognize - and then provide - what is needed to provide adequate protection from Chinese competition.
  2. More closely control the allocation of capital and the flow of capital across our borders.
    • Clearly, The Wall Street casino & the shadow banking industry underwrote & executed an enormous misallocation of capital in the last decade [if not longer]:  the Housing Bubble, and before that the Tech Bubble [and before that, the Asian Currency Crisis].  Dodd-Frank is only a start at what is needed to ensure that our financial institutions direct affordable capital towards productive projects that actually grow the real economy, not engage in speculative Ponzi finance.
    • A Financial Transactions Tax - in this case, including on FX currency transactions, as well as investments in other instruments - would not only raise badly needed revenue [to fund TBTF oversight/resolution authority, pay down national debt, and fund redistributional programs aimed at mitigating inequality], but would also throw some badly needed 'sand in the gears' of the hyperspeed, high volume global financial trading activity.
    • Minimum stay requirements might be a good idea, too, to prevent unwanted sudden inflows & outflows of foreign capital during global finacial market meltdowns.
    • A moajor re-write of the tax code on foreign corporate earnings is in order, particulalrly in terms of the complicated transfers of intellectual property that allow large MNCs to avoid much [sometimes all] of their fair share responsibility (while encouraging offshoring of US jobs).
  3. Give up on our long-standing "strong dollar" currency policy, and allow it to gradually depreciate against other major currencies.
    • Letting the dollar devalue would be the fastest way to turn around the chronic US current account imbalance... albeit at the risk of rising inflation, esp. in re: commodity prices (oil).
      • A real commitment to a sustainable, long-term Energy Independence program is thus a necessary corrolary to dollar devaluation.
  4. Maintain formal and informal barriers to imports, and seek ways to affordably & efficiently subsidize exports.
    • Selective tarriffs, especially targeted to mitigate unfair trade practices ~ even if not recognized as such by the WTO ~ would help restore domestic competitivenes while we seek to re-build our manufacturing base.

 None of which will be easy, particularly given the US dollar as the global reserve currency.  But the rest of the world - particularly China & her BRIC brethren - has not played 'fair', and we have done virtually nothing about it.  How long do we just sit there and take it? 

The free trade fundamentalists rub their hands and worry that we'll ignite a trade war, so they insist we remain passive.  So much for American exceptionalism, eh?

1 comment:

  1. There's that "balance" thing again, the holy grail of us delphic Optimalists. Even Mark Thoma & Nouriel Roubini are getting into the act now: