Should Globalism Be Fixed?

Populist movements call into question the current system of global trade, according to Dani Rodrick, winner of the 2019 Eccles Prize for Economic Writing.

Print this page

It’s all about the rules: who writes them and who benefits. Trade regulations in recent decades have been written by members of an international elite; consequently, those rules have primarily benefitted global behemoths rather than labor and domestic markets, posits Dani Rodrik, who recently won the Eccles Prize for Excellence in Economic Writing for his book “Straight Talk on Trade: Ideas for a Sane World Economy” (2017, Princeton University Press).

“The trade rules reflected in the [policies of the] World Trade Organization, or in many bilateral or regional trade agreements, reflected too much [of] the interest of large firms, international banks, or skilled professionals who saw a lot of benefits from this interconnectedness and global economy,” he noted in an April 2019 talk with dean Glenn Hubbard.

Because these rules favored a small set of individuals and firms, redistribution of wealth often happened under conditions that would be barred in domestic markets, he said. For example, practices that would be unacceptable in many countries—the use of child labor or extreme manufacturing conditions—became a way to compete in a global market.

“A US firm would not be able to hire workers and make them work 14-hour days or pay them low minimum wage, even though that might be a free contract,” Rodrik said. Under current trade rules, Rodrik contends, “it doesn’t matter where comparative advantage comes from. You could exploit workers, you could ravage the environment.”

So what can be done to make global trade more equitable? Is protectionism the answer? Rodrik identified several key factors he feels economists and policymakers should keep in mind as they reevaluate the current state of global trade.

The bias toward an elite global community may undermine a stable system of global trade.

“We need to instill in our business elites a kind of…ruthless cosmopolitanism,” says Rodrik. He argued against the trend of skilled professionals “think[ing] about themselves as essentially part of a global community because they operate on a global scale.” This mindset, and incentives under the current system of trade regulations, don’t compel business leaders to “have tremendous amounts of responsibility or stake in their local community…Nobody can afford to look after their local workforce and their local community, because it’s cutthroat competition out there,” he said.

For workers whose livelihoods are disrupted by global trade, a strong safety net is crucial.

“The best kind of compensation is really the kind of compensation that’s baked into social policy programs” Rodrik says, citing Europe as a place where this is generally done well, with generous safety nets such as unemployment benefits, public healthcare, and affordable education. “It’s one of the reasons trade with low income countries, or China, has not been nearly as politically contentious in Europe as it has been in the United States,” Rodrik noted. Conversely, in the United States, elected officials may promise retraining for laborers who lose their jobs to offshoring, but once trade deals are signed, there’s little political will or incentive to actually fully fund it, he said.

There is a limit to how much free trade will be tolerated by domestic populations.

The global economy prior to the 1990s basically operated on the principle that it was a “vehicle through which local and national governments would improve the functioning of their economies,” Rodrik says. But the creation of the WTO in the 1990s ushered in a reversal. “Domestic economies became a vehicle through which you receive international competitive interest. Globalization became the end, domestic economies and social [policy] obviously became the means,” he argued.

In other words, the script was flipped. Trade rules were rewritten in such a way that rather than governments and politicians seeking to maximize the performance of domestic economies through participation in global trading systems, they increasingly sought to maximize the performance of the global economic system itself, to the detriment of domestic concerns. The natural reaction to this overemphasis of globalism, especially among disenfranchised laborers, is a populist backlash.

The upshot: The current wave of populism is a predictable outgrowth of a system of global trade rules that were written by and benefit a small segment of society rather than a majority of workers. Resolving the tension between populist movements and globalism may require a broad reevaluation of trade rules and a change in mindset and priorities among those who write them, Rodrik concluded.

articles by Topic