How do you solve a problem like globalisation?

Written by Henry Goodwin on . Posted in Current profiles, Profiles

With populism on the rise, how can we make globalisation work for everyone?

At the time it was ridiculed. And why wouldn’t it be? When economist Dani Rodrik published Has Globalisation Gone Too Far? in 1997, Bill Clinton had just been sworn in for a second term. Tony Blair and New Labour were months away from sweeping into Downing Street. Globalisation was gospel, to question it was heresy.

Rodrik’s argument – that globalisation risked worsening inequality, endangering job security and leaving less privileged portions of the population behind – was pronounced ‘provocative’ and ‘dubious’ by The Economist. ‘Mr. Rodrik,’ the paper scoffed, ‘almost forgets that both rich and poor countries stand to benefit enormously from trade.’

Fast forward twenty years, and Rodrik’s insights seem more far-sighted than forgetful. With ‘populism’ the word du jour among the political commentariat, many have scrambled to point the finger at globalisation for sparking everything from Brexit to the election of Donald Trump. What was perceived as doomsaying on Rodrik’s part has become part of the politico-economic mainstream.

Too much of a good thing

Why did nobody else see it coming? ‘I wish I had a good answer,’ Rodrik muses. Speaking with EUI Times at the Badia Fiesolana after delivering a Max Weber Lecture on ‘Globalisation & the Populist Backlash’ and participating in a policy dialogue at the School of Transnational Governance, the Turkish-born economist suggests that economists and intellectuals of previous decades bought into a narrative that was ‘broadly right, but that over time became a distortion of the reality [of the impact of globalisation]’.

‘Economists believed for a long time in what’s known as the ‘Bicycle Theory’ of trade, which is that you have to keep negotiating trade agreements otherwise the whole trading system will unravel. I don’t know if this theory was ever correct,’ he adds with a wry smile. ‘By the 1990s, a lot of the objectives of globalisation had been achieved. We were pushing a good thing way too far.’

While Rodrik acknowledges that the conversation about globalisation has grown more constructive since 1997, a host of shortcomings remain. Rodrik believes that the way globalisation’s downsides are framed, particularly in the press, misses the point. ‘The media will often say “we underestimated the political impact of the losers from globalisation,” or “we underestimated that there might be people who would lose.” Therefore, this narrative goes, we don’t necessarily need to change what we are doing, we simply need to do a better job of compensating people.’

Compensating those who suffer from globalisation plays a part, Rodrik admits, noting that the strength of the welfare state in European countries has done a particularly good job in softening the blow of ‘trade shocks’. Nonetheless compensation can only go so far, and the belief that social security nets alone can lessen the impact of globalisation on vast swathes of populations is part of what got us here in the first place.

You give populism a bad name

‘Here’ is, of course, a place of near-unprecedented geopolitical uncertainty, in which populism and its proponents have come to be seen as public enemy number one.

Dani Rodrik believes that the hyper-globalisation of the past two decades ‘pushed a good thing too far’.

For many, populism entered the collective consciousness with a crash in 2015, when Donald Trump announced his run for the White House. Yet, Rodrik is at pains to point out, there is nothing new about it. Indeed, populism has been on the rise for some time, and has been simmering beneath the surface since long before the 2008 financial crisis, which many credit as sparking its inexorable rise.

Nor is it necessarily a bad thing. ‘For many historians, when they think about populism they think about the US People’s Party at the end of the 19th century, they think about the progressive movement in the US, they think about the New Deal. Those were largely good things,’ he points out. Indeed, Rodrik contends, it is today’s populists (from Trump through to Recep Tayyip Erdoğan and Viktor Orbán) who have given populism – especially economic populism – a bad name.

Two things have happened, he says. Firstly, economic populism has become indelibly associated with ‘the kind of macro-economic folly’ that has been common in Latin America since the 1970s and 80s. Secondly, more recently, so much western populism ‘takes the kind of right-wing ethno-nationalism brand which is very damaging to liberal norms.’

The fact that populism on the right has become inextricably intertwined with, for example, the blatant race-baiting and xenophobia of a Marine Le Pen and on the left with some kind of Venezuelan dystopia has left it a bloated and discredited concept. Rodrik thinks that represents something of a missed opportunity.

‘There might be times when a certain kind of economic populism is what’s required, and might be a way to forestall what I call the ‘bad’ kind of populism, the one that really undermines pluralist, liberal and political norms.’ 

Good, bad and ugly

One thing about which Rodrik is unequivocal is that this particular moment calls for reinvention. Looking ahead, he identifies three possible paths that the complex relationship between globalisation, politics and the global economy could take moving forward: the good, the bad and the ugly.

The bad and the ugly – a combination of creeping populism and protectionism, the gradual erosion of liberal democracy and an open world economy, possibly sparking a 1930s-style collapse of global economic cooperation and the rise of extreme regimes across the globe – remain unlikely, Rodrik believes, in part because supporters of globalisation and plurality still largely remain in power across the world.

The best possible scenario that Rodrik envisions is a rebalancing of sorts, wherein governments step back from the hyper-globalisation that has defined the past two decades. He has some ideas about how to do it, too.

‘We need to pursue policies that provide more balanced benefits. Instead of negotiating ways of protecting investors, we negotiate things like making corporate tax competition more difficult. We negotiate rules over social dumping, to enable countries to protect themselves against certain types of trade which might undermine domestic labour standards. We negotiate over how to carve out space for developing countries to pursue their own industrial and structural transformation policies without World Trade Organisation restrictions.

‘We need much tighter control on both domestic and cross-border finance,’ he adds. ‘We have to pursue more inclusive domestic social, economic and innovation policies, and not let an obsession with globalisation crowd out the importance of having a strong domestic agenda.’

As for who could lead this recalibration? ‘It will have to come from the left,’ Rodrik says. ‘That might be the so-called ‘populist wing’ of the Democratic Party in the US, it might be rejuvenated Social Democrats in Europe. They will have to come up with a narrative that appeals to the middle and lower-middle classes who feel they have been scorned by the elites and the mainstream political parties.’

He is, by and large, optimistic. ‘Capitalism has this way of reinventing itself every few decades. I think we might be at one of those turning-points again.’ Given his penchant for prescience, the world’s political and economic elites could do worse than listening to Dani Rodrik this time round.

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