- [Dean] So Welcome to the Bush School,
welcome to the Bush Center,
and welcome to the Annenberg
presidential Conference Center.
I also represent the lowest IQ
you'll see on this stage tonight.
(audience laughs)
(chuckles)
So I'll take great pride in that as well.
Welcome to re-imagining globalization
which is a great topic,
the students at the Bush School,
are all about serving
their fellow citizens
when they graduate,
as are the students from
so many other colleges
across Texas A&M, who are
represented here tonight.
I think it's a fascinating topic
because it's a fascinating audience
that's come to hear about it.
But for our students,
they wanna serve citizens of
their community, their cities,
their states, and their world,
but they can't do that well,
if they don't understand how those cities,
those communities, those states
and especially those nations
act and interact, both politically,
socially, economically,
basically globalization.
You've got to understand that these days
if you plan to be successful,
that's why you're here
so you can get a little bit
deeper understanding of it,
and maybe add it to your discussions
around the conversations
you're gonna be having here
in the near future.
For the students who are here tonight,
you're gonna have a real privilege
hearing our speaker I think,
I think you're gonna find this
as a tremendous data point
for you and your education.
And for the rest of us we're
just grateful to be here
and have you in our MIT sir,
so thanks for making the trip.
As you'll hear in a minute
he is more than qualified.
I'd like to recognize
two people in particular
in the audience tonight,
one is a member of the Board of Trustees
the Texas A&M foundation
Mr. Bill Toller who is,
where'd you go bill I
know you here somewhere,
there you are, thank
you sir for being here.
(audience clapping)
And I'd also like to recognize
Bill and Barbara Huffman,
who are great friends of this university,
a great Aggie family and great
friends of the Bush School,
so Bill and Barbara
thank you for being here,
and I don't see where you are out there,
there you are just wave
at us right here now,
thank you for being here.
(audience claps)
And thanks to all the rest of you
for taking time from your
very busy lives and schedules
to be here and join us tonight,
it's really a privilege to have you here.
I would tell you that very
few people in the world
understand this topic
better than our speaker,
he is remarkable.
And to introduce him tonight,
please join me in welcoming to the stage
another very remarkable guy,
the director of the Scowcroft Institute
for International Affairs,
co-host for this evening's event,
along with the Mossbacher
Institute for Trade,
Economics, and Public Policy,
the very honorable and dashingly
handsome Andrew Natsios.
(audience clapping)
- [Andrew] I was wondering
who the Dean was introducing.
(audience laughing)
Anyway, thank you for coming
to our event this evening,
Re-imagining Globalization with
Dr. Dani Rodrik at Harvard.
Dr. Rodrik is the Ford
Foundation professor
of international political economy,
at the Kennedy School of
Government at Harvard.
He has published widely in the areas of
economic development,
international economics,
and political economy.
It's also one of my favorite economists,
that's why it was very
easy for Raymond and I
to agree to bring him here.
I don't wanna overdo this
and I have no reason to.
There's one other great
economist at Harvard,
and my other favorite,
and that's Amartya Sen,
who won the Nobel Prize for economics.
I do think you were
eventually going to get
a Nobel Prize for economics,
I hope sooner rather than later.
And I think your research
deserves it myself.
His current research is
focused on economic employment,
and economic growth,
in both developing and advanced economies.
He's the recipient of the
inaugural Albert Hirschman prize,
of the Social Sciences Research Council,
and the Leontief Award
for advancing the frontiers
of economic thought.
Professor Rodrick is the
currently president-elect
of the International Economic Association,
his newest book is straight
talk on trade ideas
for a sane world economy,
I would never use the term
sane with the world kind,
but that's a different subject.
He has published three
other books on economics,
he was also appointed by Pope Francis
to the Papal Academy of Social Sciences,
which is I think a great honor.
In his lecture this evening,
he will describe how we can and should,
redesign globalization to
better serve our economic,
and social objectives.
I just found out this evening
that our ancestors
through different lines,
overlapped in Thessaloniki Greece,
his family emigrated there 500
years ago to your mother's,
your grandmother's family?
Right, I don't know
how long we were there,
but we were there a long time.
So anyway, it's a
pleasure to have you here,
and we'd like to welcome
you to the Bush School,
and the Bush Center as
the Dean has just done.
Thank you.
(audience clapping)
- [Dani] Well thank you.
Well first good evening to everyone,
and thank you very much
for this very warm welcome,
I really feel humbled by it.
(chuckles)
Those introductory words,
it's a great pleasure to be here,
I'm really looking
forward to the next hour,
discussing globalization
and its future with you,
I have to say that this is,
it's a first for me that I'm literally
giving a speech having stepped
off a plane 15 minutes ago.
(audience laughing)
It wasn't supposed to
have been this tight,
but through a long series of mishaps,
I ended up taking a later flight
and I'm sorry to all those
of you I was supposed to meet
earlier in the day and
that I won't be able to.
I've called, I've given
the title of my talk
Re-imagining Globalization,
because we know that
globalization is in trouble,
and sooner or later we'll
have to place it on some more
fundamentally sound principles,
and this is an area that I've
been doing a lot of thinking
for some time,
and so I want to share some
of my views with you on that,
but I thought I would
start with a very sort of
long detour into history,
going back to the late 19th century,
and remind you that the
backlash to globalization
actually has a very long history,
it's a very long American history.
And the phenomenon of populism,
which has become very topical
today in our current era,
is actually no stranger
to this country's history,
the original populist's actually worthy,
was the old People's Party
in the United States,
and one of the greatest spokesmen
was this fellow William Jennings
Bryan, who gave in 1896,
when he was nominated to be the
Democratic Party's candidate
for the presidency of the United States,
he gave what is perhaps
the most famous speech
in American political history,
where he decried the
globalization of that era,
and the most famous part of
that speech is where he says,
you shall not crucify
mankind upon a cross of gold,
and he was referring to the gold standard,
which was the big the symbol
of globalization at the time.
And the reason that the gold standard
had become such a target of attack,
was the deep crisis that the farmers
in the United States were facing,
on the one hand,
their prices being squeezed
by reductions on world markets
of the commodities that
were being produced on,
the other hand, the
tight monetary policies,
the tight credit conditions,
that the gold standard had
imposed on the US economy,
being linked to gold,
being on a sort of a monetary standard
that required a fixed exchange rate,
between the dollar and the gold,
which prevented an expansion
of the money supply,
and therefore farmers were
being squeezed on the one hand
by very high real interest rates,
and declining prices
for what they produced,
and this squeeze produced a
kind of an agrarian revolt,
that resulted in these farmers alliances
in the southern and western
parts of the country
and then found political
expression in this populist moment
in the United States.
So I tell the story first because,
to remind us that
globalization at its height,
as it certainly was at the
end of the 19th century
with this with the gold standard,
typically produces a kind
of a political reaction,
because of the adverse
effects that it often has,
on large segments of the society.
And this is tension, is
something I'll come back to.
But the second reason I
bring this up is because,
to remind ourselves that globalization
is something that actually
doesn't come ready-made,
and doesn't fall onto
our laps in fully-formed,
in a sort of way that's
outside our controls.
That the 19th century
form of globalization,
the gold standard was in fact
a very different kind of globalization,
than the current
globalization that we have.
And it was the product of
different decisions that we made
about the kind of globalization
that we wanna make.
And that history reminds us
that globalization is
something that's fluid,
that it can take many different forms,
and that the shape it takes is something
that's really under our control,
and that's where the force of,
I think where the force
of my remarks go as to,
what kind of agency we can exercise,
to redesign a better
kind of globalization.
Well what kind of choices we do face
when we think about globalization.
There are at least three
different dimensions
that we would need to consider,
one is, which markets are
we going to globalize,
are we going to globalize
markets for goods and services,
financial markets, markets for labor?
Second, how extensively should we allow
the rules of globalization
to reach behind the borders,
do we simply liberalize
restrictions at the border?
Or do we engage in
disciplines or arrangements
that actually significantly have impact
on our domestic, economic, and
social institutions as well.
And one of the fundamental reasons
why the gold standard was so disruptive,
was that it wasn't
simply having free trade,
free capital mobility, free flow of labor,
it was also that it's
significantly restrained,
domestic monetary policy,
domestic credit market
conditions in the United States,
so it impinged on domestic
policies in a much deeper way,
than simply opening up
your borders to free trade,
and goods, and capital.
And this is an area where we
need to make a lot of choices
that in today's globalization,
we have extensive set of
rules in areas like subsidies,
and intellectual property rights,
in investments or rules
constraining industrial policies,
we don't have that many rules
with respect to carbon emissions,
or tax regimes,
and the question we need to ask is,
how do we choose where we
want to have these rules,
and that will reach behind the border,
and constrain what governments can do?
And where is it that we don't
want to have those rules
leave it to national autonomy,
or to national governments
to design their own rules
without external constraint.
And third is, we can ask,
how should those rules be governed?
You could imagine that we can have
formal international agreements,
or formal organizations,
multilateral organizations,
that embody those rules,
and have some degree of enforcement power.
Or we could imagine,
as in fact was the case
under the gold standard,
that we don't have these
global governance arrangements,
but instead the rules are enforced
through certain norms of good behavior,
that governments, national
governments internalize,
after all there was nothing that prevented
the United States back in 1896,
to get out of the gold standard,
and in fact FDR would do
it four decades later,
without any external constraint.
What prevented was in fact
the informal rules of the gold standard,
it was simply looked on as something that
governments do not do,
they do not violate the
rules of the gold standard,
so it was internalized in the
behavior of the governments,
it was no external enforcement,
no global governance at all.
So when we think about that way,
there are in fact many different ways
in which we can design globalization's.
And here is,
it's actually three different
kinds of globalization's
that we've had,
and so on the rows are
those three globalization's,
and the columns are different
choices that we can make
along the dimensions
that I've just listed.
Are we going to liberalize
the flows of capital?
Are we going to liberalize the
flow of goods and services?
Are we going to liberalize labor flows?
And how extensively should the
rules reach behind borders?
And should we have multilateral
governance institutions?
So as you can see the gold standard,
aspired to not just free trade in goods,
and free trade in capital,
but actually aspire to something
we have not really aspired to,
in post-war models of global governance,
oh I'm sorry globalization,
which was that it aspired to
free flow of labor as well,
and that's something
that was very different
and the kind of globalization we had.
I've distinguished as you can see here,
the kinds of globalization that we've had
since the end of the Second World War,
in two different forms.
And I think it's important to understand,
that the kind of globalization that we had
in the first three or four
decades after the end of the war,
which is what I've called
the Bretton Woods regime,
was a very different kind of globalization
that the post 1990 regime
of what I've called hyper
globalization has been.
In some sense, what we're
going through are the pangs
of the hyper-globalization regime.
There I think two critical
differences between
the kind of globalization
that we had through the 1980s,
and the kind of globalization
we've had since the 1990s.
And most of those changes,
have appeared not because global rules
have become more extensive per say,
or global governance has become strong,
or even though the World
Trade Organization,
and regional trade agreements
have become stronger,
but most of these changes
have really come through
sort of the kinds of different
rules of economic behavior
that national governments
have internalized.
So it's been a lot through
these kinds of norms,
gold standard type norms,
that governments have internalized.
One difference is that,
unlike the Bretton Woods era,
financial globalization has been a goal
that is a free flow of capital,
part view of short-term capital,
has been a distinct mark of
this hyper globalization.
And that has significant
effects of course,
in large part,
the global financial crisis
of more than a decade ago,
was a product of this
financial globalization.
The austerity policies that
have created a lot of problems
especially in Europe
have been a consequence of that as well.
So in many ways financial globalization,
has returned us back to a kind of
a gold standard understanding
of economic policy.
And the second sense in
which I think they post 1990
hyper-globalization is different,
is that we have much more extensive rules,
that reach behind the borders.
And I've mentioned some of them
the new regimes in the WT,
or the new style trade agreements,
and indeed the kinds
of policy requirements
of financial globalization,
are much more extensively
behind the border
kinds of measures.
So that countries and
governments have found
that rather than the world economy
essentially being in the service
of domestic economic policymakers,
more and more economic policymakers found,
that they had to justify
what they were doing,
by the requirements of the global economy,
and it didn't matter
whether you are a government of the right,
or a government of the left,
if you are a government of the right,
you would say I need to cut taxes,
I need to reduce the red tape, why?
So we can compete better
in the world economy,
if you're a government of the left,
you'd say I need to
invest in infrastructure,
I need to invest education, why?
So that I can become a better competitor
in the world economy.
So there was a big change
in the kind of attitudes
toward the balance between
the national economy,
and the global economy,
that unlike in the Bretton Woods period,
when there was explicitly,
the world economy was
viewed to be in the service,
of national domestic,
economic, and social goals.
The priorities was reversed,
and domestic economies became
to be seen in the service
I think of the global economy.
So if we were to sort of go
back to the drawing board,
without completely
forgetting where we are ,
what kinds of things should we look for?
Well of course, globalization
is largely economic,
so we want to ensure
that we have an economically
sensible globalization,
that is to say that we want to ensure
that we have an economically efficient
resource allocation globally,
that a kind of globalization
that spurs economic growth.
But we can't stop there
that's only one goal,
a second is that we care about
distributive justice, and
fairness as well.
So we have to worry, not just
with all economic growth,
the size of the pie,
but how that pie is
distributed within nations,
and across nations.
And equally importantly,
the fairness of how that,
perceptions of how that is distributed.
And third are really about sort of
the politics and accountability,
to the extent that electorates
want policies regulations,
institutional arrangements,
that reflect their own preferences,
we want to ensure that the
institutional arrangements
that we put in place,
in the domestic and the global economies,
reflect those preferences.
And here we are going to
have to take into account,
that those preferences might
be different across countries,
that the kinds of economy,
and the rules that the French want
may be very different from the
ones that the Americans want,
that might be very different from what
the Canadians and the Japanese,
or the Swedes would want.
So the making our institutional
and policies accountable,
is has got to be a third desideratum.
Now, where do we run into problem,
is that in each one of these areas,
we'll have to, we have tensions.
In economics, we have a tension between
what I would call the logic of Adam Smith,
and the logic of Freidrich List.
Of course you all know Adam Smith,
was all about the division of labor,
and the benefits of free market.
Freidrich List, you may not know,
but he was a German economist who argued
that in countries that are not necessarily
at the forefront of technology,
that a certain amount of protection,
as in a certain amount of
government health may be required
to achieve technological sophistication,
technological mastery.
So if a conflict between
the free trade logic,
and the logic of intervention,
to achieve catch up.
With respect to distribution of course,
we have certain ideas that
are very deep embedded
in economic theory,
which says that freer trade can
expands the size of the pie,
but freer trade is also
by the very same logic,
is going to cause the
redistribution of income.
In fact a lot of redistribution of income,
that anybody who understands the theory
of comparative advantage knows,
that you cannot have
one without the other.
That is redistribution of
income is the flip side
of the gains from trade coin,
that if anybody is telling you
you can have a lot of gains from trade
without redistribution,
they actually don't understand
what they're talking about,
that you don't have one,
this is a notion that's deeply embedded
in standard economic theory.
And with respect to politics,
we have to face off that the trade-off,
that these gains from trade,
which require harmonization
of policies across the world,
and the elimination of transactions cost,
cut across this alternative requirement,
that we also want these
institutional arrangements,
to reflect the diversity of
preferences around the world.
So we need to find an appropriate
point in this trade-off,
that if we try to maximize
the gains from trade,
that might come at the expense
of minimizing the responsiveness
of national public goods,
or national institutional arrangements
to domestic electorates.
So one thing that economics tells us
that's extremely important,
is that in international economics
virtue is its own reward.
Which is to say that,
if you think about why countries
pursue open trade policies,
or open capital market policies,
it's not to confer
benefits to other nations.
So if countries are able to take care
of their own domestic distributional,
domestic social justice agendas,
they ought to want to be able to maintain,
actually open economies.
So to the extent that countries have,
that freedom to ensure that
the domestic economic policies
are consistent with a social justice,
and social preferences,
that they also would want to have
subject to that constraint,
a relatively open policy,
so openness is its own reward.
So we have a strong
presumption therefore that,
for most of the things that would sustain
in open world economy,
open trade policies,
sound macroeconomic policies,
appropriate financial
regulation and so forth,
that governments left to their own,
would actually want to do that,
without necessarily enforcing
a common set of rules,
without global governance,
or without necessarily global norms about
how countries need to pay
attention to other countries.
That doesn't mean that
countries necessarily
will always pursue those policies,
it just means that when they do not,
the problem is going to arise
not from the absence
of these global rules,
not from inadequate globalization per se,
but from domestic political failures.
So I think, if the United States is,
who had to revise as NAFTA is,
where the China trade shock,
has become so politically salient,
the problem to a much greater extent
has to do with the fact
that the United States
was unable to engage in
the social transfers,
and the social welfare
policies, and the safety nets,
to ensure that in fact
wider set of beneficiaries
were not created from
those trade arrangements.
So it was really just to a
large extent a domestic failure.
There are in economic theory,
there are two significant areas,
that stand as exception to this rule,
that virtue is its own reward.
And those are called,
in economics they're called on the one,
and this the beggar-thy-neighbor policies,
and secondly, they're sort
of global public Bad's,
and I'll say couple of words
about these in a second,
but the argument here is going to be that,
since these are the major
areas of exceptions,
to this rule that left to themselves,
countries would actually
do the right thing,
not just for themselves,
but for the global economy as a whole,
that to the extent that
we have global rules,
global governance, global norms,
that they ought to focus
precisely on these two areas
rather than in other areas as a whole.
So what are these
beggar-thy-neighbor policies?
Are policies that
provide benefits at home,
only to the extent that
they impose costs on foreign countries.
So any policy has spill
overs to other countries,
in an interdependent world
economy you can't avoid those.
but beggar-thy-neighbor
policies are special,
because they provide benefits at home
only to the extent that
they hurt other countries,
so some of example of that would be,
if you try to,
if you're if you have a monopoly
of a particular resource,
oil for the oil exporting
countries was an example,
rare earth minerals in China
it was a recent example to favor monopoly,
trying to restrict the
export of those things,
so you can actually reap monopoly rents,
on world markets would be an example.
And another one, is in a world where
there is not sufficient employment,
undervaluing your currency,
so that you can actually
export your own employment
to other countries would
be another example,
the third example is what a
lot of small jurisdictions do,
in order to shift tax to their core,
to their own jurisdictions by having
very low corporate taxes,
to attract not really physical investment,
but paper investment
from other countries to,
and that sort of the
lower corporate taxation.
The global public goods I think,
sort of the major example,
and of course probably
the most important area
of global governance failure,
is the climate change area,
the climate is a global public good
controlling greenhouse gases
is a global public good,
and there is a strong
incentive for countries to
free ride on other nations
policies in these areas.
So that would be the second major area.
So putting all these ideas together,
what we would want to do therefore,
is we want to have a
kind of globalization,
that would produce economic benefits,
that would produce economic
benefits generally to all,
rather than to a few,
and that suggests that we want
to focus on areas where the
efficiency gains, or the growth gains,
or the economic gains are the largest.
Seconds focuses
particularly on those areas
where policy has the feature of these
beggar-thy-neighbor, or
global public bad features.
But otherwise, in fact is fairly tolerant,
of what countries can do,
that is leaves a lot of space for autonomy
for countries to choose their
own regulatory arrangements.
So the question then to and
I'll close in three minutes,
is in terms of the
globalization of the futures,
or all these question marks,
what would that actually imply?
So ticking off each one of
these areas very quickly,
in trade, I think what it implies,
is that we need to retreat
to what I call a kind of a
peaceful coexistence model,
of trade relations.
Rather than trying to
impose our own philosophies
of how you do or do not
do industrial policy,
what kind of intellectual
property rights you should have?
Whether subsidies should
be allowed or not?
Whether state enterprises
should be allowed or not?
So these are all the issues
that are very topical
in the US-China trade dispute context.
I think our general
approach should be that,
unless you can make the case that there is
a beggar-thy-neighbor
element to your policies,
that countries should
be relatively free to do
whatever they want in their
domestic economic policies.
So that would mean much more
permissive rules on subsidies,
intellectual property rights,
and industrial policies,
potentially expanded safeguard
allowance for countries
to protect their sensitive sectors,
in cases where there is
cases of social dumping
as I've said here.
In the area of International Finance,
I think it would also be partly a retreat,
because I think financial globalization
has advanced to a stage
where it's very difficult
for economists to actually
find any benefits,
whereas the costs in terms
of both distributional costs,
and costs in terms of
economic instability,
financial crisis, financial volatility,
are now amply demonstrated.
So here is a case where we
have had a globalization
definitely go too far in the sense of
beyond the point where
there are economic returns,
and to the point where we created
a lot of economic instability.
One area where I think we
need much greater discipline,
would be in the case of Saudis
this global financial registry,
to prevent the wealthy corporations
and wealthy individuals,
from evading taxes from
their local jurisdictions.
Now the one area where in fact
globalization has not gone
nearly as far as it should,
barring the principles I've laid out,
is actually in terms of labor mobility.
There are huge economic gains to be had,
also there are I think
some very serious problems
about how to manage this,
I'm happy to talk about this later on,
but I just want to signal this,
and go back to sort of
that matrix that we had,
that in one area,
where there are still
significant economic benefits
to be reaped through
further liberalization,
is in the area of labor markets.
If we have gone too far
in the area of trade
and financial globalization,
we have not gone nearly far enough.
I'm not advocating that we should throw
national borders open,
I don't think that's realistic
or necessarily desirable,
but the barriers right now are so high
that even a relatively small relaxation
in those barriers for example,
greater use of these
temporary work visa programs,
would generate economic benefits.
There are orders of magnitude greater,
than any trade agreement in
terms of the traditional style
that focuses on intellectual
property rights,
or further liberalization
of agricultural markets,
or manufacturers and so forth.
In governance, I think
I've already sort of
signaled what I was going to say,
I think we need to
focus global governance,
and political capital,
the limited political
capital that we have there,
to those areas where I think we're facing
through beggar-thy-neighbor policies,
and through global public goods.
That's probably a climate
change would be number one,
number two, number three there,
but there are a few other
areas such as tax competition,
and anti-competitive behavior.
So finally, I think the
general logic of my comments,
is that when we think about sort of
principles for the next
stage of globalization,
that we need to think about a
thinner kind of globalization,
that paradoxically actually
might be economically
much more beneficial,
that we provide much greater
room for individual nations,
to deal with their
domestic economic policies,
to address the broken social
contract that they face,
and for countries in the South,
and developing countries much greater room
to manage their economies
and achieve productive diversification
through industrial policies,
that that we move to a kind of a mindset,
where rather than we're
exchanging market access
to benefit banks or
international corporations,
we're actually exchanging policy space,
to allow national
governments a greater space,
to achieve domestic
economic and social goals.
And where we need to provoke
as global governance,
is where I think the the biggest,
where there are the biggest
gains in terms of climate change
possibly when the political
situation is ripe,
cross-border labor mobility,
and international
coordination on tax havens,
which is a long really long overdue.
So I take it that Raymond Rob and I
are going to now have
a bit more discussion,
and so let me just stop here,
and I look forward to this discussion.
(audience clapping)
- (Raymond) Thank you very much.
So thank you very much to all of you
for joining us tonight,
and thank you very much
for proffessor Rodrik,
for this very provocative
and insightful thoughts on globalization.
One of the things I think
we've all recognized
at the Mosbacher Institute,
the Scowcroft Institute,
is that these days globalization
has been in the news,
it's also been a subject
of much contention.
So it's really important to actually have
some honest thought and exchange of ideas,
about the different ways we can shape it.
I'd like to go back to,
your books are great and everyone
loves your books and drew,
and we assign your books repeatedly,
and we're big fans,
I wanna recommend
everyone read these books
to promote your books a little bit here.
But I was really intrigued by the preface
I think of Straight Talk,
and when you pointed out that,
when you're asking economists for someone
to write the foreword
and to promote your book,
they said, you know Dani I can't do that
because this feeds the
anti-globalization rhetoric right?
This feed sort of this
backlash, there's this monster,
where people might want to kill the baby
as they throw out the bathwater
right, the whole thing.
And and I really liked
your response at the time,
which was, I've been saying
this for 10, 20 years,
and we wouldn't have the
backlash we had today,
if people had listened
to me back then, right?
So your earlier books were
like we need to shape this,
in order to alternate that.
- [Dani] That's not,
I didn't say that.
(laughs)
(audience laughs)
- [Raymond] That's the way I read it,
you should've listened to me back then,
'cause you could talk about some of the,
especially globalization
colonization gone too far,
and how that can the lack
of attention to that,
contributed to the current backlash.
- [Dani] I mean so I think,
I always like to talk about
both ideas and interest.
So I think I don't want to exaggerate
the role that economists
and their ideas have had,
so I think I don't wanna go and say that
it's because economists who've basically,
just pushed one side of this argument
about the gains from trade,
while forgetting the
other side of the argument
about redistribution and
some of the other problems.
I think what has happened is that,
very important vested interests
have been involved here as well,
so that if we have gotten,
if we moved from the Bretton Woods system
to the hyper-globalization,
it's also because we've had
pharmaceutical companies,
and multinational
corporations, and big banks,
that sort of looked and said
this is a great opportunity
for us to have market access,
so pharmaceutical companies
for example which,
for the longest time had not
been able to make any progress,
to get higher, more
restrictive patent terms,
in developing countries,
in the world intellectual
property organization,
suddenly where this
discussion properly belongs,
suddenly said oh you
know the trade regime,
we can actually make some headway there,
so we can make intellectual
property rights a trade issue,
call it trade related
intellectual property rights,
hands trips,
and sneak this into a
kind of trade agreements,
and this effectively what they did.
Now and that by the way is
one area where the economists
have played a positive role,
because as you say most
economists were actually against
the introduction of
intellectual property rights
into trade agreements.
But I think in too many other areas,
I think economists sort of
poo-pooed some of these concerns
about that in the case of trade,
that there would be significant losers,
that in the case of
financial globalization,
that we were aggravating
financial imperfections,
we would create greater
incidence of financial crises
and so forth.
So it was that, essentially
and what I meant to say
in the preface was to say that,
the economists were so concerned not to
feed the protectionists,
the groups that are interested
in trade protection,
for their narrow selfish interests,
they forgot that the
forces that were pushing
for these trade agreements,
were in this for their own
narrow selfish interests as well.
So it wasn't that the
banks and the corporations
that were pushing for these
in financial globalization,
for these new style trade agreements,
they were not interested in
maximizing aggregate welfare,
or increasing the overall
size of the economic pie,
they were there for their own
selfish vested interest reasons.
And I think that was the
failure of economists not to see
that you know the barbarians are not only
on one side of the argument,
that there were barbarians
on the other side as well.
- [Raymond] Yeah and you
make that point about
how trade agreements have
become increasingly complex,
and lengthy over the last 10, 20 years,
as these provisions get added,
and the benefits of
adding those provisions
might not be positive,
that's your argument right?
- [Dani] Yes I think
that unlike the standard,
the old-style GATT, they
could trade the agreement.
So what happened in the GATT,
you and I got together and you
reduce your trade barriers,
I reduced my tariffs, and
you reduce your tariffs,
and the standard argument
for trade does that
so we're reaping the
benefits of gains from trade,
compared to it.
So both of us are better off as a result.
Now in this new agreements,
what we're doing is let's say you,
if I'm the United States,
and let's say you're a developing country,
I'm saying that you
should make your patents,
or your copyrights,
move them in more restrictive direction.
That there's no theory that says that,
that might benefit my
pharmaceuticals firms,
but there's no economic
theory that says that,
you are going to be better off,
because the economic circumstance
is in a developing country
with respect to technology,
transfer is very different.
Or for that matter if I say that,
century ago I used a
lot of Industrial Policy
that's how I got rich,
but now I don't really believe
in Industrial Policy so much.
You now you're trying to
get rich and catch up,
but you should not do
any industrial policy,
and we're going to write
that in a trade agreement.
Maybe that's good for me because
it opens up your market to
you but there's no guarantee
that you're going to be better
off if you can't subsidize
your infant industries,
or if you do not have certain restrictions
on foreign investors in terms
of how they have to share
technology and so forth.
So these new elements,
where we're imposing sort
of these policy regimes,
whether it's in health and safety,
or in services or intellectual
property and investment,
so they're not like the old issues,
where we as economists can say,
there's a strong
presumption of mutual gains.
Then it really becomes very much
a kind of political horse trading.
- [Raymond] And I understand that,
and I feel I wouldn't be doing my job
if I didn't push back a little bit
on some of your comments tonight.
Particularly I think there's
many people in this audience
that when you put up there
that we should be permissive
of Chinese subsidies for example,
people might have been taken aghast,
I heard a couple gasps
in the audience at that.
So could you just elaborate,
because I know a lot of
our tension with China's,
this creates an unfair trading situation.
How would you address those concerns?
- [Dani] So the issue with subsidies
is very interesting because,
the logical effect,
if you think about it purely
as an economist right?
In other countries subsidizing
their exports to you,
would be, is about the last thing
you want to stop them from doing right?
Why? Well because by
subsidizing these things to you,
they're making these exports
cheaper for your consumers,
and you're beginning
the benefits of trade,
in a very weird way.
And who's paying the cost of the subsidy,
the subsidy is being paid
by the Chinese government,
the Chinese taxpayers.
So why should you be against this,
if you like sort of trade,
which is what's the point of trade?
The point of trade is to be
able to get things cheaply
from the rest of the world.
Well when other countries subsidize them,
you can get them even cheaper.
So why would you want
to actually stop this,
now think about that for a second.
Now you might say, ah but you
know what they're doing is,
basically anti-competitive,
which is that they're
undercutting our own producers
in doing so.
Well there are two ways you can say that,
first in domestic antitrust
policy for example,
when we certainly have rules
about predatory behavior,
or predatory pricing.
But there is a very high threshold
for the Department of Justice
or courts to buy that argument
which is that it's not enough for a firm
to charge let's say below cost,
but there has to be some
expectation that by doing so,
you're able to drive the
other firms out of business.
Now that second requirements
that is a demanding one.
In an international trade,
we're never even close to
trying to make that argument,
so we simply assume just
because it's a subsidy,
it must be a bad thing.
If you're serious about that argument,
and I would buy that argument,
to the extent that
you're able to also show,
that the subsidy is not
just making goods cheaper
which is good with the
whole point of trade,
but that by making goods cheaper,
let's say it's for
anti-competitive reasons,
is driving some of your
domestic firms out of business,
and once that happens they'll
Jack prices up again right?
That's the whole point
of predatory pricing,
and that's a good logic,
but if the only circumstance which you can
worry about subsidies,
is when we apply that
predatory pricing logic,
and we never do in trade.
Now what is in general what
has happened in China is this,
China as everybody knows,
has had an incredible
growth in the last 40 years.
And a lot of that growth has become
because the Chinese government has engaged
in very aggressive industrial policies,
in diversifying and
general, in developing new.
So that has increased income.
So I will make this claim which is that,
the Chinese market for US companies today
is much bigger than it would have been,
had China in fact never subsidized,
or engaged in industrial
policies back in the early 1980s,
because it would never had had
the kind of girls that it has,
and the reason that China
has become an issue,
is precisely because
it's unorthodox policies,
on industrial policies
have been so successful.
So I don't wanna take a doctor,
I mean the point is not
that we should allow China
to have all the subsidies in the world,
but it can't be that just
because China is subsidizing,
or China is imposing technological
requirements on firms,
that that on its own is
ground for saying that
this is something that
they ought not be doing.
If there is a true
beggar-thy-neighbor aspect to it,
then it should absolutely
be subject to discipline,
and that's why I gave the
predatory pricing example,
that's an example of beggar-thy-neighbor,
but I think we've just,
applying this in a much broader
and much more indiscriminate
way that is not justified.
- [Raymond] So when you
were making that argument,
it was in the broader scheme of,
we shouldn't have trade
agreements that allow rules
to be imposed on other countries.
Earlier right there I'm
with you at America,
yeah so earlier today at
the Mosbacher Institute
had the privilege of hosting
the right honorable Member
of Parliament Connor Burns,
who is appointed by Boris Johnson
to be the secretary of trade for a state,
for the United Kingdom,
and he actually was describing Brexit
in the same language that you were saying,
that we were having these
rules imposed on the UK
by the European Union,
and that we wanted to
exercise national sovereignty.
So do you see, is that the way
you see Brexit as a movement
in the same kind of way you're describing
that countries are backing
off from having these rules
being imposed on them?
- [Dani] Well I think that there
was a legitimate grievance,
the legitimate grievance
is largely that in fact,
the extensive European regulations,
were felt by a large
number of British voters,
that they were an infringement
on national sovereignty.
Now what are those,
a lot of people of course felt very upset
about the European
Union immigration rules,
that those were decided at the EU level,
and that Britain could not have
its own separate immigration rules.
But it also went to things like,
Europe has 200,000, nearly
200,000 pages of regulations,
it's called the Akiko Minatare.
And they're really I mean,
they're extensive I mean
they're sort of like,
they tell British farmers,
and what the size of
chicken coops ought to be
and things like that.
And that in many ways
it's sort of symbolic,
but it's also, was a kind of a sense that,
this decision-making
authority had moved beyond
this kind of the chain
of democratic legitimacy,
that it was being done in a
very technocratic fashion,
and I do think that the
European Union as a whole,
is a kind of a democratic
legitimacy problem,
I think that the single market has become
overly technocratic, it
lacks political legitimacy,
that there is not enough
political representation,
and accountability to
underpin this centralization
of economic rules.
And so I can understand some of where
this feeling came from,
if I fall to the Brexit process,
it would be that if you
want to fully exercise
your national autonomy,
then you ought to also have a vision
as to how you're going to
exercise that autonomy.
I think the the Brexits here
and the Conservative Party,
was never able to articulate
a kind of a full-fledged sort of,
this is the kind of
social and economic model
we want to have,
and this is why we can't have it,
because of these rules that we have.
I don't think that case
was was appropriately made.
Now there are some in
the Conservative Party,
we would say that while
we want to be Singapore,
so we actually don't
want these regulations,
we want free trade but
free trade and the border,
so that's like a complete
absence of board,
trade restrictions at the border,
but we don't want any other
transnational body to tell us
what the size of our
chicken coops are what,
how many fish a fishermen can
catch, and things like that.
But we're going to have
a very light regulation
kind of a society.
But I don't think that they
really even believe this.
So I think, so there was an
absence of an articulation
of a growth model or a vision,
and if you're going to
bear the cost of Brexit,
because there are economic cost,
you are reducing the gains from trade,
I think you ought to have
also a vision of how,
what kind of a society you want to have,
and I think that I was never
fully articulated I think.
- [Raymond] Well that actually
raises another question is,
I'm just wondering if you
have any examples of countries
that have successfully
shaped that kind of vision
that you've outlined tonight.
I mean are there any kind of countries
that you would look to,
like look at Japan, did it this way,
or Korea or you know what I mean?
Singapore you mentioned a little bit
but I'm not sure that's the model
you'd like to emulate right?
- [Dani] No I mean I think,
all successful countries I think have,
largely managed to
leverage the world economy,
but leverage the world economy
in the service of their
national goals I think.
To some extent all countries
in the Bretton Woods era
were engaged in that,
I mean that European countries
erected their welfare states,
and did so while trading a lot.
I mean this wasn't like
under Bretton Woods
you didn't have long term
investment or long term trade,
you had it but there was a
different set of priorities.
I think today probably in
Europe it would be like,
Switzerland's a country
that has resolutely decided
to stay outside the European Union,
now they buy into many
of these regulations
as the price of maintaining sort of access
to markets and so forth,
but they reserve the right to themselves,
to opt out to any of that.
So if a referendum goes
in a direction that says,
well we don't want you know
these immigration rules,
we don't get them.
So they have maintained their
kind of freedom and autonomy,
and as a result I think
even though in practice
they look like they're buying
too many of the same regulations,
the whole political
conversation is very different
because they know that they can always,
it's not like European Union or the euro,
where there's no exit, that's
a euro there is no exit.
Now once you're in there,
there's not in any arrangement
whereby you can leave.
So for them sort of the notion
that through referendum,
through national decisions,
they are still free to set
their own capital market rules,
their exchange rate, and
their own regulations,
the rules on immigration and so forth.
I think is,
and they're certainly
not poor as a result,
so I think it would be an example.
- So Boris Johnson was one example
of leading this effort
to pull themselves out,
maybe to exercise national sovereignty,
and Switzerland is another good example.
Here in the United States,
the US MCA just got signed,
we mentioned this a
little bit on the way in,
and part of the motivation
that President Trump had
for renegotiating NAFTA
into the US MCA was,
part of this backlash right?
People were not getting
the gains from NAFTA,
it was the worst agreement ever,
how do you see the the US
MCA that just got signed,
and some of the changes
that were involved in it,
does that the kind of changes
that would meet those needs?
Or do you think it went
in a different direction?
I mean I think in the
US MCA in particular,
there are certain things that I like,
certain things I don't like.
I think what I do like is the weakening
of the investor state dispute
settlement provisions,
and for those of you who don't know,
these are rules that
previously allowed America,
or any corporation to
essentially sue a government
for rules that they felt
created some cost to them,
that removed some of the
privileges of market access
that the NAFTA had previously created.
So in principle, and it was
a kind of all win no loss
kind of a situation for firms,
where they can take government's to court,
for regulations environmental
or other regulations.
And if they win they win damages,
if they lose is really nothing out there,
they just pay a court call
or in arbitration costs,
and that's about it.
I think that's a the sort of,
and corporations are the
only groups that are allowed
to actually do this,
it's not like labor can sue governments,
or environmental groups
can sue governments
for violating the rules,
it was only investors that could do that.
So I think that's outside
the kind of natural,
sort of remaining and sector,
I think those rules now are much weaker,
and I think that's a good thing.
On the other hand,
I think there are some areas where I think
it's gone in the other
direction, which is that,
that the original NAFTA was,
came into force in 1994,
when intellectual property
rights were still,
had entered trade agreements
but not in the full force
that they have since then,
so what the US MCA now does,
is actually extend these
intellectual property rights
for example in the area of,
and also in the era of
e-commerce, digital commerce,
there are lots of restrictions on what
the Mexican government for example can do,
in terms of whether it can localize data,
whether it can have privacy
rules that are different
from those in the US.
So there was a lot of exporting
of current American practices to Mexico,
that I think is rather,
goes in the direction of this
regulatory harmonization.
But I'll say one last thing,
I think the problem with the current
administration approach to trade,
is that it essentially
views trade agreements
as essentially kind of as zero something,
which is that whatever
you gain I must lose,
whatever I win will be a negative for you.
So in many ways this is like,
it continues the tradition of trying to
open the markets of other countries
for US, the corporation's of US banks,
rather than seeing that
just like the US wants
its own freedom,
it's one policy autonomy,
that other countries want
their own policy autonomy too.
That they are the mutual
gains that exist there,
are not in terms of just gains from trade,
but also gains from a certain degree
of policy space as well.
So I think that notion that
there are sort of mutual gains
in these trade agreements,
I think it's lacking in
the current approach.
- [Raymond] So I mean I just
wanna make sure it's clear,
because I noticed economist
wasn't quite clear about that,
you're describing a preference that,
free trade still a good thing
especially free trade
at the borders right?
But some of the recent
overreach and their agreements,
are what's been causing problems,
and so it would be inaccurate
to characterize you
as an anti free trader right?
that's clearly not right.
- [Dani] Yeah no I'm not,
I mean that I think I like free trade most
when it comes with robust safety nets,
and in some cases with
very robust safeguards.
So I think I would extend
the current safeguards regime
in a direction that is
also able to for example,
countervail against what could
be called social dumping,
we have currently rules
that prevent firms,
that protect domestic firms
when there is anti-dumping,
when there's dumping,
so this is kind of a like the
predatory pricing kind of an example,
but I think we also have rules
that we should have that,
just like we don't allow,
we don't extend the
privileges of free trade
to let alone you know slave produce trade,
but we'll you know
current rules of prison,
no trade produce trade goods right?
Goods are produced in prison,
they don't come on there,
countries can legitimate
trade restrictions.
But on the other hand,
if our domestic workers are
competing on world markets
with workers in countries
where labor rights
are severely violated,
we need to really consider the fairness
of whether it's right to put our workers
into direct competition
with workers that are being
very unfairly treated,
where labor rights are badly repressed,
so I think it's fair it's
completely acceptable in my mind,
to extend our current safeguards regime
to cases of labor rights violations,
or air broad, or severe
environmental damages abroad.
- [Raymond] Well you've given
us so much to think about,
and it's very insightful.
Please join me in thanking
professor Rodrik first.
(audience clapping)
Thank you very much.
We do have a token of
our appreciation for you,
this is a special gift for you.
And we also like to present
you with this plaque
in honor of your visit,
and hope you'll consider
us part of your family now,
'cause we consider you part of ours so.
- Well thank you, I'm very.
(audience clapping)
Thank you so much.
- [Raymond] I'm hoping you'll come back.
