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L’heure n’est pas au fondamentalisme commercial

Oct 14, 2016 Dani Rodrik

CAMBRIDGE – « L’un des défis cruciaux » de notre époque « est de conserver un système commercial international ouvert et qui puisse continuer à se développer ». Malheureusement, les « principes libéraux » du système commercial mondial « sont en proie à des attaques de plus en plus nombreuses ». « Le protectionnisme se répand. » « Le système menace de se fragmenter […] ou de s’effondrer, dans une sinistre répétition des années trente. »

Vous seriez excusable de croire que ces lignes sont tirées d’une de ces confessions inquiètes qui remplissent les médias consacrés au monde de la finance et des entreprises et s’alarment de l’actuelle hostilité contre la mondialisation. Elles furent pourtant écrites voici trente-cinq ans, en 1981.

Le problème était alors la stagflation dans les pays avancés. Et l’épouvantail n’était pas la Chine mais le Japon, qui faisait trembler les marché mondiaux – et s’en emparait. Les États-Unis et l’Europe avaient répondu en érigeant des barrières douanières et en imposant des restrictions « volontaires » aux exportations japonaises (RVE), notamment d’automobiles et d’acier. On parlait partout de la montée d’un « nouveau protectionnisme ».

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0 Comments on this paragraph, 15 Comments on this article

Rokon Zaman Oct 19, 2016

Upon taking U-turn to globalisation, where will the West find strong non-consumption to expand the production to offset job loss, caused by technology progression, and to pursue disruptive innovation to create new market for generating high-paying new jobs? Moreover, if all their industries end up in monopoly, due to innovation, will their market economy model remain functional? here is my extended view: http://techpolicyviews.blogspot.com/2016/10/is-there-option-for-west-to-exit.html
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Allen Mackenzie Oct 17, 2016

Trump is a deal maker and a competent one at that. Certainly far better than Clinton. He is outlining initial negotiating positions. He has a coherent vision: correct the currency manipulation and trade imbalance, re-patriot American profits and lower taxes and regulation, especially for reinvestment in energy.
Nothing nativist or racist with that.
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Tom Shillock Oct 16, 2016

What is 'protectionism'? Is it any (institutional?) act that interferes with 'free trade'? What makes 'free trade' free? Is it positive or negative freedom (Cf Isaiah Berlin's Two Concepts of Liberty
(https://en.wikipedia.org/wiki/Two_Concepts_of_Liberty)

Since the 1970s restrictions on capital flows have relatively disappeared. Between 1990 and 2013 the global workforce tripled in low wage countries. Owners and managers of capital in 'developed' countries like the USA took advantage of cheap labour to achieve and the absence of government restrictions. This created economic imbalances and dislocations of income and wealth in 'developed' countries with market democracies, especially in the USA. Now those who have been harmed by, or at least have not benefited from, these changes want to re-balance the distribution of income and wealth, of opportunity.

That is very unlikely to happen precisely because developed countries are market democracies. America has the highest per capita prison population largely because of those imbalances / dislocations. Now, municipal police in the USA are being more heavily armed than the American soldiers who fought in Iraq in anticipation of how the upper class expects to deal with recalcitrant Americans whose prospects are not improving and probably worsening.
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Wim Roffel Oct 16, 2016

"What looked to contemporaries like damaging protectionism was in fact a way of letting off steam to prevent an excessive buildup of political pressure."

What a condescending statement! What an arrogance! What a contempt for the common people!

In fact those protests serve several functions. They are countercyclical: the Plaza Agreement in 1985 ended the steadily rise of Japan as the world creditor nation - a rise that otherwise might well have ended in a less pleasant way. Such protests give also the national industry and labor market time to adapt. And they prevent excessive interdependence between states.

The collapse in the 1930s had to do with rigid systems that made it hard for countries to adapt when their competitiveness had sunk. Trade agreements like TIPP and TPP are introducing a similar rigidity. So my forecast is that in the log run they will blow up the system and lead to a 1930 style depression.
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Ben Leet Oct 16, 2016

Growth is nonsense if it is not shared -- this should be obvious. A very interesting essay. There is a dynamic conflict between "society" and "the economy", which manifests as egalitarian liberties with "freedom from wants" in conflict with "freedom to own" an endless amount of personal wealth. Accumulating infinite "money" in the form of financial assets, paper assets, with its associated power competes with the ideals of personal freedom widely spread. The "market" is supposedly an impartial and decentralized institution that cannot be captured -- and this fallacy supports unending personal accumulation -- inequality. And inequality threatens "society", social values of liberty to realize human potential. This "war" between two "interests" has blinded people. Can we impose limits on wealth and income without destroying the impartiality of the decentralized market? In the U.S. since 2008 household net worth has increased by a nominal 55%, from $56 trillion to $88.6 trillion, coinciding with the meltdown of personal wealth for the majority of the population. Inequality is really out of hand, in the U.S., and internationally as well. The Credit Suisse Bank report on Global Wealth Report states that their is $250 trillion in private personal savings. That might come out to $50,000 per adult on average. A look at Credit Suisse pyramid of wealth shows that 69% of the world's adults own $2,250 in net assets - the average. And in the U.S. net worth for the median family is 40% lower than 2000 level, and is also 12% of the "average" for all households -- this is stark inequality. The Pew Research Center states that 70% of the world survives on less than $10 a day, and probably half of humanity lives on about $4 or less per day. We have a world, a globe, inhabited with billions living in significantly unequal conditions. And in the most advanced and wealthiest nation, the U.S., we have a crisis. This inequality challenges and offends our personal values. Offensive is the key to this whole phenomenon -- it really stinks! Missing in DeLong's analysis is mention of labor unions, the populist force that brought them into prominence and power. And missing is the institutionalizing of chartered corporations. It's a peculiar social system that gives all ownership to absentee owners and none to the very workers who produce the goods. I think democratic society may in the future give legal advantage to worker managed (and perhaps owned) corporations, and this advantage may drive out of business those corporations that are owned by absentee owners. The NLRA also might be re-adjudicated and re-written, giving workers greater collective power. Or perhaps workers will form boycotting institutions and drive greedy corporations from the market. Professor Lazonick has shown that 91% of corporate profits of 90% of the S&P 500, between 2001 and 2010, went to dividends or stock buybacks, and none went to wage increases and very little to technological innovations. Greed is suffocating the economic system and destroying the society's values -- and somehow it must be controlled through worker power or through democratic adjustment. I write a blog: Economics Without Greed, http://benL8.blogspot.com
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Robbie Jena Oct 16, 2016

There are very simple way to manage the massive trade for each country. But the Governments do not have a department to handle that. Their Foreign Ministers do not do these simple initial process. Hence, it does not happen. I tried with many African countries that did not work. Tried with India, did not work. Tried with GREECE, still not working. We are trying though. Will know in about a year as to who jumps in.
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Nick Oulton Oct 16, 2016

I object to Brexit and Trump being equated as examples of anti-globalisation. Those who campaigned for Leave presented a vision of Britain as an open, free trading economy, keen to conclude trade deals with any country willing to engage with us. If the result of Brexit is less trade with Europe and (at first anyway) less trade overall, then that will not be the fault of Britain but rather of the EU putting up trade barriers against us.

True, the Brexit vote was also a vote to control immigration but since when was unlimited immigration thought of as an inevitable (and desirable) accompaniment of tree trade? This seems to me the aspect of "hyperglobalisation" on which Dani should be concentrating his fire. Here surely is the root of the conflict between the global elite and the rest of us. Is that what Dani means mean by placing "the requirements of liberal democracy ahead of those of international trade and investment"? I fear not.
- John Brian Shannon Oct 22, 2016
  
  That's a fine comment, Nick.
  
  Britons decided to choose democracy over economics, and that is their choice to make!
  
  If they suffer economically due to the referendum result/eventual Brexit, they knew that going-in.
  
  "Give me Liberty, or give me Death."
  -- is a higher calling than;
  
  "Give me more money."
  -- at least in my mind.
  
  Cheers, JBS
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John Brian Shannon Oct 16, 2016

Hi Dani,

Thank you for this great and timely piece.

We have a combination of 3 things:

1. While Globalization has been a truly great thing for the top 3 quintiles of the world's major trading nations, and was allowed to run rampant without any oversight nor any entity controlling or moderating it and it's various effects -- most of which are positive (but while the downsides are few, they *are* profound)

2. Unfortunately, Globalization is blamed for the inequality caused mainly by the unfair income tax laws in the United States and some other Western countries -- tax laws dating back to the Reagan administration (but which were the right policies at the time, until about 1990 - 2000) which disproportionally rewarded the top 2 quintiles with wholly unsustainable (low) tax rates. This resulted in huge inequality in the West, with the typical and expected social turmoil, citizen protests, etc. even as Globalization is unfairly getting the lion's share of the blame for it. "Globalization, you got the blame for inequality, and those people unduly benefiting from those tax laws aren't going to jump up and change that narrative!"

3. We can't expect people to live ever-lower living standards (due to Globalization and *mainly* unfair tax laws still on the books from the 1980's) just so the top quintile can reap even more profits/dividends out of the finite GDP of (name any Western nation) And all that profit is sitting in banks doing nothing productive for the economy, or it's in Asia helping to bolster those economies (and not America, for instance) In any event, it is money that for all intents, has been 'taken out of' circulation as far as the Western economies are concerned. And it is not mere millions or billions (cumulatively-speaking) it's in the trillions.

And, none of those (#1 - #3 above) are good for the Western economy. In fact, they have the potential to ruin our way of life by 'dehydrating' the Western (especially U.S.) economy to the point that social order will break down and (even more) capital flight depletes the economy.

To fix it, the Reagan-era and George W. Bush tax breaks need to be rolled all the way back, TPP needs to die (and be replaced by a less corporate driven agreement) and Western nations need to charge a standardized 5% import tariff on every single good that comes into their country from nations that they don't have a free trade agreement with.

That permanent 5% tariff revenue can be used for shovel-ready infrastructure projects and to help balance federal budgets.

Goodbye unemployment! Goodbye homelessness. Goodbye social angst against Western governments (by their own voters) and a few less Brexits/Swiss exits/Greenland exits/etc. IF the EU can get it done quickly enough.

"Doing the same thing over and over, and expecting a different result, is the definition of insanity." -- Albert Einstein

Which is why Western governments need to stop talking endlessly, and actually do something to solve these fundamental problems.

Thank you for posting your fine essay at ProSyn.

As always, very best regards, JBS
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George H Blackford Oct 15, 2016

"Free Trade can nowise guarantee the maintenance of industry, or of an industrial population upon any particular country, and there is no consideration, theoretic or practical, to prevent British capital from transferring itself to China, provided it can find there a cheaper or more efficient supply of labour, or even to prevent Chinese capital with Chinese labour from ousting British produce in neutral markets of the world. What applies to Great Britain applies equally to the other industrial nations which have driven their economic suckers into China. It is at least conceivable that China might so turn the tables upon the Western industrial nations, and, either by adopting their capital and organisers or, as is more probable, by substituting her own, might flood their markets with her cheaper manufactures, and REFUSING THEIR IMPORTS IN EXCHANGE MIGHT TAKE HER PAYMENT IN LIENS UPON THEIR CAPITAL, REVERSING THE EARLIER PROCESS OF INVESTMENT UNTIL SHE GRADUALLY OBTAINED FINANCIAL CONTROL OVER HER QUONDAM PATRONS AND CIVILISERS. This is no idle speculation. If China in very truth possesses those industrial and business capacities with which she is commonly accredited, and the Western Powers are able to have their will in developing her upon Western lines, it seems extremely likely that this reaction will result." Hobson,1902 https://archive.org/details/imperialismastu00goog

And what did today’s experts think was going to happen? See: http://www.rweconomics.com/htm/WDCh_2.htm
and
http://www.rwEconomics.com/LTLGAD.htm .
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Gunnar Eriksson Oct 15, 2016

The "key challenge" is to ensure that trade deals ensure more choice for the consumer rather than limiting offer to what multinational companies aim for.
Return to WTO and put the peoples interest before the multinationals.
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Petey Bee Oct 15, 2016

Hyper-globalization ... that's a good way to boil it down to almost one word. Though it does somewhat sanitize the element of favoritism and reactionary anti-democratic structure.

One major tactical problem in getting to a better place is this: That the advocates of hyper-globalization have correctly identified, as their main threat, the more centrist alternatives - i.e., social-democrat. Therefore, they sensibly worked to delegitimize the social-democray option, while leaving the more obviously unappealing fringes as a useful strawman alternative - so as to make the TINA case. The present US election is a vivid case of this.

"TINA" is of course an utter falsehood, and it is important to press that point, otherwise none of these well meaning opinions will get anywhere.
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M M Oct 14, 2016

To put it very mildly, this "them" vs ""us" scenario must stop. Governments, parliamentarians must focus their attention on serving the citizens and not acting as "Trade Representatives" or salesmen / saleswoman. Their focus must be primarily on creating growth and jobs and they must work on eliminating or at the very least reducing inequality by repatriating the money from the speculators (the likes of Hedge funds, VCs, etc) into the real economies. Enough of PR consultants, of lobbyists and of self serving interests.
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Curtis Carpenter Oct 14, 2016

In what way does a CEO who is paid 300 times more than his lowest paid employee represent a "desire for equity and social inclusion?" In what way does the concentration of wealth among 1% of the people in a given country contribute to "rule of law and democratic deliberation" there? Or contribute to an "open world economy" for the vast majority of its people? "Open" for whom?

Shouldn't the issue be "economic justice" rather than "free trade," "globalization" or "trade fundamentalism?"

Many of us believe in distributive justice on a global scale -- but think that such justice can not be achieved across national borders until it is achieved within our own. Perhaps distributive justice, like charity, begins at home.
- dan baur Oct 14, 2016
  
  None of your business, unless you are a shareholder in that particular company.
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