Monday, March 21, 2011

Rodrik: The Globalization Paradox

Recently released book by Dani Rodrik - "The Globalization Paradox: Democracy and the Future of the Global Economy". Makes the case for a more robust form of globalisation where nation states play a larger role in acting as a taming force. The introduction begins with an unusually humble and frank account of how he had missed financial system vulnerabilities that were impending when writing his previous books. Continues with an argument that free trade fundamentalism is a product of social norm processes and cognitive limitations among economists. Provides a history of globalisation and argues that opening trade works best in the context of intelligent government institutions to manage it. He makes a case for developing a form of global capitalism where: markets are more deeply embedded in systems of governance, the nation state is a primary actor; there is heterogeneity in economic development models depending on the culture, endowments and preferences of nations; where countries have the right to protect their own institutions in cases where there is a clash with the imperatives of free trade; where countries do not have the right to impose institutions on others; where international institutions set rules of interaction between countries; and where democracies are given more rights under international institutions than non-democracies.

Recommended reading. Includes a chapter on potential downsides of financial innovation and capital inflows that will have resonance for people in Ireland. The narrative has not fully formed yet here but one is emerging of a country that progressed far with a model of state-managed opening up of trade and used this as a very progressive force but failed to develop a model for dealing with the large risks associated with capital inflows into domestic financial institutions. Furthermore the failure of the EU monetary project to develop a coordinated response to this has left us in a position where the Irish state is now being bailed out so that it, in turn, can bail out financial institutions that poured money into a construction bubble in a process Karl Whelan has called "No bondholder left behind". As excited as free market fundamentalists used to become when looking at Ireland, the experience of financial globalisation here should I hope lead them to cast a cold eye on us and have a read of Rodrik for ideas toward a more robust model.

From a behavioural perspective, the book has left me with some deep questions as to why it is people feel parts of nations rather than world citizens and the ethical and practical implications of this. Most people in Ireland feel themselves to be Irish, with some considering themselves European and some further considering themselves world citizens. If I had to choose, I actually feel affinity with the idea of being a "global Irish" (though aware that this concept is still nebulous to some extent) and increasingly see a merit in the idea of Ireland as a migrant country where there is a possibility of a constructive cross-national identity that is bridging and makes sense. My own identity aside, the idea of national identity as a legitimate constraint on policy is one aspect of Rodrik's book that is particularly thought-provoking and of interest to people working on psychological dimensions of economic activity.

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