Dilemma on Rodrik’s trilemma

More than eleven years ago, Professor Dani Rodrik had posted the ‘inescapable trilemma of the world economy’. You can see the chart in his post.

He wrote:

I have an “impossibility theorem” for the global economy that is like that. It says that democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full. [Link]

My question is this: Regardless of whether the government is a democracy or authoritarian, is it possible to have global eocnomic integration and national sovereignty which means national policy autonomy?

I think not. So, it is really a dilemma. One can have global economic integration or one can have national policy autonomy/sovereignty but not both.

By the way, Paul Tucker’s book ‘Unelected Power’ is also about a form of ‘Global Economic Integration’ inasumuch as policy is increasingly made by unelected elites in global forums that then become binding on nations. No debates; Democracy or not – does not matter. These norms apply to India; apply to Russia.

Paul Tucker, summarising his book, for promarket.org wrote,

central banking has drifted into being, or always was, a vehicle serving the interests of a globalized metropolitan elite: policy by and for “Davos Man.” [Link]

In other words, if policy elites stayed away from Davos, Rodrik’ trilemma (or, dilemma) can be largely addressed or attenuated.

Read Paul Tucker’s interview with promarket.org here. I doubt if many would read his (needlessly) dense book. In fact, I think Willem Buiter’s paper written in 2012 anticipates much of Paul Tucker’s arguments on democratic non-accountability in the domestic context. So, if you do not have time to read Tucker’s book, reading Buiter’s paper (speech) will do just fine.

The post-WW II order

The Editor
New York Times

Dear Sirs or Madam,

This has reference to the article by Peter Goodman (‘The Post-World War II Order Is Under Assault From the Powers That Built It’, published online on March 26, 2018 – https://www.nytimes.com/2018/03/26/business/nato-european-union.html).

I first comment on some specific statements made by Mr. Goodman before offering general comments.

Naïve comment:

But American leaders have failed to deliver job training and other  programs that might have cushioned the blow for communities hurt by imports.

The scale of the dislocation and jobs displacement was so huge as not to be amenable to such romantically naïve prescriptions.

Faulty logic:

Mr. Trump’s trademarks — “Make America Great Again,” and “America First” — underscore his forsaking of his country’s traditional commitment to collective ideals.”

This is an example of ultimate finessing:

“But if the justice of the liberal order has been contentious, now its basic endurance appears in question.”

An order that is not just will not endure. Period. The cumulative injustice perpetrated by the order has now threatened its basic endurance. That is the way to frame the sentence and understand the developments.

Barking at the wrong tree:

He appears to subscribe to the notion that the United States, the largest economy on earth, must unabashedly pursue its self-interest, free of constraints like naïve reverence for the rules of the global trading system.”

This statement would have been authentic and correct had it been directed at China.

Let us rephrase it and that would make a lot more sense:

“Xi appears to subscribe to the notion that China, the second largest economy on earth, must unabashedly pursue its self-interest, free of constraints like naïve reverence for the rules of the global trading system.”

My comments:

Collectivist ideals were easy to forge in the bloddy aftermath of the WW II,e especially after the holocaust induced killings.

Rising prosperity – again, relatively easy, after the Great Depression and WW II – made it easy to commit to ‘collectivist ideals’.

Then, in the aftermath of the 1979 Soviet entry into Afghanistan and the tantalising opening up of China to the West, it was easy to renew commitment to collectivist ideal. The common threat was clearly recognised and always a visible and identifiable enemy enables one to define oneself as ‘not the enemy and what it/he stands for’.

Then, in the 1990s, after the collapse of the Soviet Union and the reunification of Germany, optimism about the Western system of capitalism and the Grand Euro project cemented the collectivism.

In the new millennium, after 09/11, the threat of ‘Islamic terrorism’ provided the glue.

But, while all these were going, we had countervailing forces that were chipping away at the collectivist glue – technology, outsourcing and offshoring – that concentrated profits in few hands.

Technological developments, on their part, weakened familial ties, glues and increased the atomisation of families and societies, leaving humans feeling lonely, vulnerable and stressed. The onward and relentless march of technology was another of the ‘Globalist’ projects.
All that they can offer in compensation for what they had and are still unleashing is ‘Universal Basic Income’ – arrogant and stupid at the same time.

Nothing much has changed in the world of finance either. The rise of finance that ruined economies has not been arrested. Even nine years after the crisis of 2008, average bonuses on Wall Street had returned to the levels of 2006!

Blame the ‘globalists’ for the failure of the ‘global project’. Not the populists and the nationalists. They are doing just the final rites on the corpse. The murder of the ‘global project’ was done by the so-called globalists.

Until the world gets it and until people like Goodman gets it, the populists are not going to be pushed back. They will be strengthened by these false framing of the issue and the narrative.

Thank you.
Sincerely,
Anantha Nageswaran

Localisation vs. Globalisation

An interesting article (could be behind a paywall) from Gillian Tett in the FT on how executives had already been turning away from globalisation, well before Donald Trump arrived at the White House. It is not too hard to fathom the reasons: they went for cost savings. They had dried up. So, they return. Technology has also made local manufacturing competitive, perhaps. I do not know. I am guessing. More interesting for me was the question of what it meant for the balance between capital and labour.

Globalisation – whether jobs went or work went overseas – expanded the global supply of labour. That, in part, contributed to the withering of labour bargaining power in the West and kept a lid on wage growth. This was true from the Eighties and more so in the new millennium, after the entry of China into the WTO in 2001.

Now, the big question is if the ‘reversal’ of the trend would restore the balance between capital and labour. If one may hazard a guess, it does not seem like it because this reversal is being driven by the same profit consideration too that drove globalisation.

Nothing wrong about the motivation at all except that the fruits of such business decisions were shared in blatantly lopsided fashion. Now, technology – robotics and AI – might end up postponing (or, denying) the reversal of the capital vs. labour imbalance that began in the 1980s.

One thought that the global crisis of 2008 would force a re-examination of many undesirable trends that had taken roots in the previous quarter century: leveraging, financialisation, executive compensation and the erosion of social compacts of business. That has not happened yet. One hopes (in vain) read some good news from Gillian Tett on these.

Stuff that caught my attention – STCMA 28.5.2017

On its maiden run, Tejas Express finds headphones missing, seats dirty and scratches on TV screens. Should we be pessimistic on India because of its governments and politicians or because of the people? I would say the latter.

Shankkar Aiyar laments the lack of a constructive, credible and serious political opposition to the NDA government. The question is did we ever have it, in our polity?

Shankkar Aiyar also rues the missed opportunity of the ‘Smart Cities’ programme. He is right.

One nation – one ghee dosa – one price: Praveen Chakravarty on the extremely bad idea of the government’s price gouging authority provision in the new GST Bill. True that private sector might not pass on savings. But, his example shows how intrusive an authority to check that, can become. One hopes it is a case of bark rather than bite.

I liked this piece by Pradeep Mehta of CUTS International on NITI Aayog’s three-year action plan.

Appears more of an excuse than a legitimate justification to sideline Paul Romer (ht: Amol Agrawal).

Abhijit Banerje’s piece in ‘Indian Express’ could have been worse.

This piece by Yuval Harari on how the world would cope with technological progress that would render them unemployed is either too subtle for me or it is too frivolous. Perhaps, it is a parody on progress? If so, I like it. (ht Ravikumar from Washington, DC).

This MINT Edit spotlights the speed with which we reconcile to mediocrity and second and third best worlds. It deals with the issue of how the proposed Goods & Services Tax (GST) in India on Services is too complicated.

From the man of the mangled metaphors, this article, superficial as it is, is well worth a read because he has done what good journalists are supposed to do – go and verify things for oneself.

Ramesh Ponnuru on the Liberal blind spots. Short but effective.

There are times one should be happy that articles are behind paywalls and cannot be accessed. Saves time and much else.

Ajit Ranade pays tributes to a silent tree lover who passed away too young. Nice to remember and reflect.

Twilight – continued

The article by Christopher Caldwell (see my earlier post, ‘Twilight’) had set me thinking. I sent the following email to my friend Niranjan who had forwarded the article to me:

Made for a thoroughly scary, disturbing and engrossing reading!

I am really surprised that the world has not imploded. That is the good news. The bad news is that it is still to be played out. It is coming.

I really doubt if any of us have answers to stop the Doomsday Clock from moving towards midnight. The clock will strike 12. IT is a matter of time.

Another friend who read the piece concurred on my assessment of the article and engaged in an email discussion on some of the issues such as hostility to outsiders (identity as the market, as he put it) as a consequence of economic hardship faced by the locals.

This was my response to him:

Identity is part of the mix, no doubt. But, it is part of the capital over labour imbalance that started with the collapse of the Bretton Woods in 1973. Monetary ‘rules of the game’ were abandoned. ‘Growth at all costs’ became the policy goal. Central banks’ discretionary money and the liberal use of debt contributed to economic growth, relentless rise in asset prices. Those who have assets benefited. Those who did not, simply became more indebted. Then, this ‘growth at all costs’ meant globalisation.

That was the second leg – or the second pillar of ‘growth at all costs’ – of the 1970s regime change in both purpose and paths. Globalisation meant offshoring and outsourcing plus immigration. It helped countries like India and, in a far bigger way, China. Both are mostly the stories of the new millennium: Y2K and China’s WTO entry were signature launchpad of the western malaise.

The third leg is the Western hubris induced political regime change in the Middle East that has brought waves of immigration – especially that of Muslims. The fourth leg of this is Islam itself with its ‘they are with me or they are against me’ binary attitude towards the rest of the world and the various acts of terrorism committed by terrorists.

The fourth leg has been greatly amplified by the wave of political correctness that is sweeping through Western societies – I wonder if I can trace the genesis and the driving spirit of it – is it guilt or is it fear or both or is there something else?

My logic above takes me in the direction of fixing the ‘root cause’ – going back to the old monetary rules of the game that would, in turn, reverse the other legs – particularly economic inequality.  Company leaders and, more generally, businesses would go back to doing genuine product and process innovations rather than gaming stock prices and their compensation through labour retrenchment and squeezing out labour compensation. If they do, loyalty and motivation might return boosting productivity and employment. A virtuous circle could set in and, who knows, it could starve terrorist organisations of recruits. May be, I am being too optimistic.

There was one crucial difference about the post-World War II period that lasted up to the early Seventies. Economic growth was easier to come by, because it was catch-up growth, reconstruction and rebuilding and all of that. Demographics were favourable in the West. Climate change was not a factor that militated against the burning of coal and other hydrocarbons, etc.

So, will merely restoring the ‘monetary rules of the game’ help? Well, perhaps not. But, we can only change things that we can influence and change. What else can we do? That might work. After all, the law of unintended consequences can work in a virtuous way too.

The troika on trade

Apparently, the IMF, World Bank and the WTO have issued a joint report/statement on the importance of open trading regimes. At the same time, they have called for labour compensation policies. Dani Rodrik calls it too late. He says that the rules of globalisation have to be changed completely. He offers a thumbnail sketch of the changes he wants to see, in this NYT piece published in September 2016. They are still somewhat general and vague for my taste but some specifics can be teased and tortured out of them.

I had not seen the WTO-World Bank-IMF report but saw a FT story on it. I left the following comment on the article:

It might be worthwhile for the Heads of IMF, World Bank and WTO to read Professor Robert Allen’s ‘Global Economic History: a very short introduction’. Countries liberalised internal trade and raised walls against external competition when they were trying to grow. We have no idea of what works.

If the Chiefs of multilateral institutions want to help developing countries access markets in the developed world, they must address two things: (a) They must make China fairer in trade. (b) They must make sure that unskilled and low-skilled workers in developed countries, their families and their communities are not affected by trade. If they are, they must be made whole. That means more than financial compensation or relocation, etc.

The key to sustaining global free trade is not to attack America or its President but to fix China’s trade practices.

Christopher Balding has tweeted as follows:

“You know what the probability of a foreign company getting approval to buy a $50b Chinese company? Hint: 0<p<0.00000000000000000000000000001” [Link].

Yes, I am aware that this is about investment and not about trade. But, find one respectable and objective economist or journalist who is willing to go on record that China is an open market for trade. Then, I would retract that this is not symptomatic of China’s overall openness or the lack, thereof.

Fix China trade and investment regimes and then issue statements on a open global trading regime.

Fake news or demented poetry

About five days ago, Chris Balding tweeted this:

I am going to pound this into the ground because its true: China promoting free trade is fake news

Perhaps, Martin Wolf should have had a word with him before he wrote his piece on Xi Jinping offering lessons to President Trump on the merits of liberal global trade.

To believe that China takes ‘ liberal global trade’ seriously is either seriously ignorant or a serious miscalculation, perhaps, arising out of Mr. Wolf’s recent visit to the China Development Forum.

Commenting on the remarks of Larry Summers that “Trump’s ‘alternative facts’ were costing America the coin of the realm”, Chris Balding wondered how much these people were paid to come and attend such forums in China.

Just to get a sense of the Chinese understanding of the ‘merits of liberal global trade’, Mr. Wolf would do well to read these stories:

(i) China’s trading partners alarmed by food import controls

(ii) Call to tackle China’s soaring aluminium output (“Despite a tentative recovery in prices following a five-year slump, experts warn that China’s pledge has not yet reduced net capacity”)

(iii) China’s Taxes on Imported Cars Feed Trade Tensions With U.S.

(iv) Head of China’s industry ministry says country right to limit market access:

More than 80 percent of members of a U.S. business lobby in China say foreign companies are less welcome than in the past, a survey released in January showed, with most saying they have little confidence in China’s vows to open its markets.

What we see in Mr. Wolf’s article is a problem that is all too familiar. Journalists play plaintiff, judge, jury and executioner when it comes to their pet hates and, in the process, fail the most important hallmark of intellectual credibility and integrity and that is, intellectual consistency and uniform application of yardsticks. They failed to do that when globalisation was at its peak. Now that its adverse consequences are coming home to roost, they are very eloquently warning us of the dangers of reversing globalisation.

Ordinary folks wonder what is so complicated and difficult about rolling back something that did not deliver anything of value to them but only destroyed their economic well-being and their communities. Chinese imports and outsourcing/offshoring of production were visible signs of that globalisation. To be taken seriously is to analyse rigorously and objectively.

It is far too easy to say President Trump has low or no credibility but what about an inward gaze?

Again, let us turn to Chris Balding’s brilliant tweet:

The astounding hypocrisy between those screeching about Trump while apologizing for Beijing is nothing less than demented poetry [Link]

What prompted this tweet?

Reuters calling China’s punitive measures against South Korea for the deployment of THAAD missiles just a ‘chill’:

The mainland chill on popular Korean entertainment in China is driving fans underground for their “K-culture” fix [Link]  – via this tweet.