This backlash demonstrates just how much the world needs to urgently reexamine the mechanisms of globalization and trade to ensure that more people benefit from them, says Dani Rodrik, an economist at Harvard. In a recent working paper and a forthcoming book, Rodrik argues that preserving the liberal global order will hinge on broadening its benefits to more people. In the meantime, the future of globalization hangs in the balance.
This interview has been edited for length and clarity.
For decades, it’s seemed like globalization was inevitable. Do you see greater economic integration as the long-run trend of history? Or maybe we’re thinking of it backwards, and the recent period of global integration we saw up to the financial crisis is the exception to the norm?
One of the biggest falsehoods in the discussion of globalization is that it has been inevitable, and there is nothing you can do about it. In fact, globalization and the type of globalization we have is the product of the choices we made. Trade agreements have to be negotiated. We had to coordinate international organizations to disseminate the norm of free capital flows and financial globalization.
So I think it’s silly to presume that it cannot be reversed, if we manage it really badly. I don’t see that on the horizon, but I do not think we should minimize the role of our own decisions in the form that globalization took.
Where do you come down on trade now? In your recent paper, you say that “trade generically produces losers,” and you cite studies that show how the North American Free Trade Agreement and China’s entry into the World Trade Organization led to job losses. But freer trade also creates obvious economic gains.
I would say that the agenda for globalization has become very imbalanced. There are specific groups that are benefiting handsomely, and there are groups that have lost out. The challenge is not to reverse or oppose globalization. I think the challenge is to rebalance it in a way that will provide broad gains to many groups who feel they have been excluded.
I do think we’ve mismanaged this process badly. The forces that have gained, the right-wing populists, don’t have a stake in either liberal democracy or the liberal world economy, and both are at stake right now. But I do think there is a way out. It’s going to require alternatives to the narrative of the right-wing populists, and I’m hoping that will come about.
What is the difference between left-wing populism, which you say falls along economic cleavages, and right-wing populism, which centers around ethnic and national differences?
They differ in two key respects, which makes me more sympathetic to left-wing populists than right-wing populists.
One is that left-wing populists have remedies in mind that would eliminate the divisions which create the backlash in the first place. They talk about cleavages in terms of inequality of opportunity and income and wealth, and to the extent that you’re able to overcome these things, you are working to eliminate divisions. Whereas right-wing populists feed off cultural, ethnic, racial and religious cleavages that need to be deepened to make them successful. In other words, right-wing populists actively create an enemy that can mobilize their supporters. That makes them dangerous, because their remedies entail deepening the cleavages they thrive on.
The second aspect is that, not always, but typically, right-wing populists do not have any great love for the norms of liberal democracy, because they believe that there is one true national will. They generally abhor the idea that we should have different views as to how that is determined, or things like a free independent judiciary. So right-wing populism is more dangerous to democracy than left-wing populism.
You mention that left-wing and right-wing populism derive from different economic and social conditions. Looking at the U.S. today, do you see one form being more ascendant?
I make a distinction between the deep causes of populism, and the political narratives around which they get wrapped. The deep causes of populism are economic and structural, generally speaking. There might be residues of racism and ethno-nationalism in the United States and other European countries, but I don’t think that’s what’s really driving populism. What’s driving it is the economic insecurities, the rising inequality, and the economic and social divisions that have been created, not just by globalization, but by the kind of policies we have pursued in the last few decades.
But the manner in which populism gets packaged is different. You can package it around a right-wing, ethno-nationalistic, racialist narrative, or you can package it around a left-wing social and economic exclusion narrative. What’s happening on a day-to-day basis might make it easier for right-wing than left-wing organizations. Refugees are in the news, and if there is the constant threat of Islamic terrorism, that is going to provide fuel for right-wing populists. It’s much more salient and gives them a way of organizing this broad-based discontent.
We’re obviously seeing a strong backlash now to freer trade, which seems like a dramatic shift from public opinions just a decade or two ago. Is there anything economists got wrong about trade? Or did they just not do a good job of explaining the downsides?
Economic theory would have predicted this kind of backlash. The models trade economists use predict not just that trade liberalization is accompanied with significant income redistribution, but also that the amount of redistribution tends to rise relative to overall economic gains as we start chasing after the most remote impediments to trade. So there was a curious disjunction between what economists know and the way they represented the discipline to the rest of the world.
Do you think that conversation was co-opted by businesses and other special interests?
Yes. Clearly, there was an alliance of convenience between many financial institutions and exporters, who were interested in opening up markets elsewhere, and economists, who thought that freer trade was a direction that was worth moving in and were happy, by and large, to act as cheerleaders for the kind of globalization that we have experienced. Economists lent their expertise and their prestige to particular interest groups, who used economists to advance their case.
In the process, economists had a tendency to poo poo many of the distributive and fairness implications of trade agreements. I don’t think they consciously or explicitly decided to deemphasize some of the complications to freer trade. But on the whole, given how the principle of comparative advantage and the overall gains from trade are such crown jewels in the economics profession, I think the profession decided that anything that moved us closer to freer trade was a cause worth supporting in public.
What needs to be done to alter globalization going forward?
I have a book coming out this fall in which I talk about rebalancing globalization. There are three areas I emphasize. One is that we need to move toward agreements that provide greater benefits to employees and labor instead of employers and capital. Another is that I think we’ve moved too far in terms of global governance and standardization of regulations. We need to enhance national governance, and paradoxically that would make economic globalization work better. Third would be moving from areas where overall economic gains are relatively small to areas where overall economic gains could be relatively large, such as increasing the mobility of workers across borders.
You imply in a recent paper that Europe has done more than the United States to redistribute the gains in trade, and it has resulted in a different kind of populism in Europe. Explain that.
In the U.S., every time there was a trade agreement, you needed to tack on trade adjustment assistance to get labor to go along. Over time, it’s become clear that these measures really don’t work, because there are no political incentives to ensure they work once agreements have been signed. In Europe, you don’t have a separate mechanism for compensating trade losers. Instead you have very broad social insurance mechanisms. Europe, which became an open economy much earlier than the United States, was able to manage this openness because of the presence of these expansive welfare states.
Indeed, it’s not that populism hasn’t taken up in Europe, it’s just that European populists, including the right-wing populists, are not necessarily anti-trade. There are specific aspects of trade agreements which become politically controversial. But the nature of the conversation over trade is very different in Europe, and it is not nearly as contentious as it has become for quite some time in the United States, going back to Pat Buchanan and Ross Perot, who were in many ways antecedents of Donald Trump.