The writer is a professor at and past president of Harvard University. He was treasury secretary from 1999 to 2001 and an economic adviser to President Obama from 2009 through 2010.
It is clear after the Brexit vote and Donald Trump’s victory in the Republican presidential primaries that electorates are revolting against the relatively open economic policies that have been the norm in the United States and Britain since World War II. If further evidence is needed, one need only look to the inability of Congress to pass legislation on immigration reform and the observation that the last four candidates left standing in the U.S. presidential contest all oppose the Trans-Pacific Partnership.
Populist opposition to international integration is also on the rise in much of continental Europe and has always been the norm in much of Latin America.
The question now is: What should be the guiding principles of international economic policy? How should the case be made by those of us who believe that the vastly better performance of the global system after World War II than between World War I and World War II was largely due to more enlightened economic policies?
The mainstream approach to these questions generally starts with some combination of rational argument and inflated rhetoric about the economic consequences of international integration. Studies are produced about the jobs created by trade agreements, the benefits of immigration and the costs of restrictions on trade. In most cases, certainly including the cases for TPP and against Brexit, the overall economic merits are clear. But in this advocacy there is a kind of Gresham’s Law (the economic principle that bad money drives out good) whereby bolder claims drive out more prudent ones, causing estimates to often be exaggerated and delivered with far more confidence than is warranted. Over time, this has caught up with the advocates of integration.
While there is a strong case that the United States is better off than it would have been if the North American Free Trade Agreement had been rejected, the most extravagant predicted benefits have not materialized. And it is also fair to say that claims that China’s accession into the World Trade Organization would propel political liberalization have not been borne out. In any event, the willingness of publics to be intimidated by experts into supporting cosmopolitan outcomes appears, for the moment, to have been exhausted.
The second plank of the mainstream approach is to push for stronger policies to resist inequality, cushion economic disruptions and support the poor and middle class, then argue that if domestic policies are right, the pressure to resist globalization will be attenuated. The logic is right, and certainly measures such as the GI bill, the government’s assurance of available mortgages and the interstate highway system were part of the political package that permitted the United States to underwrite an open international system through the 1960s. But the past eight years have seen the United States at last make significant progress toward universal health insurance, expand a variety of support programs for the poor and bring unemployment below 5 percent. Even still, trade has become ever less popular. It is not that strong domestic policies are unnecessary to undergird global integration; it is that they are insufficient.
A new approach has to begin from the idea that the basic responsibility of government is to maximize the welfare of citizens, not to pursue some abstract concept of the global good. Closely related to this is the idea that people want to feel that they are shaping the societies in which they live. It may be inevitable that impersonal forces of technology and changing global economic circumstances have profound effects. But it adds insult to injury when governments reach agreements that further cede control to international tribunals of one sort or another. This is especially the case when, for legal reasons or reasons of practicality, corporations have disproportionate influence in shaping global agreements.
If the Italian banking system is badly undercapitalized and the democratically elected government of Italy wants to use taxpayer money to recapitalize it, why should some international agreement prevent it from doing so? Why shouldn’t countries that think, likely wrongly, that genetically modified crops are dangerous get to shield their customers from such crops? Why should the international community seek to prevent countries that wish to limit capital inflows from doing so? The issue in all these cases is not the merits. It is the principle that intrusions into sovereignty exact a high cost.
What is needed is a responsible nationalism — an approach where it is understood that countries are expected to pursue their citizens’ economic welfare as a primary objective but where their ability to damage the interests of citizens of other countries is circumscribed. With such an approach, the content of international agreements would be judged not by how much is harmonized or by how many barriers to global commerce are torn down but by whether people as workers, consumers and voters are empowered.
This does not mean less scope for international cooperation. It may mean more. For example, tax burdens on workers around the world are as much as a trillion dollars greater than they would be if we had a proper system of international coordination that identified capital income and prevented a race to the bottom in its taxation. And taxes are only the most obvious area in which races to the bottom interfere with the achievement of national objectives. Others include labor and financial regulation, along with environmental standards.
Reflexive internationalism needs to give way to responsible nationalism — or else we will only see more distressing referendums and populist demagogues contending for high office.