Wanted: A New Consensus on Globalization

Dani Rodrik argues that the survival of globalization will require a " new intellectual consensus to underpin it":

The Death of the Globalization Consensus, by Dani Rodrik, Project Syndicate: The world economy has seen globalization collapse once already. The gold standard era – with its free capital mobility and open trade – came to an abrupt end in 1914 and could not be resuscitated after World War I. Are we about to witness a similar global economic breakdown?

The question is not fanciful. ... Unlike national markets, which tend to be supported by domestic regulatory and political institutions, ...[t]here is no global anti-trust authority, no global lender of last resort, no global regulator, no global safety nets, and, of course, no global democracy. In other words, global markets suffer from weak governance, and therefore from weak popular legitimacy.

Recent events have heightened the urgency with which these issues are discussed. The presidential ... campaign ... has highlighted the frailty of the support for open trade... The sub-prime mortgage crisis has shown how lack of international coordination and regulation can exacerbate the inherent fragility of financial markets. The rise in food prices has exposed the downside of economic interdependence... Meanwhile, rising oil prices have increased transport costs, leading analysts to wonder whether the outsourcing era is coming to an end. ...

So if globalization is in danger, who are its real enemies? There was a time when global elites could comfort themselves with the thought that opposition to the world trading regime consisted of violent anarchists, self-serving protectionists, trade unionists, and ignorant, if idealistic youth. Meanwhile, they regarded themselves as the true progressives, because they understood that ... advancing globalization was the best remedy against poverty and insecurity.

But that self-assured attitude has all but disappeared, replaced by doubts, questions, and skepticism. Gone also are the violent street protests and mass movements against globalization. What makes news nowadays is the growing list of mainstream economists who are questioning globalization’s supposedly unmitigated virtues.

So we have Paul Samuelson ... reminding his fellow economists that China’s gains in globalization may well come at the expense of the US; Paul Krugman ... arguing that trade with low-income countries is no longer too small to have an effect on inequality; Alan Blinder ... worrying that international outsourcing will cause unprecedented dislocations for the US labor force; ... and Larry Summers, ... the Clinton administration’s “Mr. Globalization,” musing about the dangers of a race to the bottom in national regulations and the need for international labor standards.

While these worries hardly amount to the full frontal attack mounted by the likes of Joseph Stiglitz ... they still constitute a remarkable turnaround in the intellectual climate. ...

None of these intellectuals is against globalization, of course. What they want is not to turn back globalization, but to create new institutions and compensation mechanisms – at home or internationally – that will render globalization more effective, fairer, and more sustainable. ...

[C]onfrontation over globalization has clearly moved well beyond the streets... That is an important point for globalization’s cheerleaders to understand, as they often behave as if the “other side” still consists of protectionists and anarchists. Today, the question is no longer, “Are you for or against globalization?” The question is, “What should the rules of globalization be?” ...

The first three decades after 1945 were governed by the Bretton Woods consensus – a shallow multilateralism that permitted policymakers to focus on domestic social and employment needs while enabling global trade to recover and flourish. This regime was superseded in the 1980’s and 1990’s by an agenda of deeper liberalization and economic integration.

That model, we have learned, is unsustainable. If globalization is to survive, it will need a new intellectual consensus to underpin it. The world economy desperately awaits its new Keynes.