A "new bargain" on trade?

Harvard's Dani Rodrik says the global economy is as open as it needs to be. House Democrats chime in with a proposal to close things up a bit.

Published March 27, 2007 8:55PM (EDT)

Salon authorized a subscription to the Financial Times for How the World Works several months ago, but I didn't pull the trigger and sign up until today, when Trade Diversion's Jonathan Dingel noted that Dani Rodrik had written a column titled "Cheerleaders Threat to World Trade" for the U.K. business newspaper.

Rodrik, a professor of international political economy at Harvard's Kennedy School of Government, has made frequent appearances in this space. A defender of industrial policy and a cogent critic of the Washington Consensus, he is a force to be reckoned with by defenders of globalization as it is practiced today. His Financial Times column holds few surprises for those who are familiar with his work, but it does so in a more eloquently pithy manner than his typical 50-page tract.

The gist: The world economy is already open enough. We don't need further liberalization -- what we need instead is a more nuanced arrangement that gives poor countries the liberty to pursue development strategies that benefit themselves, while rich countries can preserve the social contracts that their populations demand.

...the greatest obstacle to sustaining a healthy, globalized economy is no longer insufficient openness. Markets are freer from government interference than they have ever been. Import restrictions such as tariff and non-tariff barriers are lower than ever. Capital flows in huge magnitudes. Despite barriers, legal and illegal immigration approaches levels not seen since the 19th century.

Consequently, no country's growth prospects are significantly constrained by a lack of openness in the international economy. Even if the Doha trade round fails, poor countries will have enough access to rich country markets to achieve what countries such as China, Vietnam and India have been able to do. Closed markets may have been a fundamental problem during the 1950s and 1960s; it is hard to believe they still are. The greatest risk to globalization is elsewhere. It lies in the prospect that national governments' room for maneuver will shrink to such levels that they will be unable to deliver the policies that their electorates want and need in order to buy into the global economy.

... Rich countries need ... flexibility to interfere in trade when trade conflicts with deeply held values at home -- as, for example, with child labor or health and safety concerns -- or severely weakens the bargaining power of workers. Poor nations need room to engage in exchange rate and industrial policies that will diversify and restructure their economies, without which their ability to benefit from globalization is circumscribed.

It is time, then, to consider a new bargain. When rich and poor nations come together to negotiate the rules of the game they should stop thinking in terms of exchanging market access: "I will open my markets in x if you open yours in y." They should consider instead exchanging policy space: "I will allow you to protect your national social compact if you allow me to engage in development strategies that conflict with WTO and International Monetary Fund rules of good behavior." The challenge is to design procedures that enable the use of policy space for socially desirable purposes while limiting it for beggar-thy-neighbor purposes.

Rodrik is nothing if not timely. On Tuesday, House Democrats unveiled "A New Trade Policy for America," which lays out their most explicit platform yet for remaking global trade since last year's midterm elections. Most of it is a restatement of the American labor agenda, but it also includes a direct appeal to the concerns of developing nations by proposing to "Re-establish a fair balance between promoting access to medicines and protecting pharmaceutical innovation in developing industries."

This raises an interesting prospect. Developing nations tend to see Western efforts to require them to boost their environmental and labor standards as protectionist attempts to reduce their comparative advantage. Meanwhile they bridle at "free trade agreements" that are largely designed to advance the interests of corporate special interests -- in particular, the pharmaceutical lobby -- at the expense of domestic public policy, such as, say, Thailand's efforts to affordably provide healthcare to its citizens.

Are the Democrats proposing a deal, a "new bargain," to borrow Rodrik's phrasing, that promises: We will support developing nations' access to cheaper drugs in return for greater environmental protections and improved labor standards? Big Pharma, most likely, will not be amused.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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