Dani Rodrik
RONDA,
SPAIN – As the world reels from the Brexit shock, it is dawning on
economists and policymakers that they severely underestimated the
political fragility of the current form of globalization. The popular
revolt that appears to be underway is taking diverse, overlapping forms:
reassertion of local and national identities, demand for greater
democratic control and accountability, rejection of centrist political
parties, and distrust of elites and experts.
This backlash was predictable. Some economists, including me, did warn
about the consequences of pushing economic globalization beyond the
boundaries of institutions that regulate, stabilize, and legitimize
markets. Hyper-globalization in trade and finance, intended to create
seamlessly integrated world markets, tore domestic societies apart.
The bigger surprise
is the decidedly right-wing tilt the political reaction has taken. In
Europe, it is predominantly nationalists and nativist populists that
have risen to prominence, with the left advancing only in a few places
such as Greece and Spain. In the United States, the right-wing demagogue
Donald Trump has managed to displace the Republican establishment,
while the leftist Bernie Sanders was unable to overtake the centrist
Hillary Clinton.
As an emerging new
establishment consensus grudgingly concedes, globalization accentuates
class divisions between those who have the skills and resources to take
advantage of global markets and those who don’t. Income and class
cleavages, in contrast to identity cleavages based on race, ethnicity,
or religion, have traditionally strengthened the political left. So why has the left been unable to mount a significant political challenge to globalization?
One answer is that
immigration has overshadowed other globalization “shocks.” The perceived
threat of mass inflows of migrants and refugees from poor countries
with very different cultural traditions aggravates identity cleavages
that far-right politicians are exceptionally well placed to exploit. So
it is not a surprise that rightist politicians from Trump to Marine Le
Pen lace their message of national reassertion with a rich dose of
anti-Muslim symbolism.
Latin American
democracies provide a telling contrast. These countries experienced
globalization mostly as a trade and foreign-investment shock, rather
than as an immigration shock. Globalization became synonymous with
so-called Washington Consensus policies and financial opening.
Immigration from the Middle East or Africa remained limited and had
little political salience. So the populist backlash in Latin America –
in Brazil, Bolivia, Ecuador, and, most disastrously, Venezuela – took a
left-wing form.
The story is similar
in the main two exceptions to right-wing resurgence in Europe – Greece
and Spain. In Greece, the main political fault line has been austerity
policies imposed by European institutions and the International Monetary
Fund. In Spain, most immigrants until recently came from culturally
similar Latin American countries. In both countries, the far right
lacked the breeding ground it had elsewhere.
But the experience in
Latin America and southern Europe reveals perhaps a greater weakness of
the left: the absence of a clear program to refashion capitalism and
globalization for the twenty-first century. From Greece’s Syriza to
Brazil’s Workers’ Party, the left has failed to come up with ideas that
are economically sound and politically popular, beyond ameliorative
policies such as income transfers.
Economists and
technocrats on the left bear a large part of the blame. Instead of
contributing to such a program, they abdicated too easily to market
fundamentalism and bought in to its central tenets. Worse still, they
led the hyper-globalization movement at crucial junctures.
The enthroning of
free capital mobility – especially of the short-term kind – as a policy
norm by the European Union, the Organization for Economic Cooperation
and Development, and the IMF was arguably the most fateful decision for
the global economy in recent decades. As Harvard Business School
professor Rawi Abdelal has shown,
this effort was spearheaded in the late 1980s and early 1990s not by
free-market ideologues, but by French technocrats such as Jacques Delors
(at the European Commission) and Henri Chavranski (at the OECD), who
were closely associated with the Socialist Party in France. Similarly,
in the US, it was technocrats associated with the more Keynesian
Democratic Party, such as Lawrence Summers, who led the charge for financial deregulation.
France’s Socialist
technocrats appear to have concluded from the failed Mitterrand
experiment with Keynesianism in the early 1980s that domestic economic
management was no longer possible, and that there was no real
alternative to financial globalization. The best that could be done was
to enact Europe-wide and global rules, instead of allowing powerful
countries like Germany or the US to impose their own.
The good news is that
the intellectual vacuum on the left is being filled, and there is no
longer any reason to believe in the tyranny of “no alternatives.”
Politicians on the left have less and less reason not to draw on
“respectable” academic firepower in economics.
Consider just a few examples: Anat Admati and Simon Johnson
have advocated radical banking reforms; Thomas Piketty and Tony
Atkinson have proposed a rich menu of policies to deal with inequality
at the national level; Mariana Mazzucato and Ha-Joon Chang have written insightfully on how to deploy the public sector to foster inclusive innovation; Joseph Stiglitz and José Antonio Ocampo have proposed global reforms; Brad DeLong, Jeffrey Sachs,
and Lawrence Summers (the very same!) have argued for long-term public
investment in infrastructure and the green economy. There are enough
elements here for building a programmatic economic response from the
left.
A crucial difference
between the right and the left is that the right thrives on deepening
divisions in society – “us” versus “them” – while the left, when
successful, overcomes these cleavages through reforms that bridge them.
Hence the paradox that earlier waves of reforms from the left –
Keynesianism, social democracy, the welfare state – both saved
capitalism from itself and effectively rendered themselves superfluous.
Absent such a response again, the field will be left wide open for
populists and far-right groups, who will lead the world – as they always
have – to deeper division and more frequent conflict.
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