Mainstream economists fear globalisation

Harvard’s Dani Rodrik makes the correct point that even staunch defenders of globalisation are becoming nervous about its benefits. Writing for Project Syndicate (reproduced in Britain’s Guardian newspaper) he argues that:

“we have Paul Samuelson, the author of the postwar era’s landmark economics textbook, reminding his fellow economists that China’s gains in globalisation may well come at the expense of the US; Paul Krugman, today’s foremost international trade theorist, arguing that trade with low-income countries is no longer too small to have an effect on inequality; Alan Blinder, a former US Federal Reserve vice-chairman, worrying that international outsourcing will cause unprecedented dislocations for the US labour force; Martin Wolf, the Financial Times columnist and one of the most articulate advocates of globalisation, writing of his disappointment with how financial globalisation has turned out; and Larry Summers, the US Treasury chief and the Clinton administration’s “Mr Globalisation,” musing about the dangers of a race to the bottom in national regulations and the need for international labour standards.” (see original article for links).

He could have added Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard, who recently argued in the Financial Times (29 July) that:

“Of course, today’s mess was many years in the making and there is no easy, painless exit strategy. But the need to introduce more banking discipline is yet another reason why the policymakers must refrain from excessively expansionary macroeconomic policy at this juncture and accept the slowdown that must inevitably come at the?end of such an incredible boom. For most central banks, this means significantly raising interest rates to combat inflation. For Treasuries, this means maintaining fiscal discipline rather than giving in to the temptation of tax rebates and fuel subsidies.”

As Rodrik argues it is now mainstream economists who pose the most criticisms of globalisation: “The cheerleaders’ true sparring partners today are not rock-throwing youths but their fellow intellectuals.”

For Rodrik the key question is to find the appropriate rules for regulating the globalised world. He does not appreciate the dangers that such regulation can bring – particularly if they restrain economic growth.