Since the financial crisis a decade ago, the economic recipes that seemed to work for decades have come under fire. Globalization and the international trading order seem to be under siege, while economic populism is on the rise. Foreign Policy spoke to Dani Rodrik, the Ford Foundation professor of international economy at Harvard University’s Kennedy School and the author, most recently, of Straight Talk on Trade, about how to fix what’s not working.
In your most recent book, you argue that what we need to do to restore sanity to the global economy is to restore a healthy balance between an open economy, while leaving room for national sovereignty and national solutions. What does that mean in practical terms—a scaled-down, or rolled-back version of globalization?
For many decades we had such a world—it was the Bretton Woods world between 1945 and the 1980s. The kind of globalization we had was one that did not reach behind borders and allowed countries significant leeway in the way that they would manage their economies. We already had such a system, and it was not inimical to globalization. In fact, world trade expanded relative to world GDP faster in the three decades after 1945 than it has since 1990, so it was a kind of globalization that enabled significant expansion of trade and long-term investment.
I think where this idea has the most important real-world counterpart is in the U.S.-China relationship. Rather than assume that China is going to converge to a kind of market economy model that allows for deep economic integration between the U.S. and Europe on one hand and China on the other, we have to recognize that the Chinese economic model is and will remain different. There is no good economic argument for why China should not be allowed significant free rein in the conduct of its economic and industrial policies. By the same token, China has to understand that the U.S. and Western Europe have legitimate concerns about trade with China and other lower-income countries, and those countries have a right to protect their own social arrangements and the integrity of their own technological systems.
But these days, there seems to be something of a showdown between two different economic approaches, between liberalism and neomercantilism. Is that a defining showdown of our time, or not?
I think there is a fundamental and structural problem, but I wouldn’t pose it as necessarily a conflict between liberalism and mercantilism. All economies are a mixture of liberal and mercantilist practices, but the mix differs. It would be a mistake if we thought about the U.S. economy as being an exemplar of a liberal economy and the Chinese as an exemplar of a mercantilist economy. In the real world, they both have a shifting mix of these different practices, and the right design for the world economy is essentially one that enables these different mixes to coexist side by side, rather than simply assuming that those differences can be whittled away. The big shift that we need to make is to understand that we can have a fair amount of globalization, and in fact healthy and sustainable globalization, by allowing more freedom for countries to solve their own problems, rather than assuming that the global economy and a single set of rules is what they need to adapt to.
The system that we have today, since the creation of the World Trade Organization 25 years ago, does that need root-and-branch, wholesale reform? Are we regulating the wrong kinds of economic and trade behavior?
Our international economic system is trying too hard to fix “beggar thyself” problems and is not doing nearly enough to tackle “beggar thy neighbor” problems. There are many areas where there are “beggar thy neighbor” policies—global tax havens, or currency policies, or Germany with its very large current account surplus. So I think we have our lens not quite right in terms of what we are trying to grapple with internationally, and we spend too much political capital in the wrong areas.
You’ve mentioned China’s idiosyncratic economic policies, and Germany’s big trade surplus. It sounds like in some ways U.S. President Donald Trump is right—is he?