Skip to main content

Trilemma or dillema: Rodrik and Palley on Globalization

As a followed up on my recent discussion on Dani Rodrik's paper, below Tom Palley's critique of Rodrik's trilemma between globalization, national sovereignty, and democratic politics. Tom argues that there is no trilemma, only a dilemma, and that democracy is not on the same plane.

From his paper "A Theory of Economic Policy Lock-in and Lock-out via Hysteresis: Rethinking Economists’ Approach to Economic Policy."

Rodrik (2011) has argued that globalization poses a trilemma between globalization, national sovereignty, and democratic politics. He argues that you can have any two, but not all three. The framework in Figure 3 qualifies that interpretation. From the perspective of the nation state there is no trilemma, only a dilemma.
National sovereignty can be identified with national policy space. Globalization creates a trade-off between national policy space and the degree of globalization, with national policy space declining as globalization deepens. Democracy is not at issue. Countries can be outside of globalization and democratic, or they can be engaged in globalization and democratic. Democratic politics is always viable. The problem is globalization diminishes the “content” of democratic politics, as measured by the achievable range of the policy target.

It is these type of concerns that motivate criticism of trade agreements like the Trans-Pacific Partnership. Whereas trade agreements fifty years ago were about reducing tariffs and quotas, today they are “global governance agreements (Palley, 2016)” that are writing the rules of a new world order. These global governance agreements fundamentally impact national policy space. A clear example of this is the new system governing disputes between governments and foreign-based corporate investors, which involves an extra-legal investor – state dispute settlement (ISDS) process that is outside of nations’ own legal systems. As Renato Ruggerio (1996), the first General Secretary of the World Trade Organization observed at its onset: “We are no longer writing the rules of interaction among separate national economies. We are writing the constitution of a single global economy.”
In fact, the problem is likely more complex than illustrated in Figure 3 because a country that seeks to avoid globalization may still find its policy space impacted by globalization. This is illustrated in Figure 4. As globalization increases in the rest of the world (G*0 < G*1), policy space decreases in country i despite unchanged local engagement with globalization (Pi,0(Gi,0, G*0) > Pi,0(Gi,0, G*1)), which reduces the achievable range of the policy target (Xi,0+( Gi,0, G*0) > Xi,0+( Gi,0, G*1)). That is because globalization is relational. When other countries deepen their globalization, that imposes additional constraints on countries that do not follow suit because it negatively impacts the latter’s network of relations. The exact nature of this shift will depend on the type of globalization adopted by the rest of the world.

Read full paper here.


Popular posts from this blog

What is the 'Classical Dichotomy'?

A few brief comments on Brexit and the postmortem of the European Union

Another end of the world is possible
There will be a lot of postmortems for the European Union (EU) after Brexit. Many will suggest that this was a victory against the neoliberal policies of the European Union. See, for example, the first three paragraphs of Paul Mason's column here. And it is true, large contingents of working class people, that have suffered with 'free-market' economics, voted for leaving the union. The union, rightly or wrongly, has been seen as undemocratic and responsible for the economics woes of Europe.

The problem is that while it is true that the EU leaders have been part of the problem and have pursued the neoliberal policies within the framework of the union, sometimes with treaties like the Fiscal Compact, it is far from clear that Brexit and the possible demise of the union, if the fever spreads to France, Germany and other countries with their populations demanding their own referenda, will lead to the abandonment of neoliberal policies. Aust…

A brief note on Venezuela and the turn to the right in Latin America

So besides the coup in Brazil (which was all but confirmed by the last revelations, if you had any doubts), and the electoral victory of Macri in Argentina, the crisis in Venezuela is reaching a critical level, and it would not be surprising if the Maduro administration is recalled, even though right now the referendum is not scheduled yet.

The economy in Venezuela has collapsed (GDP has fallen by about 14% or so in the last two years), inflation has accelerated (to three digit levels; 450% or so according to the IMF), there are shortages of essential goods, recurrent energy blackouts, and all of these aggravated by persistent violence. Contrary to what the press suggests, these events are not new or specific to left of center governments. Similar events occurred in the late 1980s, in the infamous Caracazo, when the fall in oil prices caused an external crisis, inflation, and food shortages, which eventually, after the announcement of a neoliberal economic package that included the i…