The Economics of Populism by Dani Rodrik

thank you very much joking for the introduction thank you to you UBS Centre for the invitation thank you all for for being here it has been a fascinating day and those of you who've been here too all day have been in for a treat of very diverse perspectives on this issue I think yokum's introduction already set the stage for what I'm going to be talking about largely around the these issues of the the political trilemma of the world economy which I first wrote about back in 2000 I think was it was published in a for an article in the Journal of economic perspectives and and a number of authors were asked to sort of speculate since this was a kind of a millennium issue to speculate very wildly about the future of economics and at the time to be perfectly honest I had no idea that this framework would be at all insightful or useful it was a highly speculative piece but over time and I have to say sadly I you know it helped me understand many things that were that were going on in the world economy and and that's that's the kind of perspective I'm going to try to give you this afternoon if there is one thing that that beyond the trilemma that I you know I would like you to take away from this talk is not to think about globalization as just one thing globalization is something that we designed it's our rules that that that make globalization and what that means is that there can be many many different types of globalization and and therefore that the real debate about globalization shouldn't be do we want more globalization do we want less are we more global a globalizing those might be interesting questions but I think as we we sort of go forward the real question that I see is what kind of globalization what are the rules who should be sitting around the table whose interest should be privileged and what does that mean for the diverse policies of different a different kinds of countries I think many of our problems are rooted in a particular kind of globalization that we have been striving for since maybe the 1980s or the early 1990s and I will call this form of globalization hyperglobalisation to distinguish it both from to distinguish it from an earlier kind of globalization that that we that that we had on during the Bretton Woods era and I think the main distinguishing feature of hyper globalization is is that that it's an attempt to really get rid of all the transaction costs associated with the national borders and that's simply not just tariffs and quotas at the border but it's also anything else all the domestic regulation standards rules on product safety or intellectual property or banking regulations that can act as a as a transactions cost the free movement of of goods services capital finance and and and so forth and and and this conception of globalization has been actually taken to its most extreme form within the euro zone where it's not just the four freedoms plus a monetary unification it's the sort of the real world counterpart if you will of hyper globalization in a regional setting that's what the euro zone is and I will relate my trilemma to the euro zone as well I will argue that that kind of hyper globalization which essentially makes integration of markets pretty much an end for itself and there's a some logic to it because you get the gains from trade you get the benefits of larger markets and as an economist I know as well as any other economists the value of comparative advantage and the gains from trade and the benefits of the division of labor and certainly the logic behind that process of trying to push for high print in globalization is to reap those economic gains but I'm going to argue that that vision of fiber globalization runs into very severe problems in practice that the trilemma tries to highlight and I think looking at it from that perspective it forces us to take ax to take a step back and ultimately my conclusion that in order to have a fairer more sustainable better globalization in fact we need to revert back to a somewhat earlier conception of globalization that doesn't push for hyperglobalisation and paradoxically that actually makes globalization safer and some more sounder and more sustainable so that's that's the overall framework but let me start with populism two things that I think we need to be clear about populist and one I think is already clear and and that's because everybody's talking about populism because it's actually it's become a global phenomenon it's not just per exit it's not just Trump it's of course the rise of populist parties in Europe so it's really a global phenomenon so it has to be associated with some global trend the second thing about about populism which this chart signifies is that it's it just didn't happen in 2016 that that the populist parties have been gaining electoral strength for quite some time now so this is actually this is now a process that has been ongoing it's not from one day to the next so it's it has to be there for populism has to be related to something that has been going on for quite some time now when we look at the history of globalization it's actually there's a fairly clear link between the rise and fall of globalization and the rise and fall of various kinds of populist reactions to globalization earlier Kevin O'Rourke sort of mentioned many of these links and and and talked specifically about these various turning points it's worth pointing out that the very first self-consciously populist movement in world history even going be you know even going before sort of Latin American populism Tehran and and and all that was an American a populist movement of the late 19th century was an alliance of farmers and silver miners and what was the primary grievance of the American populace it was essentially the gold standard it was the sense that the gold standard made credit you know credit expensive real interest rates very high and the the populist at the time blamed the New York financiers the New York elite for being essentially behind the gold standard and making their life so so difficult but it was the very first self-conscious populist movement in history was decidedly took a position against the globalization of that time the the gold standard now the the populist of the 1890s in the United States essentially withered away largely because there were lots of gold discoveries in South Africa you know the price of gold went down sort of you know there was an inflationary environment so the kind of immediate economic grievances that had mobilized populism at the time are dissipated and the populous didn't get anywhere politically but of course these kinds of populist reactions came back and of course in the interwar period we had two extreme populist reactions to the failures of the gold economy one on the extreme right with Nazism and fascism the other on the extreme left with the rise of communism each had their issues with the world economy one was a reassertion of cultural autonomy visibly the world economy the other was the reassertion of social rights or workers rights and now of course we're back to a kind of a another sort of zenith in globalization and a also a populist reaction so I want to I want to talk about three things and and and I'll need to go through these rather quickly I would just want to talk briefly about the trilemma then talk about the application of the trilemma to Europe the European Union the eurozone and then conclude with with some ideas about sort of my conception of my ideas about how we could think about a fairer globalization so here is that here's the the trilemma the trilemma says in so you know we economists like to always present things as a trade-off this is if you will is an Augmented trade-off it's not a dilemma you have to choose between two things here it's actually a three things and you can have at most two out of those three things the three things are hyperglobalisation national sovereignty and mass politics and we have to pick two out of the three now why is that so I think probably the best way to understand the dilemma the trilemma is to sort of through a very quick historical tour about the manner in which as of the trilemma exhibited exhibited itself in different periods of world history first the gold standard which was you know the first real era of a sort of high point of globalization in the late 19th century through the first part through the first decades of the 20th and essentially the gold standard model was one where the world was organized you know in a sort of divided way different policies and the requirements of the gold standard was that that capital had to be completely free to move and domestic economic policy there was and that much of a conception of you know sick counter-cyclical policy or business cycle policy at the time because there wasn't a conception of macroeconomic policy but to the extent that there was domestic economic policy certainly monetary policy central banks had to subjugate everything they were doing to the requirements of maintaining a fixed parity to gold and to ensuring that there was complete free mobility of of capital so essentially there was no policy space the only policy that was allowed was the one that the gold standard required now the the you know historically this could really work only to the extent that economic policymaking was significantly insulated from mass politics or sort of mobilized publics as you get in a democratic regime and indeed once the labor markets became institutionalized so trade unions with the rise of the mass media with the rise of with the with the broadening of the franchise with the sort of parties of the left labor parties eventually the gold standard could not be sustained and at the key turning point is 1931 when essentially when Britain being forced to make a choice between maintaining very tight credit policies even though unemployment is very high on the one hand versus having to drop out of the gold standard essentially chooses the latter policy and as actually Kevin showed you with that witnessed that famous chart getting out of gold in 1931 was it was a boon because they could inflate the economy and generate faster employment growth there's a nice analogy that that Tom Friedman used in us in one of his books about what happens to politics in a gold standard system that politics the space for politics narrows to a choice between Coke and Pepsi okay no local flavors allowed because anything that would entail greater difference in politics requires sort of economic management sort of a conception of your own regulatory apparatus your own sort of management that wouldn't necessarily conflict with the requirements of having no impediments to no transactions cause to the free flow of capital or goods and services now the after the Second World War the Bretton Woods regime was constructed by combining two other vertices of this trial Emma and and clearly the the the idea behind this was from Keynes because Keynes haven't lived through the failure of the gold standard had taken the lesson that in the kind of modern societies modern politics that existed with Mapp mobilized mass public's with with with free franchise and democracies that it was going to be impossible to make to have free flow of capital a kind of hyper globalized system that would rule out economic management Keynes of course was particularly anxious to make sure that there was space for what we today call Keynesian policies of demand management but the same of course went for the creation of the erection of the welfare state that essentially needed to be insulated from a lot of hyper globalization and the same went where the developing countries or the newly decolonized colonizing countries was involved in having the economic policy autonomy required to industrialize to diversify their economies and pursue the kinds of trade and industrial policies that would protect infant industries and diversify these economies and that's essentially what happened in the first few decades after the Second World War that was very much a kind of globalization it's not that the world economy wasn't globalized in fact tariffs came down we had agreement on tariffs and trade but capital mobility remained significantly restricted it's important to remember that Keynes said that for his system to work for the Bretton Woods regime to work it was going to be important to have restrictions on capital mobility not as he said as a temporary expedient but as a permanent feature of the system because he understood that economic management had to be protected from the whims of capital capital markets and in trade even though we had a significant amount of trade liberalization at the border with tariffs coming down under multilateral trade negotiations quotas being removed it was a very limited kind of trade liberalization so kept hyperglobalisation at bay agriculture and services were out developing countries essentially were left on their own and even in manufacturing when certain sectors came under threat as in with textiles and garment immediately sort of special protective measures and safeguards were instituted for example in in the form of the NFA the modify the arrangement so that's essentially sort of the Bretton Woods compromise in terms of this trilemma now logically of course we could imagine a different way of organizing ourselves around the trilemma and just say why do we care so much about national sovereignty why not transnational eyes our political system to match our transnational into our international market a international market so we could imagine a system where in fact we match hyperglobalisation with mass politics at the global level and this is it's worth thinking about this possibility in the context perhaps of the European Union which I'll come back to in a second because if this may not be a possibility for the world as a whole perhaps within the context of the European Union it is a possibility now I think this is a stylized picture that I think sort of you know one way to think about it is is a representation similar to the famous open economy a macroeconomic trilemma that open economy macro economists no doesn't strictly hold but it's a useful way to think about the constraints and the trade-offs that you face and indeed today in all of these areas where there isn't trade and foreign investment in foreign finance in migration or labor flows what we observe are things that remind us of this trial AMA that there that could that pushes us to make decisions that either will will will force us to hyper globalized and therefore conform to rules or harmonized regulations with others therefore leaving many domestic groups many domestic constituents very unhappy about the result or alternatively the domestic constituents will have the upper hand and will will end up in a sewage situation that falls far short of hyperglobalisation in each one of these areas sometimes we pick one sometimes we pick the other but very rarely are we doing this in a self-conscious way taking the the trilemma fully into account now I want to say just one word or a few words just in the context of this slide just to make clear what I mean about the tension between democracy and globalization the implied the the tension that's employed by the trilemma between globalization or in advanced form of globalization and and democracy doesn't strictly speaking arise purely from the fact that global rules constrain domestic policy space that global rules the requirement of integrating markets limits the space within which domestic economic management can operate that on itself is not what undermines democracy because you can actually imagine a lot of situations where surrendering authority or delegating authority to an international agency or to international markets might actually improve the functioning of democracy so that's in principle possible because under the principle of democratic delegation global rules can enhance performance of democracies by limiting the power of special interests so that for example was the hope of multilateral international trade liberalisation that is essentially that trade agreements as a way of reining in protectionist special interests and here's in principle a way in which delegating powers to international organization or international set of rules are taking international commitments in the service of globalization might actually enhance the performance of democratic deliberation or democracies even though eating entails constraints the difference of course is that the point of course it doesn't have to be that way that not all forms of globalization will necessarily work in that nice way and I think we need to distinguish and I think this is extremely important particularly for economists because the economists tend to think a lot about how globalization can do the good kind of constraint but don't spend a whole lot of time thinking about how globalization can end up with the bad kind of constraint and good kind of constraint is when the global rules are explicitly designed to address genuine democratic failures and those might arise from problems of commitment timing consistency captured by special interests and so forth but then there are global rules that actually work differently that they're essentially mechanisms through which other special interests are able to capture the agenda and work around domestic constituents and and upset pre-existing social bargains of pre-existing social contracts through international rules and I think that that a lot of what has happened in the context of hyperglobalisation the way that for example trade agreements have become more and more an expression of particular special interest mostly in United States but also in Europe pharmaceutical companies investors large multinational corporations financial institutions and the kind of policies that they have pursued in the context of trade deals in freezingly have made trade agreements look more like the second kind rather than the first kind so let me now turn with that in mind to Europe obviously Europe the Union was in this context a highly a completely unprecedented experiment where there was a push for a single unified market while political authority remained vested in national units and by sort of the trilemma says that you can't really do this without sacrificing democracy that there is some this is something that that is highly unstable now so the question is is you know sort of what were we implicitly thinking of we meaning sort of those people you know sort of or Europeans who thought about this being something that would be desirable now I think there were those sort of you know there were two schools of thought which made this experiment sound like a feasible sustainable and desirable arrangement and one which was I think probably a view that was held mostly by conservative economists or technocrat was the view that essentially a view of the way that the economy was supposed to function that went all the way back to the 19th century gold Stan gold standard version of the economy so in that conception of the economy you know the fact that you could no longer have Keynesian policy at the level of individual nation states wasn't a problem it wasn't a bargain was a feature so the idea was that we were going back to the eye to a self-equilibrating market system and you want to forget the Keynesian a perspective and to the extent that in fact the markets in practice misbehaved in this perspective it was actually due to too much government intervention in the first place so any problems with government with markets could be then traced not to market failures or inherent market instabilities inherent problems with markets but the fact that the government was doing something that was responsible for the markets to work and then all you need to do is to get the government out so you know financial crises were due to moral hazard that was due to governments you know intervention and support sort of unemployment was due to institutionalize labor markets and labor standards that were there because of trade unions and the government's if there was low growth and not enough innovation was due to high taxes and and so on so from this perspective you know if you believe that that you know there is a self-equilibrating market economy that actually doesn't need much government then from that perspective what the single market does is actually force the government's into their proper role so it acts as a harness so the kind of gold the golden straitjacket comes back and now the straightjacket is a good thing it's not a bad thing because it's a return to a pre Keynesian understanding of how the economy works the second perspective is sort of you know a very loose view that eventually so if you take the functionalist view on which the European Union really rested going all the way back to the European Coal and Steel community that we first work out these arrangements and the political community common interests actually really developed eventually later so in from this perspective which probably a lot of centrist political figures held that there was a recognition of institutional gaps but to view that that given it long enough time the quasi federal political institutions might develop in time democracy would be trans nationalized would have a European demos that that a sort of a single market economic integration would eventually be matched by a social Europe and an increasing physical integration and convergence and harmonization of not just economic regulations but also social models tax regimes labor market arrangements and so forth to you know fully complete the Union provide the full institutional architecture that would essentially transnational Isis political institutions to the same extent that markets are so in going to essentially the the kind of fiscal political union end of the trilemma for for for Europe now the fact that neither of those two perspective the golden straitjacket perspective or the eventual fiscal political union perspective could be articulated in public right because the first one would not would have met been met by opposition and so would the second one because this was much more of an elite perspective should have told us something about the feasibility of this but in any case the the eventual euro crisis I think brought these issues to a head so I think the the Europeans the European version of the trilemma is the one that that you see on this I think you already see with with brexit countries sort of moving in a different direction I think what the trilemma applied to the European setting tells us is that assuming that we do not want to do away with democracy the way to stabilize the system in a long-term sense is either to integrate politically to match the economic integration or to bring the economic integration back to loosen the economic ties the problem of course with the the second scenario is that is a very costly one as the British are now finding out and no doubt others who were even more integrated would find out and the problem with the fiscal and political union is not particularly politically appealing strategy I think that in the immediate aftermath of the euro crisis there might have been a window of opinion of opinion the window of opportunity if the European political leadership were to use the crisis as a way of making the case that what the crisis was was a sort of a know making clear that the Union was incomplete and therefore there had to be leap into much greater fiscal and political integration as well instead I think the as desirable as that eventual path might be I think the way that the crisis played out in the European Union and particularly the line that Angela Merkel took made this much less likely because essentially the crisis was presented as a morality play to the North European public's that this was really a conflict between profligate lazy and and mischievous Greeks versus the the honest high saving and hardworking Germans so there was too much of it's their fault and not enough of what was from an economic standpoint a much more compelling story that this was actually a crisis of interdependence badly mismanaged that if the Greeks over borrowed the Germans and the French and the Dutch and all the other countries over lent so this wasn't a case of simply one side misbehaving so in that this was a case of this was a collective fault but because that line was not taken I think the kind of division in the within Europe and the difficulty of constructing a europe-wide politically I think were significantly magnified by the fact that the narrative that was presented to the European publics was this kind of off of a divisive kind of a narrative it was a morality tale rather than a tale of woe of interdependence that needed to be completed I think the second this is the second thing that aggravated the cost of the crisis and I think makes the eventual choices for the your opinion that much harder is is an over reliance on structural reforms early in the reform process this is this would take me a little bit too far in the kind of sort of the economics of reform but very very quickly the the theory that that supply-side reforms can boost productivity output unemployment which is generally true in normal times is not a story that works very well during times when demand is really depressed and these economies are in the midst of a crisis so in in fact these kinds of structural reforms whether it's privatization whether it's loosening labor market regulations can in fact that fire because when demand is lacks and the government makes it easier for you to fire workers that's what you will do and the kind of you know enterprises hiring more workers will have to wait until demand picks up and so you pay a lot of cost early on in the process and you don't get the productivity and employment benefits and I think this significantly the over reliance on fiscal austerity in the context of this sort of structural reforms being the growth strategy simply didn't work out so the going back now to to populism really interesting a question is why the populist reaction in Europe took the form mostly of right-wing populism that you know you can think of you know podemos in Spain and syriza in Greece are examples where populism takes more of a left-wing form but most of European populism is essentially of a of a of a right-wing form it's a nativist that exploits at no nationalist or sort of you know cultural cleavages is directed against muslims against immigrants and that's not always the form that populism takes so here the comparison with with latin america is where in fact in latin america populism has taken mostly a left-wing kind of a a political orientation where it's not sort of you know you know it's it's not built on on ethnic or nationalistic cleavages but much more built sort of directed just as the original populist movement in the united states was at the end of the 19th century directed against the financial elite in the communication of latin america directed against washington the IMF and World Bank for imposing certain kinds of policies and I think to understand this I I find it helpful to distinguish between the demand and the supply sites of populism if you think about many of the insecurities anxieties sort of inequalities both economic social cognitive and political that that that globalization has aggravated those creates sort of a kind of a demand side of populism that they create generalized economic anxiety discontent loss of legitimacy concerns about fairness about sort of the economic rules but they tend to come in some kind of Kuwait in Quade form that needs to be framed and they needs to be hung around a particular kind of narrative and I view the supply side of politics that is the political leaders political parties as those who are actually providing the narrative they're providing a story about what happened to you and why and who's responsible and very broadly speaking we can think that supply-side taking one of two kinds that populist politicians can mobilize support when there is this kind of latent demand that's generated by these economic grievances they can mobilize support by exploiting you know one of two types of cleavages one is one type of major cleavage is this kind of the ethnic national or cultural cleavage right which leads to a right wing kind of populism or an income or social class more of a sort of a left-wing kind of populism and I think the main hypothesis here I would advanced is that you know sort of the the salience of one or the other kind of cleavage provides one way of understanding whether you will have preponderance of right-wing or left-wing populist so if you take the United States for example which was hit both by a trade kind of a shock creating a lot of income inequality as well as the consequences of a financial crisis and a lot of concern about terrorism and immigration you had both left-wing and right-wing populist at the same time you had Bernie Sanders in the Democratic Party you had Trump in the Republican Party in most other countries it's been mostly one or the other and in your in in Latin America where the globalization shocks were felt mainly in the form of foreign investors economic programs stabilization programs of structural adjustment programs imposed by the World Bank and the IMF that essentially reflected itself in a kind of mostly left-wing kind of populism and it's interesting that that the two European countries where you have left-wing populist movements that I mentioned Greece and and Spain are is essentially in the same relationship to Brussels and the troika as Latin American countries are in relation to Washington or the IMF and so you have left wing populism there I think for very much the same kind of reasons but when in other cases and anything in a lot of countries in Europe it was the the the the especially the presence of immigration and also increasingly refugees provided a kind of very salience cleavage that could be easily manipulated so we've compared France and Spain for example which both countries have similar levels of immigration but the nature of immigrants in these two countries is very different in France more than half or nearly half of the stock of immigrants are come from either predominantly Muslim countries or from sub-saharan Africa so these are immigrants who very definitely look different they can be identified it's a very explicit and observable cleavage whereas in Spain the the most of the immigrants actually come from Latin other Latin American countries sharing the same cultural heritage same religion speaking the same language and so forth and I think that's one reason that the it is sort of the relative absence of a of a kind of a anti-immigrant right-wing movement in Spain compared to compared to France so I've said already that with respect to to Europe's future I'm drawn to the conclusion which is which is rather pessimistic given the the difficulty of either path nonetheless the the view the conclusion that Europe needs either more political integration or less economic integration that entails thinking in terms of a kind of if you will a multi-speed Union perhaps with a set of core countries commit committed to deeper political integration and instead of other countries which must create a rec anomic autonomy and you'd have to say I'd have to say that that as difficult as this seems especially at a time when the seems to be recovering I think a planned or strategically to retreat here maybe much better than a force or ad hoc or acronym acrimonious one and I think obviously again the brexit process is something that that shows us that now with respect to globalization at large moving beyond the European Union I think globalization you know sort of when we're stepping back from hyperglobalisation we need to think about what kind of rules and I think the principle of fairness suggests that we should think about fairness both domestically and internationally I would say that the binding constraint for sort of a sustainable globalization and open global economy today is not that countries aren't sufficiently open is that the rigidly open the world economy has lost its legitimacy that it doesn't have enough legitimacy and so therefore we should try to relax for should try to remove first and foremost that constraint the lack of legitimacy and I think one way to think about sort of how to operationalize that is by thinking about how we can essentially trade policy space among countries rather than trading market access so we move from a mindset of trade rules and trade regime as an act changing market access to think about trade rules and serving traffic rules for the world economy where we exchange in policy space and opposed and the point of the policy space would be for developed developed countries to reconstitute their domestic social contracts and for developing countries would be to essentially have the freedom to engage in the kind of economic restructuring policies that can diversify and speed up and sustain their growth so for those two reasons I think both sets of countries actually do need that kind of space and how and that creates a basis for an exchange or a bargain between the two sets so let me let me just just conclude with again sort of speculating in terms of you know the future where we're we're likely go I think there is sort of too bad the ugly and the gunnard the bad the good the ugly here I think the bad scenario would be basically sort of return to the interwar period in 1930 style collapse in global economic cooperation and a rise of hard right on hard left regimes I actually don't think this was a question that was brought up earlier in the day I don't think this is a very realistic scenario it's not very for a number of reasons first because I think there's much more international cooperation today than there was back in the interwar period we actually have international multilateral institutions that didn't exist second there's despite their weakening there is much greater social protection today in the old the advanced countries that we have the welfare states in place even though they are weakened so you're not going to get the kind of complete collapse and and sort of rise of and sustained unemployment as you hadn't need to work period and also the underlying political economy balance today in the advanced country still remains highly favorable to export oriented interests so you put those three things together and because I think very unlikely that we end up with the bad I think the ugly is a likely scenario that I think that if there is an inability to respond if mainstream centrist political groups are unable to provide an adequate response I think that we are likely to see creeping populism and increasing protectionism and that would gradually might erode not just the world economy but I think much more seriously and much more fatally sort of the the kind of liberal democratic system that was created after the Second World War and that would it the biggest price to be paid for that I think finally the good is what I call it kind of a Democrat Democratic rebalancing and rethinking of of trade agreements and financial globalization in terms of this kind of a of a balanced sort of exchange of policy space with a much more balanced representation of interests much more labour much more civil society organizations to balance the overwhelming voice that corporations and and and investors have had and focusing much more in terms of negotiations in areas where the gains are very large compared to the areas as in today's TPP or TTIP where in fact the economic gains are relatively small so let me just stop here thank you [Applause] thank you so much Danny for a great lecture so I'm sure there's lots of questions so I've throw the floor open to the audience and we have had people following us on Twitter nope we have no questions from Twitter so while you're gathering your thoughts let me just use the abuse the privilege of the chair of the session and ask you Danny imagine that political economy considerations go out of the window now you can act as the benevolent dictator of the textbook how would you change exactly things like free trade agreements to rebalance mobilization and concrete terms well I would definitely I mean there are in in trade agreements today we are not focusing on the areas where the largest economic gains are so if you think about sort of where the big gains are they clearly the the unexploited frontier of economic globalization is actually labour mobility that's where the biggest gains are so if you tell me you don't you don't have any political constraints I would completely drop everything on the agenda of something like TPP and I would focus it on working out sort of a set of of temporary labor mobility schemes or labor visa schemes where economic gains would be huge another area where there are large unexploited gains is an issue that has come up before is international tax coordination to to eliminate certainty to get rid of tax havens and also a stop sort of the race to the bottom in corporate taxation and I think there's international tax coordination is another area where there are large economic gains to internalize the externalities of tax coordination so those are two big areas where in fact from a purely economic standpoint the gains are huge we're not doing anything in either of those areas for very different political reasons but if you told me that those are the political constraints we're not any sure those would be do the two areas to look at and all the everything else that we're working on in TPP by the way you know pharmaceutical path you know investor state dispute settlement those are largely first-order redistributed and their efficiency gains are on the whole highly ambiguous and debatable very good first I don't think that atomizer gold standard can be ascribed to try demo I think one should not only the first world war and the fact that after the first world war there was not returned to the gold standard but to go to exchange standard which was very heavily criticized by Jacques Rev among other people so this is the first the second one I think Donna you are using their word democracy in a very special meaning normally we directly we define democracy for election protect as open political competition and not by Keynesian policies because I have an impression that democracy according to what I'm saying is exist where there's much more scope for fiscal policies etc but this is a very peculiar notion of democracy so if you use an or minus of democracy trilemma disappears unless you define democracy the Greek world fiscal spending but you have swedish democracy look a swiss democracy German democracy etc so I think one should not use words in a special meaning if they have a defined meaning in the third comment is that I think data show a different story about problems of eurozone I've investigated this as a lot of literature empirical literature which points our first original sin certain country should have been admitted not have been admitted like Greece as a mod and secondly a major policy error was to keep a very low interest rates which whispers will prosper to geotech ECB policies so there is an alternative story then try em so three things there let me just go over them quickly gold standard gold exchange sounded I think Frodo for the purpose of this story I'm telling it's a it's not irrelevant it's not a useful distinction because the question was whether Britain let's say between 1925 and 1931 to period on which it went back to the gold standard or the Gold Exchange standard is was effectively by the rules of the game committed to maintain a parity and free capital flows in in that sense it it confronted the problem by the late 20s and 1931 was know whether it was going to have the freedom to reflate its economy and I would have entailed getting out of the gold standard as changing the parity okay it's not talking about the gold standard but about a fixed exchange rate system which was critical for eliminating any kind of transaction cost to free mobility of capital so that's the sense in which that particular vision of of globalization essentially impinge on the ability of the government to manage the economy and the sense in which in a highly mobilized society as Britain was in back in 1931 it became increasingly difficult for the Bank of England to maintain high interest rates and live the consequences in terms of a very high unemployment rate eventually I essentially had to give had to had to give in the the the second issue was with respect to democracy I think that's that's I'm glad you brought that out so I use democracy in a very specific sense which is not that you can simply run Keynesian policies I use it in the sense that whether the political system is risk is responsive to the wishes of the electorate that is the political system has the autonomy to to engage in economic policies and institute regulations that are in line with social preferences as reflected in the electoral system so the sense in which I use democracy so when when that that means that if the economy is in a crisis it might require reflation arey policy but it's not the only dimension it might be that society wants a fair amount of redistribution that's the excess the revealed preference to election that in fact it can maintain redistribute of tax policies and that that is not undercut for example by the mobility of capital that that that makes it impossible for the government to maintain those kinds of redistribute of policies or for that matter inexpensive and extensive welfare state so let me leave the question about the euro zone aside so we can discuss it over here I I think the whole day that I have been sitting here I think I didn't hear one word which I think I personally feel was very connected which is terrorism so I personally feel that when Bill Clinton was there that was the really the high speed high level of globalization was happening Bush comes September 11 happens and then their aftermath of wars and rise of radical Islam London happening Spain happening Brussels happening Paris happening and then the politics of fear starts so where do you think that we have given a very academic view of things happening but what about the role of terrorism and rise of radical Islam into this whole picture well I would simply say that and those become sort of background fears that can be very easily manipulated by demagogues I mean from a from a very real fact base basis you know that you know you know I mean more people are killed in the United States by you know sort of you know falling in their bathroom and hitting their heads then you know have been through Islamic terrorism so you know it's it's but it is you know a kind of a an issue that it's relatively easy to manipulate people's fears so it becomes a hook on which if there is a dissatisfied public if there is a bunch of economic and other grievances a convenient hook for I think for populist s– and demagogues due to to mobilize I think you're right that that you know that starting the story of the US populace in some ways by in the in with the 1990s and and and Clinton because I think in the 1990s the United States could have gone the European way because in the 1990s when you when the United States really became much more open to trade with low-income countries it could have erected much more safety nets more social insurance in the way that Europe had done in earlier decades and instead it didn't do that and I think that made trade a much bigger political issue free trade much bigger political issue in the United States and this issue has come up in our discussions today that free trade per se in the in Europe is not a controversial issue even the sort of right-wing populist might have problems with the euro they might have problems with immigrants but free trade is not a big issue for them and that's largely because I think Europe has dealt much better and I think then again something that has been said I think the most much more extensive social safety nets have really helped take the edge off of insecurities and anxieties associated with removal of tariffs and quotas in the u.s. that didn't happen and the taa that was put in place never worked and so forth so trade became a kind of festering issue and then it becomes a lot easier for a Democrat to come and say look you know it's just you know it's the Mexicans or it's the Chinese and and and and to mobilize support on that basis three quick ones firstly I felt you skipped a little bit too quickly over the distinction between the single markers and the eurozone now I mean at the eurozone level we can see that there are constraints on government's ability to make their own choices on fiscal policy and there are maybe issues of democratic deficits that arise and you think about the Cyprus thing and so on it was scandalous and so forth but really does the single markers involve problems with democracy I mean freedom of movement if you want to say that I'm going to say to you back it's only the Brits who have a problem with it it's wildly popular in the rest of the EU so that's the first question is it not the euro rather than the single market that is potentially an issue here and that requires maybe a move to deeper government's secondly it's not just Greece and Ireland are our two peripheral countries that have both left-wing populist Tsaritsa and SH in vain and they both have lots of immigrants I mean and increase as a hell of a lot of immigrants so I'd like you to talk a little bit more about that and thirdly the nineteen thirties also saw lots of populism in lots of countries it was more often right wing the left-wing also equally ironically and I wondered what you thought about that well very quickly I mean Greece of course you have you have the rise of right-wing populism with the Golden Dawn associated particularly with the more recent influx Greece you know traditionally has not had much immigration but you know the recent rise has been associated with Golden Dawn becoming more more powerful now I would argue that that even in the case of the the single market even without monetary unification you face up many of the we face many of the same issues because the question becomes single market requires in a key community it then requires countries essentially agreeing on a common set of regulations on a whole lot of domains including many other domains which have been left outside because there's too much difference in view across in different countries but may you know arise concerns with regard to social dumping for example as you know arises in the case of in Polish workers coming to France right this is not an issue about the about single money it's an issue about whether you can have a real single market with you know mobility of Labor when labor standards or rules are you know somewhat different amongst different parts of the Union so I think there is a you know I think a single market puts constraints on how different how much difference you can have in rules with respect to labor standards with respect to you know with respect all your regulations and and also you know to your tax policies you know the issue with grace you know sort of can you really have very different tax rates and corporate taxation in a single market and the question about unfair competition I think the u.s. is a good example to bear in mind because at the state level in the u.s. there are variations so that's but when whenever those variations there always you know much smaller than you have anything else on a kind of a more global kind of a scale so the single market you can have as the US example shows with a certain amount of variation across different states or different parts but there are constraints on how different the extent of that divergence before issues like social dumping or regulatory arbitrage it really becomes a serious issue then that you have to deal with so I would say those issues exist on also in the context of single market please I would like to ask you about the Europe left it out doesn't it surprise you that the majority of the Greek population a large majority despite the huge crisis they had opted for keeping control in Frankfurt rather than in Athens and doesn't it surprise you that the moment mrs. lepen mentioned getting out of the euro she lost the election well I'm unless unless sure about the second thing whether that's true it's an interesting thought but clearly the first as a statement of fact that that that that I I don't know but I I think the issue is that this is I mean we know as economists that the cost of that is going to be huge so for Greece you know even though you know borrow is had no sort of had prepared all these secret plans for introducing a different currency and so forth I think you know even in the depth of that you know as bad as that situation was in Greece I think people sort of said you know it could be a lot worse that the cost of that in you know huge uncertainty but potential cost of moving into a situation where if you lose control of your new monetary system you're into now hyperinflation on top so those are very that's very scary so do I you know I don't know which way I would have voted and so that's so this is very very costly and so it's it's from that standpoint it's not terribly surprising that that it went that way so let's take two questions at a time as we're approaching the end of the session so I would like to adjourn and you said for moderate globalization or a fair globalization would be a major target I would like to ask you how would you implement that I mean if I understand in one of your books you said that a nation should have the right to quit from certain regulations for example WTO maybe they also regulations and a particular nation is a development phase where that is deserted features so if I should be able to quit as I understand that you right but good fat beef and the kind of a customized policy according to a nation unfair development and couldn't be fair the danger of a big abuse and for multilateral organization would simply collapse super only or later I'm not a columnist I'm sorry for what I will say I'm just a simple lawyer but I think that the case of Greece has not been important in the whole economy because only 2% of the European economy is representing of the Greek economy and because we have you have good done a very good lecture you have given too much questions to us and to make a question in your lecture it would be why the Americans don't change the way of their democracy for example to have a more democracy like in Switzerland because whistlin took the democracy from the Americans and from the friends in 90 century and now we live in 21 century and we have defined democracy in nowaday that means that American president for like Bush for example not to go so quickly for a war like Iraq because the Iraq war has done also in the Syrian war and also the terrorism like other friends had said here and the whole economy after the Iraq war was really in very big problems you know it better I have read one's article from cyclists and what would be the world without the Iraq war because the globalization we speak about means also perceive the rules of the United Nations and it was no respect of the United Nations rules and the populism was really in full because the CIA has a just say some lies and the populism in the politics comes with lies like Hitler has said Poland has attack us and we make a war so the war in in Iraq I'm sorry for what I'm saying not economist I think he has a very big impact in the nowaday economies because the barrel was 50 francs and when 450 for example after the Iraq and I think we should give Danny a chance to actually fly and then we have to wrap things up so take your pick I think I mean the from the second question if were to talk about the the failures of American politics and American foreign policy and military adventurism abroad you know we'd have to have another week so and and and I wouldn't be the best person as an economist to necessarily talk about it but I think Iraq was a very big mistake and I think and I think the u.s. democracies and is in deep deep trouble so I I there's a lot of issues there I think the other question with respect to you know if we were to think of a world trade regime with more opt outs or more customized where countries were more able to think about it as a version of a World Trade Organization that goes if you will back to a kind of a plural a plurilateral approach eroded and you know the sort of the single undertaking approach so I think the big difference in the world trade regime was with the creation with the uruguay round and the creation of the World Trade Organization where there was now unlike previous rounds there was one document and all countries had to agree to the whole text now I think we see that since then in that there hasn't been much progress on multilateral trade negotiations and a lot of that is because you can't get countries to agree on and I think the issue of going back to much more a plural plural lateral approach where like-minded countries can integrate in a deeper way in certain areas where they feel they have a common interest and want to do so can do so but without necessarily forcing all other countries to sign the same text so I don't think that's a that's a very bad model and I think the the lesson that I take from the long history of trade liberalization through the 1990s is that giving countries more freedom and having a lot of opt outs and escape valves in the system somewhat paradoxically actually makes globalization work better because if you create enough room for countries to manage their economies well and prosper as they did in the decades immediately after the Second World War those countries are much more likely to globalize and become sort of more open than countries that actually feel that they're being constrained where they feel that is subject to agenda of particular special interests albeit you know sort of what I call the market access protectionist as opposed to the the classic protectionist and then you have this no pressure boiling up and and the opposition in terms of the populist and so forth so it's in a way it's a bit of a judgment call whether you say you know right now the bigger issue is that you know that we haven't we don't have enough safety valves in the system and we're constraining governments too much and that's partly the reason why we're having this backlash as opposed to saying that if you did that it would be like a slippery slope then you would end up in toll protection so I'm very much in the first group all right so I'm afraid we have to end it here even if we could have gone on for much longer on behalf of the UBS Center I would like to express my gratitude to our keynote speaker Dani Rodrik for a great lecture and to all the speakers that we had the pleasure to hear today I want to thank you all for coming to today's event of the UBS Center whether you came for the entire forum all day long or just for the Zurich lecture of economics and society we've had an intense day of exchanging ideas here listening to top specialists and different backgrounds and I hope you found the event intellectually rewarding and stimulating in case you were a little overwhelmed or you want to share some of the highlights with friends and family there's good news we have a YouTube channel and in a day or so we will actually share the videotaped event with all of you and with that I wish you a safe return and a good evening thank you [Applause]

Maurice Vega

4 Responses

  1. Jesus Christ – FINANCIALISATION AND EXTRACTIVE DEBT SERVICE – you'll know what those words mean when we're carving then an inch fucking deep into your backs – all this masturbatory bullshit whilst you're tied to train tracks.

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