Hello is it working can you hear me okay good morning everyone and welcome to the second day of the conference we start the second day with our third keynote we've already had two very stimulating and thought-provoking keynotes yesterday and today we are very pleased to have Dani Rodrik with us I had the pleasure of reading his lecture in his keynote in advance and I can assure you that it's Very interesting and thought-provoking and therefore I will try to keep my introduction of Dani very short very brief both because Dani hardly needs an introduction but also
because I want to make sure that he has enough time to develop his arguments and also that we have enough time to take questions and then discuss his points so very briefly Dani has been a very long time Ford Foundation professor of international political economy at the Kennedy School At Harvard he took a brief break for two years to become professor of social studies the first Albert Hirschman professor at the Institute of Advanced Studies in Princeton but after this break of two years he came back to the to the Kennedy School of Government he is
known for his research and his extensive writings on globalization political economy growth and development and what makes Danny truly unique is that he straddles academia and policy He's one of the very few people who managed to write in a way that's appealing to academics so his writings are rigorous from an academic point of view and not surprisingly there have been published in all top journals of economics but at the same time they have a feature that tends to be rare sometimes unfortunately in academic writings namely their policy then they speak to the questions of the
day in addition to having published Extensively in all major academic journals he also has written many op eds many columns he has participated in in public debates and he has also written many books his most recent book is a straight talk on trade and I think it's going to draw on some of the ideas that he presents in this book and in his current keynote as you know this conference is about multilateralism and multilateralism as I said yesterday my opening remarks for the conference is Facing many challenges today perhaps its biggest challenges in its history
some are calling for reform of the system and here I'm thinking mostly of the WTO but to a certain extent also about the World Bank and some people are even calling for its completely dismantle ment and against this background it's very natural for us you know especially for those of us who work for a multilateral institution to speak in defense of the system to try to point out its main Virtues and the necessity of maintaining International Cooperation global governance and the system of multilateral institutions Danny's going to take a more view he was going to
create to present a more nuanced view on this issue and rather than talking about the failures of the current multilateral system as many have done he's going to raise the question of whether the issues that main challenges we are facing today call for a multilateral approach as Opposed to a more nationally oriented approach so with this very brief introduction I will turn the floor over to Danny and let him develop his argument further [Applause] so I hope I can find my presentation here I don't see it but let me begin by thanking penny and Shanta
for for their invitation for being for asking me to to to talk to you it's always great a privilege and fun to to be at the World Bank but this is the first time I'm having privilege of sharing the platform with John Maynard Keynes so I'm partly happy about that I'm not sure Keynes would have needed a name badge in 1944 saying my name is John Maynard Keynes but I was told before we started that there are many people at the bank who actually don't know what your Maynard Keynes looks like so I suppose that's
the that's the the objective This reminds me of the last time I think I gave a paper at the ABCD was a very very long time ago and doesn't implicate anybody who works at the bank currently certainly none of the senior administration but I remember distinctly my paper disappearing and it was again on the topic of multilateralism I think it is the interest of the bank enough to have my presentations appear otherwise I may have more stories maybe what I'll do is I will start and Without the benefit of the slides by I will steal
the copy of the paper this will remind me of what I was going to do to say the the central question that my presentation addresses is how should we draw the line between the national and the international what should be regulated domestically nationally what should be regulated globally there is a kind of a a vernacular case for global economic governance that goes roughly in the following way which is that we live In a world that's increasingly interdependent in economic terms everything that we do here affects things on the other side of the border in a
world with such economic spill overs it's natural that we should have more global economic governance and that essentially most problems that they encounter in the world economy today arises from the fact that we have not built those robust s-- institutions of global economic governance yet and if I Had my slides I would show you a couple of quotes from respectable and somewhat less respectable people making that that case suggests that it's not just a kind of a fantasy of my own imagination let me begin by making one important distinction about things that I'm not going
to talk about since this is a conference on multilateralism there is one very important element of multilateralism that i'm not going to touch and that's the issue of Non-discrimination this is probably the most important element of a multilateral approach to any kind of international cooperation which is that principles or Riemann's that you arrive at apply equally to all others and that you don't discriminate that of course in the trade regime takes the form of MF n there are various exceptions to that but I think you know this is the the value of MF n or
non discrimination in general that's embedded in the notion of Multilateralism as opposed to bilateral or regional approaches is something that that I'm just setting aside as I said the question is essentially what what matters should be covered by by global governance and what from thank you bye bye national these are my quotes services I've already said what I will be focusing on the other thing I should make clear is that this is really about economic policy there's a lot of other issues in the world that I'm not going To be talking about so my focus
is on things from tray to international money and Finance to economic regulations to fiscal policy and so forth so the the notion that just because we have these spill overs that that necessarily creates a foundation or a need for global economic governance I think what is belied by the fact that there are so many things that have such effects of creating spill overs that we naturally take for granted that we actually don't Regulate internationally so here are some examples of policies that could be pursued domestically educational policies highway speed limits gasoline taxes to things that
we associate more with international regulation but agricultural subsidies import tariffs or tax havens now it's not entirely clear why the first three of these policies should be considered primarily national whereas the next three are typically thought of being sort of in the in the Global economic governance domain I would argue that none of the principles that actually you might think of initially as to where how that dividing line is don't make a good job of discriminating so it's simply not about the presence or magnitude of crop you know of the spill overs because you know
in large country a large you know even a domestic policy like a highway speed limit for a large country that might have significant Impact on the world price of oil much more of a spillover toward a world economy than would be the case for import tariffs for a small country similarly with respect to whether there is harm to other nations or not I think many policies that we think of as should be governed globally such as subsidies on balance actually provide benefits to other countries and not harms so why do we deal with them I'll
come to the specific case of subsidies later on Where the objective of policies domestic or international aside from the fact that it's actually very difficult to discern many things like educational policies are pursued or rnd policies are pursued for the person from from the vantage point of gaining international competitive advantage and that seems to be like international objective but why do why do we think that no countries should be able to freely undertake R&D policies or human capital policies even Though it affects their comparative advantage and by implication to comparative advantage for every other nation
do that freely and whereas in many other domains we think that similar spill overs naturally come under the heading of global economic governance so we don't actually we need more principled concepts conceptual divisions so I'm going to argue that we need to sort of create some you know clear buckets of policies I'm going to Distinguish between global public goods beggar-thy-neighbor policies and and somewhat newer categories of beggar thy selves and rich thy neighbor kinds of policies I'm going to argue that the sort of the global public good or loosely similar global Commons type arguments for
global economic governance actually in most vast majority of economic policy domains actually don't apply that the world economy is not a global Commons in the way that we think about it in a way that analytically relevant the beggar-thy-neighbor justification for policies is a serious one and does cover some policies but actually most economic policies don't fall into that pocket either and that was going to lead me to sort of the core argument that I want to suggest that is that that most of the economic failures that we discussed today are sort of being the world
economy's failures are actually Failures that arise from domestic governance failures rather than lack of international cooperation or the weakness of international governance and furthermore that into even appropriately crafted global economic governance arrangements have very little could have kind of very little purchase useful purchase or or positive contribution to domestic governance and I'm going to argue that that a far better perspective for thinking about how we think about Global economic governance is that to think of them as pursuing a somewhat different agenda or different model then then what I think we have pursued over the last
quarter century or so which is that instead of having a kind of a globalization enhancing global governance arrangements which tend to pursue the reduction of transactions costs associated with national borders to account rate democracy and enhancing set of global rules which actually try To enact procedural requirements of procedural norms in the way that countries undertake their policies without taking a stand on what the outcome of those procedures are so allowing countries wide latitude in the decisions they make simply making some demands on procedural grounds that are more consistent with globally acceptable or globally recognized norms
of democracy okay so let me just just a little bit of Of machinery here so to make sure that that no we are all on the same page think about a world with two countries home and foreign and they have policies home countries policy action is a with a subscript H and foreign policies generically AJ and they have payoffs these payoffs critically depend both what a country's country's own policy but also depends on the way that I've expressed it as as the sum total of all the other countries Policies and that's of course where the
spillover comes that a country's well-being is affected not just by its own policy action but also the policy actions of other countries and that spillover could be positive or negative but that's the nature of the issue that there is a discrepancy in the effect of policies and the structure of jurisdictions as currently drawn under the nation-state system this immediately leads to the result that in this kind of A world a decentralized equilibrium wherever countries is maximizing its own utility function is going to lead to in inefficiency and the typical kind of remedies that we think
about this problem of externalities or spill overs in the domestic context which is the use of pigouvian taxes or subsidies are going to be unavailable in a global context for a variety of reasons having to do with the you know the difficulty of having cross-border transfers or Other sort of practical issues this is the nature of the program the nature of the problem the major of the one big category of such problem of course is the case of global public goods um here the externality or the spillover takes a particular form so imagine that know
that the the weighted sum of all the other countries policies contribute to a global public good G or it could be negative a global public bad then essentially for each country the Incentive for a country to to contribute to that public good is going to be trivia trivia lilo that incense that each country is going to simply internalize the effect of its policy on its own direct outcomes but is going to ignore the contribution to the global global public good in the limit of course if countries share in that global public good is very low
then that second term is going to diminish it's going to go to zero directly so the Global public good is going to be under provided or not provided at all and in this case each country will be better off under some kind of global economic governance than in a regime where they all act unilaterally okay the the canonical case of this of course which I'm sure was the focus of the first keynote speech yesterday is climate change and greenhouse gas emissions if you think about a this policy action as a control on greenhouse gas emissions
What this logic implies is that each country looks at only the direct effects of its greenhouse gas emissions policies on its own welfare ignoring the the contribution to the Google to the global climate and since those emission controls are have a cost economically they are minimized so the aah this action would be the minimal that's that's that's that's that's feasible now when we look at economic policies and and the kinds of things that we Typically talk about none of the economic policies that I can actually think of fit under this definition of a global global
public good or a global public bad because remember what's happening with a global public good is that a country is is under investing in a particular policy because it is not taking into account a contribution to the global Commons or the global public good but take for example free trade and focus on the case of a small country Because I'll come to the large country optimum tariffs case a little bit later in the context of beggar-thy-neighbor policies but for a small country what is the individually rational individual utility maximizing welfare level of that policies actually
free trade so for that small country is going to therefore pursue the policy that is act you know if you believe that every country pursuing free trade essentially Maximizes the global Commons or the global public good that's effectively what every country does indirectly even though they care only about their own welfare they end up serving the global public good global good as well the same is true about other policies that I've listed here Prudential Financial Policy the reason that countries want to have appropriate financial regulations is because they want to safeguard their own financial systems
if they do their job Appropriately they will also produce do what's what's appropriate for the world as a whole in the sense of all countries breed following the appropriate financial policies the same for fiscal policy for tax policy most other economic regulations I can think of in all of these areas the bottom line is that is is that virtue is its own reward if you if you follow economically virtuous policies from the standpoint of the national economic interest you're Actually also doing things that are good for the world economy at large and that's a very
big difference with the global Commons or global public good so the whole notion about talking about the world economy as a global Commons or free-trade policies for example being global public good it simply confuses important concepts so standard economic policies are not global public goods the second generic case for global economic governance comes with Beggar-thy-neighbor policies beggar-thy-neighbor policies let's be clear in the definition these are going to be policies that provide benefits at home only to the extent that they impose costs on foreign countries so the most direct way of capturing this is to take
that the utility function of every country has two terms one is sort of a direct effect that comes from employing this policy it would be standard part of the utility function Then a second part let's call that a transfer from the rest of the world kind of a function that is that that is going to depend on my policy visibly the other policy think about it for example in the case of tariff policies in a large country large country can manipulate its external terms of three true tariffs if I increase my tariffs while other countries
tariffs are constant I can improve my in terms of trade but the benefits are going to come in terms in From the terms of trade losses to other countries so in that sense my gain is exactly what the other country loses furthermore with policies like import tariffs the situation is simply not zero-sum is actually negative some because in the in trying to get those terms of trade benefits I'm also driven to utilize import tariffs that are also too high that are distorting consumer and production decisions domestically and therefore as that sort of little Graph shows
I'm on the wrong side of the utility maximization and I'm having a higher rate of the tariff because this is the way that I extract some terms of direct trade gains from from from my from my trade partners so this is actually a negative some policy it creates a global inefficiency but the gains will come the games come to me only to the extent that they provide losses for other countries now in this case two global economic governance can Make all countries better off compared to the decentralize or Nash equilibrium where they're not cooperating it's
important to note an important caveat here is that in this case there's no guarantee if there is sufficient asymmetry across countries that the co-operative equilibrium will necessarily make both countries better off relative to the decentralized Nash equilibrium that's because if a country is very large it may very well be better Off in an equilibrium where it's extracting terms of trade gains from the other from the rest of the world instead of binding itself through a free trade kind of every nonetheless in in in beggar-thy-neighbor kinds of cases I think there would be a strong presumption
that that that the global economic governance is desirable those are the easy cases the issue is that most policies in fact as obviously are neither global public goods are bad Nor beggar-thy-neighbor policies so let me I want to talk about these non beggar-thy-neighbor policies under a couple of headings because it's also you know this is really where sort of the note is this is the bucket where most of our current policy discussions fall so what are these these non beggar-thy-neighbor policies would be policies that do create spill overs but either do not create a global
inefficiency or when they do is the home Economy that bears the direct economic costs so let me give two very concrete examples one is the example of a an R&D subsidy in a country that imports knowledge intensive goods so we normally think of R&D subsidies is actually efficiency enhancing policies because we believe in the R&D process is significant positive externalities but if a country subsidizes knowledge intensive goods when it has a comparative disadvantage in knowledge Intensive goods it will have an induced terms of trade effect it will affect the rest of the world negatively all
right so here's a case where you provide a negative spill over to the rest of the world we might think it's globally you know it globally efficient or not but the spill over to the rest of the world is negative okay but we wouldn't think that in this case there should be a global agreement on limiting country's ability to provide R&D subsidies the Second example is an import ban on goods produced with slave labor okay I don't think I you know I you know the GATT has an exception as a prison labor exception doesn't have
an exceptional slaver but that's I guess because it's taken for granted that this is something that countries should be allowed to do this is inefficient okay this is you know how economists talk about things it's inefficient because it creates a trade Barrier trade you know embargo quota or trade restriction creates all you know this usually economic inefficiencies but once again you know we would know this it is the home economy that bears the economic costs of this inefficiency and I think most of ours you know our moral intuition would be that you know the country
is trading off some upholding of some moral or ethical values domestically at the cost of this economic efficient efficiency of keeping Cheap goods out ok and we would say that's perfectly OK the country should be allowed to do this yeah I hope you know these two your I hope your intuitions on these two examples are with me if they are then I think we are going to have a trouble with with all the other policies that you know I'm going to be bringing up which we read routinely talk in the context of global economic governance
but share one or the other of characteristics of these Policies so once again the question becomes of why you know you know are we drawing the dividing line between global and national governance inappropriately first let me dispose of an air of a case which sort of sits very uneasily here and which I will call enrich thy neighbor' policies so these are policies that actually on balance provide positive benefits to the rest of the world but that might be actually inefficient From the domestic standpoint so you would think why would should there be at all any
kind of effort to establish a global governance regime that restricts what countries can do in terms of you know providing benefits to the rest of the world except that of course is one of the areas where you know we're constantly struggling to arrive at some kind of global arrangement and that's the area of subsidies so in the case of subsidies what's Happening is suppose now there is two foreign countries and the home country subsidizes it's less its exportable and then and then these two foreign countries are affected asymmetrically so foreign country F actually it's affected
negatively presumably because you know it it shares the same pattern of comparative advantage with the subsidizing country and the country G is effective is affected negative is affected positively by the subsidy Because it has a symmetric it has a reverse pattern of comparative advantage than the subsidizing country after all when you country subsidized let's say zag recalled exports the world price of agricultural goods Falls net importers of agricultural commodities benefit now what we know is that since my assumption this country is subsidizing it's sex portables the aggregate effect on the rest of the world has
got to be positive because the rest of the world is in Aggregate and net importer of this subsidized commodity and so the the the terms of trade effects or overall go in the right direction of providing net benefits to the rest of the world so why should the world have any say or why should we struggle about sort of providing restrictions on what countries can do in terms of how much they can subsidize their X portables there are three arguments as to why this is still a question appropriate for global Governance I don't think they're
very good but let me tell them I think this is sort of an exhaustive list and let me know if I've missed anything one argument is to say that you know some foreign countries lose so countries that are producers it is - of course the argument that the Cairns export or exporting group countries used in the trade negotiations you know when you know other countries subsidize their exporters we as producers of Agricultural products lose out yeah I mean you know is even when a country liberalizes this rade unilaterally and we would never think of limiting
a country's ability to unilaterally liberalize its trade there'll be some countries that might lose because if actually you know they have the same comparative advantage pattern of the country that's unilateral liberalizing its trade they would also suffer a terms of trade loss on account Of that trade liberalisation of info home country without any of the compensating benefits of improved resource allocation domestically due to trade liberalisation because the trade liberalisation is being done somewhere else so that would never be a valid argument to the fact that some countries lose is never that valid argument when on
balance it's a policy that sort of desirable for the rest of the world well you might question and that's would Be the second counter-argument that the subsidies unlike the unilateral trade liberalisation are globally inefficient but you know the argument here might be that we don't we don't necessarily know there might be either economic reasons or social and political reasons that make this subsidization policy efficient or socially desirable from the perspective of the country that is implementing this policy and so it becomes a secondary question of who Should decide the appropriate who should be deciding whether
in fact the right policy objectives have been targeted for this policy and the third argument is a kind of a an unfair argument an argument about unfairness that policies like subsidies make the playing field unleveled and now if you want to have a market system it has to be level so I'm actually very sup you know I'm very sympathetic to this argument but I think the right remedy in circumstances like This when there are questions about on level playing fields or unfairness the right remedies are domestic rather than international because it's you know there are
few areas where countries are going to agree on what is fair or not for example in the case of subsidies you know developed countries might think it's unfair that you know that you know developing countries are subsidizing their exports but developing countries might think That it's unfair that they are sort of technologically backward that they're not trying to catch up they're entering the world economy at a point where everybody else is already where the rich countries have already achieved technological mastery and so for them the subsidies is just a way of compensating for this historical
a disadvantage so they might put it put forth a fairness argument that actually cuts exactly in the opposite way so in Areas where we cannot arrive at a global agreement consensus on what is fair what is not fair I think it would be appropriate to let individual countries decide for themselves and if need be to restrict those trades that restrict relative trade on account of some using some kind of a domestic procedure in fact the countervailing Duty approach is very similar I would extend it to areas like social dumping as well but but the point
is that this is really largely a Kind of a domestic remedy rather than a global discipline on whether subsidies can be used or not okay probably the largest category of policies are those that follows that fall into this bucket and these are policies that create spill overs they're not beggar-thy-neighbor and they have ambiguous domestic efficiency implications okay so think about you know there's I have a list of them here it's not an exhaustive list but this is really covers a lot of the Kinds of things that we talk about in the context of global governance
of global cooperation everything from weak intellectual property rights protections to industrial policies to excessive fiscal austerity to lacks financial regulations to trade protection that is used for a social policy or for employment protection rather than necessarily fulfilling or fixing market failures sort of the the you know the the Important new area of Internet regulation the the the the desire of many countries to to build internet walls nationally through data localization and and other kinds of other kinds of policies so typically the domestic effects of these kinds of things it's very hard to evaluate them without
having a full picture of what are the market distortions and beyond that what are the various social objectives of these kinds Of policies and the question is is there going to be a role for global economic governance here on account of that the combined characteristics that there are some grants to believe that these might be inefficient and therefore not serving and/or not serving domestic social objectives appropriately and secondly that they provide negative spillovers that for the rest of the world now those who say that these would be then appropriate domains for global economic Governments would
have to and do make an argument that sort of roughly suggests that global rules effectively can prevent or reduce the incidence of countries using beggar thyself policies in other words that we can design global rules that somehow we'll be able to discriminate between the good cases and the bad cases or lacking that will simply assume all of them are bad cases and simply will prevent countries from pursuing those divergent kinds of Policies I think the counter argument for why this is not a good idea is basically no three things one is that in fact you
know global rules global dispute settlement procedures global bureaucracies you know the bureaucrats and the diplomat in the trade negotiation negotiators that agree on these agreements cannot reliably distinguish in fact between beggar thyself and economically and or socially desirable policies and that this cannot Be appropriately done by global agreement even when there is second even when there is a presumption that these are economically inefficient that in some sense democracy should be allowed to make their own mistakes my favourite example there is the Geo Melbourne in the EU it's very difficult to make a case that is
economically or even from a public health standpoint it's harmful yet for you know the consumer demands And through a democratic process EU decides that there's going to ban and we might all think that's a mistake but it seems you know it's very hard I find it very hard to argue that that that this mistake arrived at through a kind of legitimate democratic process should be overruled through trade agreement and the third argument which i think is extremely important is that when people make the argument that international rules can be used to effectively Influence domestic political
economy equilibria in the right direction presume that the rules are somehow written by sort of disinterested technocratic observers like you and me who really want to good for the world economy for individual nations but just like the domestic political process is the result of political economy bargaining and different lobbies and different interests the international agreement the sort of the international Agreements and global economic governance is similarly a political domain where bargaining takes place in a recent paper I've argued that trade agreements increasingly have become captured by the special interests that until very recently we thought
were the counterweight to the protectionist at home the multinationals the big bank the export oriented interests and we thought that those were the sort of the they were overwhelmed by protectionist Interests and they were useful allies of the international multilateral system because they were countervailing against these protectionist interests but if you look at what's happened since 1990s is that the balance of power in the design of the international trade agreements or in the design of international banking standards has moved completely in the opposite direction that is the banks as a Pharma is big tech it's
multinational Corporations that are much more effective in in writing the rules than the protectionist and and we want so basically you know you have barbarians on both sides of the issue and it's it's you cannot simply assume that the international domain is going to be less immune to these barbarians than the domestic domain domain as the international one of course is the advantage that in terms of basic democratic legitimacy in terms of Accountability mechanisms so I think the best piece that I've read on this is actually by three political scientists bobko hain C Macedo and
Andy Morris check that was meant to be at a defence of international organizations and they saying that the starting premise of that article was to say look people think that international organizations like through the IMF or the World Bank could WTO actually undermine democracy because they entail restrictions on what Countries can do and the argument made in this was that actually they helped democracy and they helped democracy in three particular ways and they call this democracy enhancing multilateralism and the three ways was by offsetting factions that is that is prevent protectionist special interests from getting
the upper hand domestically by protecting minority rights this is a bit of a less of an issue in economic governance but it was a big issue in Sort of domains like human rights and third by enhancing the quality of democratic deliberation for example by asking for the explicit scientific assessment of policies in certain domains before countries are allowed to do certain kinds of things but it's possible to flip the Kahane a tall argument exactly on its head and to say well just because multilateral into can enhance democracy it doesn't mean that they always will and
there are in Fact many ways in which these three arguments work in exactly the opposite faction fashion that is that instead of offsetting factions that it empowers factions of course the intellectual property rights regime globally is a wonderful example of this how it empowered farmer to establish and achieve rules globally in ways that they were unable to do otherwise and in terms of the quality of democratic deliberation they're sort of many Mechanisms will all be familiar for example ways in which you know sort of the IMF made me do it is an example for cutting
is an argument used to to cut off the domestic deliberation right because they say well we have no choice the IMF made us do it and that's not very you know positive from the standpoint of democratic deliberation so interestingly one of the three authors here Bob ko hain sort of switched his you know changed his mind on this a Couple of years earlier late previously published a piece where he now said that that the liberal international order had been rigged by these special interests far from enhancing democracy that the liberal international order had become captured
by interest of the wealthy by an and and corporations and banks and so forth but rather than taking this approach of democracy enhancing multilateralism as a positive description of how the world operates And I think there's a lot of reason to believe that that's not how it currently operates I think it's useful to take it as a normative principle that is to say that yeah we like this this is how you know international organizations should operate so there should be our normative principle for what it is that instead in fact they do so so I
think the strongest argument for some form of global economic governance in that large bucket of non BTN policies the best argument is To think about global economic governance as enunciated and developing over time a series of procedural norms that are directly targeted at improving the quality of democracy's and quality of democratic deliberation so this would be directed at enforcing those norms without prejudging the outcomes of the policy process so you might get very lags IPRs you might get a very divergent system of banking regulation you might Get a lot of trade protection but the emphasis
would be on let's see we can develop global norms about how these decisions are made so norms such as transparency in the process accountability the participation of all relevant stakeholders in the decision-making process and the systematic use of economic and scientific evidence in into domestic proceedings but without a presumption of harmonization of common rules or Ceilings on the policies okay so I've tried to think about how something like this might apply for you know if you will you know the mother of beggar thyself policies Trump's national security justification for tariffs and and you know I
would be silly if I were to believe that anything like this would affect whether Trump in the end was able to apply this tariffs at home or not but if the if there was no doubt that the system allows a country to use such Justifications and there's there's some ambiguity in the current GATT as to whether such national security tariffs are going to be allowed or allowable or not but if there was no such ambiguity in fact the presumption was that countries can beggar themself themselves in this fashion as long as you know it's not
clearly an a beggar-thy-neighbor policy then at the very least such a procedural approach would deprive leaders such as Trump from this crutch That they have which is that you know look at these global institutions that are undermining our democracy undermining our sovereignty because at least it would deprive even if it were not effective in reversing these policies at least it would remove a justification or remove a an argument to delegitimize the global economic institutions so I've argued that what this this kind of approach to global economic governance would do would be is Would be something
that was much more I would call the democracy enhancing globalization and sort of you know to be distinguished for from globalization enhancing global governance and I've the distinction here is in this and let me relate this to to sort of in the last couple of minutes to this idea of the trauma that I've written on and off for now nearly 20 years when I first drew this picture it was purely a fantasy and I think it's become real in ways that I Had not imagined at the time partly in the eurozone but but the trial
AMA says that that of these the following three things hyperglobalisation that is a almost completely integrated world economy on the one hand national sovereignty and then mass politics you can have at most two out of those three things the genius of the Bretton Woods regime which came to an end by the way so the multilateral of the Bretton Woods regime was one that's much more in line With the sort of more limited global economic governance model that I've drawn here because it didn't reach behind the borders it left countries with significant amounts of autonomy I
think that was the genius of the Bratton was regime it was the genius of John Maynard Keynes who had seen what the gold standard model had done in the interwar period at the moment you have a country's economy be run or perceived as being run by the demands of the International economy then that not only do you create trouble domestically but you also undermine confidence and trust in the international economic arrangement and therefore Keynes was very clear that the post-war international economic Arrangements would have to be one where you have to leave significant autonomy for
domestic economic management he was of course thinking of what today we call Keynesian a macroeconomic management but Very similar set of arrangements came into play in the GATT to which surprisingly little discipline in terms of what countries were and could and could not do so let me end with this with this quote I just I so recently from Christine Lagarde and it's interesting quote about the Bretton Woods says Bretton Woods launched a new era of global economic cooperation in which countries help themselves by helping each other and I think that Actually the the logic of
the Bretton Woods system was exactly the opposite that what the Bretton Woods regime achieved is that that countries helped each other by being allowed to help themselves first and the reason that global trade and investment increase so rapidly on the debt area era was in fact that there was all this room for them to experiment with their own economic policies and their economic models and that clear that idea went by the wayside In the 1990s as we start to push in this area of hyper globalization and I think we've we've we've moved into a lot
of areas that are much more appropriately left to national discussions and I don't think and really be justified and that's been sort of the the argument that I've made so thinner global economic governance I think would actually make for a better healthier and more sustainable globalization as well thank you [Applause] thank you very much Danny very interesting and thought-provoking as expected so expect there will be many questions and comments we don't have much time but let me just offer a quick reaction I agree with with many of you the points you made but but let
me just play devil's advocate on a couple of points first you know in your presentation you seem to identify global governance with complete harmonization Of rules which I think no reasonable person would completely advocate just to pick on a specific topic that I've written about myself in an intellectual property rights I think there was consensus among academics and policy makers that complete harmonization of intellectual property rights between developed and developing countries was not prudent from an economic point of view but this does not mean necessarily that we shouldn't negotiate about them Or try to find
some common ground so there is a difference there but but more importantly I think that the point you make and you know people may not completely agree with that is that fundamentally there are two reasons to have multilateral agreements either we have global public goods all these back at enable policies and your point is that there very few cases very few issues that fit this profile so I would argue there that perhaps the most Important global public good is peace and by that I don't mean just peace in the military domain but also in the
economic domain a war an economic war is very costly to everyone so in many cases the justification for International Cooperation not necessarily harmonization but cooperation arises from the possibility that when countries pursue national policy even though these national policies may be rational from their own point of view In the case of subsidies for example there could be retaliation by other countries and this may put countries in a prisoner's dilemma and we can avoid this prisoner's dilemma by sitting at the negotiation table and and try to establish some common rules so it's no coincidence that the
two examples you picked so the one about slave labor and the one about knowledge subsidies these are cases where if we had retaliation so if we had reciprocity by foreign Governments who would actually have something positive we would have a race to the top right so if we impose an import ban on goods produced by slave labor and foreign governments respond by doing the same so they put in put pants on goods that are but also use slave labor then the result would be to eliminate slave labor so we have a race to the top
and the global good so that's why we we are in favor of it and similarly if we invest in if we provide Subsidies for knowledge-intensive sectors and foreign governments reciprocate by doing the same we have a race to the top not the economy the world has a whole benefit from that and and that's I think part of the reason we don't object to it on the other hand you know if if we provide subsidies as was the case in the 90s for strategic reasons in order to shift profits to our own country from an economic
point of view it may seem very rational but if The foreign country responds by doing exactly the same then we have exactly the same problem we have in the case of tax havens namely a race to the bottom right it's the classic externality so so that's I think that's the main reason that this type of externality arise is much more common than much more commonly than in the cases you covering that I think that's the main case for international agreements yeah thank you thank you penny um well I Mean on the sort of the prisoner's
dilemma nature I mean I'm not I'm I think your characterization of the examples I gave is correct that from our normative standpoint that if all countries were playing the Gandhi subsidization game or banning imports of slave labor we would consider it appropriate and many of the other examples might not have that that nature but I'm not sure I think once again that is you know whether you take a perfectly Competitive you know sort of benchmark as the yardstick or not makes a huge amount of difference for example in your example of subsidies in the 1990s
I mean you know the best known case of that was the subsidies doing a wide-body aircraft Boeing versus Airbus and and here's a case where you know we do awfully presumption of large monopoly rents you know presumably shared with workers as well and there's a you know you can make a very good case actually that you do Want you know a race in subsidies between US and Europe in that case because the rest of the world benefits and the subsidies one way that you can have you know you can alleviate the duopoly distortion in an
industry where there is under under production and so I you know I'm not sure in cases like like subsidies this is this is the economic logic that has been the dominant one except for the fact that you know once again you know certain interests have Prevailed the intellectual property rights case you're absolutely right right that I mean it's it's we're never talking about perfect harmonization but it was very clear that you know that that that developing countries were pushed into intellectual property rights protection levels that were way above what what what they had or what
they would have done on their own and and and that has become you know that was we started with the WTO and Every subsequent regional trade agreement has taken a kind of a WTO plus approach in intellectual property rights as has gone further now you know you might say well you know so you know what's wrong with this I mean countries are just basically trading off losses here visibly gains there but it's very important to be clear about what is what what a country is doing what its entering a contract if we present this as
a kind of you know in internalization Of global externalities or solving a collective action problem or fixing economic problems you know then you have a kind of a a narrative advantage in the domestic political fight over these things that I don't think you ought to have so for example in the case of intellectual property rights now what happens when the United States extracts intellectual property rights advantages let's say in the context of the you know not ratified TPP would have been you Know essentially there was an agreement where the United States extracts intellectual property right
advantages from these other countries in return it opens up its labor market those imports from those countries and therefore imposes a distributional cost on some segments of the labor force now it's one way to present this trade agreement as you know what I'm doing I'm just basically making a lot of these big tech and big pharma companies very Very rich and very happy in return you know sort of some of my worst paid workers are going to be adversely affected by this agreement and the net is really basically you know sort of you know second
order doing that we can't really even decide whether it's on the positive on the positive side of zero you know there's a very different way of selling a trade agreement than selling it in the way with often the support of our kind of economic argumentation that This is really about you know supporting you know the world economy or you know you know solving collective action or prisoner's dilemma kind of problems and I think so it is we need to be very clear about sort of you know what's happening with these agreements but I think I'm
unpacking these what's behind them which is argument I couldn't agree more with you that that's really I mean the the the the central objective really to be to Establish a stable peaceful international economic order we don't want trade wars but that's the whole point right now I think we have a war between US and China in the trade domain because we've been living under the you know implicit understanding that China would effectively become a market economy just like us that China's entry into WTO was predicated that their their policies would more or less converged not
completely be harmonized obviously But in the air subsidies intellectual property rights technology transfer local controls they would sort of converge well this is not happening and there's good reason it's not happening and why it shouldn't happen so my argument would be that we would have you know we're much more likely to have peace in the international economic domain sort of what I called in a peaceful economic coexistence if we go into much more if they live and let live Kind of a understanding rather than sort of try to for example the u.s. you know force
sort of you know its own conception of what intellectual property rights or technology transfer agreements ought to be on China understand that they're going to have a different economic and us will have different reasons to protect its own integrity of its own technological systems and labor standards and and that might no require a very different type of agreement that Doesn't force some convergence on these economic policies but instead internalizes that they're going to remain different and the nature of the agreement becomes much more in the nature of traffic rules and providing the interface rather than
trying to impose a cop or a common set of so I'm sorry I've gone on too too long and there might be some questions or comments from the floor too let me take questions let me turn it Over to the floor do you wanna come to the microphone and thank you and please introduce yourself hi thank you very much for the talk my minute my name is Phil I'm a social anthropologist at Harvard I have a question currency devaluation can you walk us through that example is that something that the on that is that on
the national domain because I feel like there's an interaction between that and other things in the toolkit if we're talking About competition so I just want to know where currency plays where do they sit within some of these case examples things is my voice in a world with generalize unemployment sort of competitive devaluation would be sort of like another example of a beggar-thy-neighbor policy because you know you're a you're getting some employment gains from undervaluing your currency but that that comes at the expense of stealing demand from your Trade partners and and so that's it
that would be next to up you know the optimum tariff argument another sort of classic example of a beggar-thy-neighbor pose No sorry we have five more minutes so okay thanks christiaan huygens uki program leader working on Bangladesh Bhutan and Nepal I just i like the emphasis on on on those norms and rules for engaging and I wonder whether you could say more about About size differences in terms of how countries engage because it seems that Trump for example wants to use you know to discard multilateralism and go more on the bilateral basis big versus small
all over the world with with the hope of getting more advantages and I guess I would always thought that the multilateral system that part of the benefit of that is to in fact you know help protect the the small players no I mean I I couldn't I couldn't agree with You more I mean that's why I said at the outset that was you know the one important and very very useful element of the multilateral system that I was not going to talk about was the the non-discrimination norm so that that goes with the idea that
you treat all countries the same regardless of power size and and and and all of that so so I'm all with you there I just simply didn't focus on that issue Tony Carol I'm a adjunct professor at Johns Hopkins SycE it seems to be the rubber meets the road politically is to the perceived benefits of multilateral trading systems and as yesterday was a statistic was thrown out that 80% of Americans feel that there are lot in life is worse off than it was a generation before Italy is something approaching 90% I believe of the statistic
so how can we have as Trade Adjustment Assistance ever worked well for those category of people that you Set at the bottom that fall out because we're making mega agreements on intellectual property but perhaps throwing the people under the bus that are more wage dependent type of jobs as Trade Adjustment Assistance work ever worked well in any economy that isn't seen as it can complete drag on the overall macroeconomic macro economy of that country Trade Adjustment is inserted not worked well in the United States and for a very obvious political Motive that is always used
as a carrot to bring labor on board when the agreement is signed but once the agreement is signed there's very little political motivation to make sure that the it's appropriately working and and and and and and fund it so therefore in the united state hasn't worked where it does work is is where it's not an add-on but you have a very robust system of social safety nets and and redistribution that is independent of Whether you're signing a trade agreement or not so in much of Western Europe actually the system has worked very well so in
Western Europe you don't get a lot of opposition to trade from China or trade from low income countries because the welfare state has done a pretty good job of taking care people at the very bottom now you get opposition to trade agreements on account of different things some of the kinds of issues that I focused on on with respect to you know Beyond the border rules and intrusion on that domain but it's not about they're specifically labor market implications good morning Roberto Pechanga trade unit World Bank I understand it was a Rodrick that you said
that you didn't want to talk about the MFN and the non-discrimination but how would all these that we have discussed change or effect if we did if we take into consideration the point that was raised by my colleague before I mean I I think The the general principles I've described of what a democracy in enhancing global economic governance Arrangements could look like would apply to it would up are meant to apply in a multilateral settings or these would be multilateral rules you know they wouldn't be negotiated by laterally between the US and China even though
as a practical matter it may well be that the settlement will first take place between these two big players and then We reflect that subsequently in a multilateral range Minh but the objective is to really multilateral eyes these norms and again I don't want to oversell what these norms will achieve in a countries can very easily go around them but I think the important thing is to elevate these norms rather than elevate the idea that what we're engaging in an act of exchanging market access what which by the way is is I would say inherently
disadvantaged of Small countries because small countries have small markets to accept to to to exchange so I'm afraid our time is up we're already ten minutes late so thank you all very much for coming to the session of course thank you very much Danny [Applause] you
