If we are to rebuild macroeconomics, we must understand one of the fundamental forces shaping our economies. Economists must learn humility and listen to the voices of social scientists studying globalisation, and the voices within the profession arguing globalisations’ merits and demerits.
We know from the work of Williamson and O’Rourke that globalisation, thought of as the interdependency of international markets for goods and services and labour, has waxed and waned since the industrial revolution.
It is by no means certain the current wave of highly financialised globalisation will continue. We know globalisation creates winners and losers, and that the losers are almost never compensated. Increased globalisation often goes hand in hand with increases in inequality.
Globalisation does not benefit all. But can it? This is what our research hub will try to discover.
Michael Trebilcock’s work shows us a world where the transition costs from one policy framework to another are poorly understood. Movements from protectionist to liberalised policies are never simple, and they are never well thought out. In a brilliant series of case studies on policy changes, Trebilcock shows that typically, the scale of the change, and the likely losers from any change, are not known in advance.
Even large scale policies like transitioning to trade liberalisation from agricultural protectionism exhibit these problems of opacity and uncertainty. Only very gradual change made with credible political commitments to phase out (say) protectionism is likely to succeed. Policy changes also take place under conditions of public antipathy, apathy, or ignorance about the likely distributional effects the policies will have. This makes the communicative aspect around policy change vital to understand.
Maureen O’Doherty studied the complex influence of globalisation and consumption on the Brazillian middle class. She found the middle class altering its behaviour and championing free trade policies even as the same policies decreased their standards of living. These insights have never been reflected in macroeconomic models. All the most standard models can say is that different policies have distributional consequences. But we rarely go further.
Economists have a preference for general descriptions of the evolution of the economy. The work of Nina Pavcnik and her colleagues shows globalisation is emphatically not a general phenomenon. Globalisation is experienced differently depending on where in the world you are, and where in the income and wealth distributions within that country you happen to be located. Poor people in India experience globalisation very differently to poor people in Vietnam or the poor of the United Kingdom.
Political scientist John Ruggie emphasizes the role of multinationals as truly global institutions. About 80% of global trade as measured by the percentage of gross exports is associated with international production networks of trans-national corporations. An open question in today’s world is how much sovereignty states have ceded to transnational institutions like the EU, the Asian Development Bank and corporate interests which now span the globe.
Anthropologists of globalisation like Johnathan Xavier Inda and Renato Rosaldo have been saying this for some time. They have been thinking about the moral economy of immigration policies, picking carefully at globalisation’s flaws. Philosophically, we must ask what our moral duty is to one another, whether the concerns of outsiders, or those we define as outsiders, can be admitted as important. The work of Arjun Appadurai shows culture-bending towards globalisation, and back again.
One can tell a story about the rise of China as a globalisation success story. But we can also tell other stories about China’s rise. China has employed export promotion and competition with infant industry subsidies, investment barriers and capital controls. Mexico, where trade is about as free as can be has fared less well. An open question is: Has globalisation changed the structure of the Chinese economy? Of course. But how, and who won, and who lost in those structural changes?
John Ruggie and his colleagues have studied the disjuncture between politics and policies in the modern system. Politics is a national problem, but policies are often international. Navigating the space between economic openness and the ability to manage the domestic policy space is vital, and yet it is little discussed in economics. Consider the current debate on multinational tax avoidance and evasion of researchers like Gabriel Zucman and his colleagues, and think about how Maureen O’Doherty’s work on Brazil could inform his work.
Voters perceiving a loss of national legitimacy to supra-national institutions necessarily react negatively. Consider the US reaction to NAFTA, or the reaction of those on the European periphery to the policies of the European Union after the global economic crisis.
Dani Rodrik has recently worried that the politics of trade liberalisation and globalisation are toxic. Politicians and the social scientists who advise them need to focus on increasing the legitimacy of globalisation, increase public trust in the processes of further liberalisation. Citizens cannot be expected to continually allow policies injurious to their welfare. Economists paid from the public purse who parrot free trade’s benefits without discussing its costs are liable to lose whatever credibility they have left in the eyes of the people who pay their salaries.
When sending new anthropologists out to the field, Claude Levi-Strauss cautioned them on being too dogmatic as to method before actually encountering the real world and its messiness. Levi-Strauss’ simple advice, reported by Philipe Descola to his graduate students was, ‘laissez-vous porter par le terrai’ – let the field decide for you. The method is far less important than the approach of a sensitive individual to the terrain of the individual problem.
The promise of Rebuilding Macroeconomics is to bring Levi-Strauss’ insight into modern macroeconomics. This is particularly important where macroeconomics intersects people’s lives via the policy apparatus. Here are four questions to guide the work of the hub in its first phase. They are by no means exclusive, or exhaustive. They are merely suggestive. Rebuilding Macroeconomics welcomes rigorous proposals which may take a completely different perspective.
- We need a deeper understanding of the financialized variant of globalization. Globalization cannot benefit all if the wealthy no longer contribute their share. I feel we need to understand the distributional consequences of globalization and its national variants.
- Large amounts of work exist showing the losers from trade are never adequately compensated. The Brexit result is often classed as a reaction to globalization. Understanding how and when to compensate globalization’s losers through the policy apparatus is vital. Trebilcock discusses some remedial approaches, but these must be revisited following the twin shocks of Brexit and Donald Trump.
- Globalisation is bound up with technological change. What are the impacts on communities of large-scale, skilled factor-biased technical change? Here economists can provide one theoretical lens, but anthropologists, political scientists, sociologists and historians can give the answers based on the complex, lived experiences of people and their communities.
- The volume of world trade flows relative to economic output has risen for over a century. What happens if it slows, or stops? Who wins? Who loses? Economic geography has one answer, sociology another.
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13 December 2017