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March 13 2013

"National Governments, Global Citizens" by Dani Rodrik

RodrikNothing endangers globalization more than the yawning governance gap – the dangerous disparity between the national scope of political accountability and the global nature of markets for goods, capital, and many services – that has opened up in recent decades. When markets transcend national regulation, as with today’s globalization of finance, market failure, instability, and crisis is the result. But pushing rule-making onto supranational bureaucracies, such as the World Trade Organization or the European Commission, can result in a democratic deficit and a loss of legitimacy.

How can this governance gap be closed? One option is to re-establish national democratic control over global markets. This is difficult and smacks of protectionism, but it is neither impossible nor necessarily inimical to healthy globalization. As I argue in my book The Globalization Paradox, expanding the scope for national governments to maintain regulatory diversity and rebuild frayed social bargains would enhance the functioning of the global economy.

Instead, policy elites (and most economists) favor strengthening what is euphemistically called “global governance.” According to this view, reforms such as those that enhance the effectiveness of the G-20, increase the representativeness of the International Monetary Fund’s Executive Board, and tighten the capital standards set by the Basel Committee on Banking Supervision would be sufficient to provide a sound institutional underpinning for the global economy.

But the trouble is not just that these global institutions remain weak. It is also that they are inter-governmental bodies – a collection of member states rather than agents of global citizens. Because their accountability to national electorates is indirect and uncertain, they do not generate the political allegiance – and hence legitimacy – that truly representative institutions require. Indeed, the travails of the European Union have revealed the limits of transnational political community-building, even among a comparatively limited and similar set of countries.

Ultimately, the buck stops with national parliaments and executives. During the financial crisis, it was national governments that bailed out banks and firms, recapitalized the financial system, guaranteed debts, eased liquidity, primed the fiscal pump, and paid the unemployment and welfare checks – and took the blame for everything that went wrong. In the memorable words of outgoing Bank of England Governor Mervyn King, global banks are “international in life, but national in death.”

But perhaps there is another path, one that accepts the authority of national governments, but aims to reorient national interests in a more global direction. Progress along such a path requires “national” citizens to begin viewing themselves increasingly as “global” citizens, with interests that extend beyond their state’s borders. National governments are accountable to their citizens, at least in principle. So, the more global these citizens’ sense of their interests becomes, the more globally responsible national policy will be.

This may seem like a pipedream, but something along these lines has already been happening for a while. The global campaign for debt relief for poor countries was led by non-governmental organizations that successfully mobilized young people in rich countries to put pressure on their governments.

Multinational companies are well aware of the effectiveness of such citizen campaigns, having been compelled to increase transparency and change their ways on labor practices around the world. Some governments have gone after foreign political leaders who committed human-rights crimes, with considerable domestic popular support. Nancy Birdsall, the president of the Center for Global Development, cites the example of a Ghanaian citizen providing testimony to the US Congress in the hope of convincing American officials to pressure the World Bank to change its position on user fees in Africa.

Such bottom-up efforts to “globalize” national governments have the greatest potential to affect environmental policies, particularly those aimed at mitigating climate change – the most intractable global problem of all. Interestingly, some of the most important initiatives to stem greenhouse gases and promote green growth are the products of local pressures.

World Resources Institute President Andrew Steer notes that more than 50 developing countries are now implementing costly policies to reduce climate change. From the perspective of national interest, that makes no sense at all, given the global-commons nature of the problem.

Some of these policies are driven by the desire to attain a competitive advantage, as is the case with China’s support for green industries. But when voters are globally aware and environmentally conscious, good climate policy can also be good politics.

Consider California, which at the beginning of this year launched a cap-and-trade system that aims to reduce carbon emissions to 1990 levels by the year 2020. While global action remained stalled on capping emissions, environmental groups and concerned citizens successfully pushed for the plan over the opposition of business groups, and the state’s Republican governor at the time, Arnold Schwarzenegger, signed it into law in 2006. If it proves a success and remains popular, it could become a model for the entire country.

Global polls such as the World Values Survey indicate that there is still a lot of ground that needs to be covered: self-expressed global citizenship tends to run 15-20 percentage points behind national citizenship. But the gap is smaller for young people, the better educated, and the professional classes. Those who consider themselves to be at the top of the class structure are significantly more globally minded than those who consider themselves to be from the lower classes.

Of course, “global citizenship” will always be a metaphor, because there will never be a world government administering a worldwide political community. But the more we each think of ourselves as global citizens and express our preferences as such to our governments, the less we will need to pursue the chimera of global governance.

© Project Syndicate

February 27 2013

"The European-American Dream" by Javier Solana

javier solanaToday, three European countries are among the world’s seven largest economies. Ten years from now, only two will remain. By 2030, only Germany will still be on the list, and by 2050, none will remain. Indeed, by then, the United States will be the only representative of the West in the top seven.

What this means is that the European states are too small to compete separately in the world of the twenty-first century. It’s as simple as that. By 2030, according to the World Bank, there will be two billion more people, mainly Asians, in the middle class. The pressure on the planet’s resources, commodities, water, and food will be huge, making a global rebalancing practically inevitable. And in a world marked by interdependence and constant change, Europe will find that unity is strength.

Indeed, unless Europeans work toward integration, they may find themselves surpassed by emerging countries in terms of technological development, job creation, production costs, talent, and creativity.

The European Union is still the place where economic and social institutions assure a better quality of life. In this sense, the demand for a European voice in the world is clear – Brazil’s former president, Luiz Inácio Lula da Silva, spoke of the EU as a “singular international heritage” – because it guarantees the values that represent humanity at its best.

Those values are embodied partly in Europe’s well-developed welfare states, which are an important component of Europeans’ collective identity and a principal point of pride. True, in terms of economic equality, there is only a two-to-one difference in per capita GDP between the richest US state and the poorest (excluding the District of Columbia), while in the EU the ratio is 6.5 to one. But, in terms of conditions within US states and EU countries, things are very different.

The average Gini coefficient (where zero is absolute equality and one is absolute inequality) in Europe is 0.30, compared to 0.45 in the US. China’s coefficient is 0.47. American society is very unequal (and China’s is slightly more so). In Europe, the opposite is true. Its societies are much more egalitarian, while convergence among them is still a long way off (this is, indeed, the great task that Europe faces).

From this perspective, it is not difficult to comprehend Europe’s international appeal. Consider the following thought experiment (a variation on the “veil of ignorance” conjured by the philosopher John Rawls in his effort to design a just society): Taking into account the level and quality of social protection, public education, and health care in the EU and the US, and without knowing beforehand what your social position would be in either society, where would you prefer to be born?

But, if Europe wants to maintain its prosperity-sharing institutions, it must generate economic growth in order to pay for them. That means raising productivity and strengthening competitiveness – and, equally important, asserting Europe’s place in the world.

Europeans have a new reason for hope as they seek to achieve these goals: a transatlantic free-trade agreement. Not long ago, in the 1980’s, Europe was dismissed (by conservative Americans in particular) with the term “eurosclerosis.” The decade following the oil crisis of 1979 was marked by a spike in unemployment, fiscal paralysis, and, indeed, frozen accession negotiations for Spain and Portugal. European economies were stagnating, while the US and Japan were growing.

At the time, Europe’s common market was not yet a single market. Then, a historic convergence of national interests and ideological positions (from François Mitterrand’s Socialists to Margaret Thatcher’s Conservatives to Helmut Kohl’s Christian Democrats) occurred. With great foresight, Europe’s leaders concluded that it was their economies’ lack of integration that was keeping Europe from growing as strongly as the US and Japan.

The solution was to create a much larger market: a single market. This effort culminated in the Single European Act of 1986, which laid the foundation for the virtuous circle of strong growth and lower unemployment in the 1990’s.

Today, the Transatlantic Trade and Investment Partnership (TTIP) is finally on the table, promising to boost growth in the EU and the US alike. In 2012, US exports to the EU totaled roughly €206 billion ($272 billion), while EU exports to the US amounted to nearly €300 billion. Thirty million jobs in Europe (about 10% of the total work force) depend on foreign trade. The quantities are huge, which suggests that the TTIP could have an effect comparable to that of the single market for Europe.

But realizing the TTIP’s potential requires completion of the European integration project. That process is long and slow, but it is the only way to maintain Europe’s relevance as an international actor, with something to say and to offer. Indeed, it has been this process – now in its seventh decade – that has enabled Europeans to enjoy the highest standard of living in the world.

© Project Syndicate

November 02 2012

"America’s Global Election" by Joseph Stiglitz

Most people around the world will not be able to vote in the United States’s upcoming presidential election, even though they have a great deal at stake in the result. Overwhelmingly, non-US citizens favor Barack Obama’s re-election over a victory for his challenger, Mitt Romney. There are good reasons for this.

In terms of the economy, the effects of Romney’s policies in creating a more unequal and divided society would not be directly felt abroad. But, in the past, for better and for worse, others have often followed America’s example. Many governments quickly subscribed to Ronald Reagan’s mantra of deregulated markets – policies that eventually brought about the worst global recession since the 1930’s. Other countries that followed America’s lead have experienced growing inequality – more money at the top, more poverty at the bottom, and a weaker middle class.

Romney’s proposed contractionary policies – the attempt to reduce deficits prematurely, while the US economy is still frail – will almost surely weaken America’s already anemic growth, and, if the euro crisis worsens, it could bring on another recession. At that point, with US demand shrinking, the rest of the world would indeed feel the economic effects of a Romney presidency quite directly.

That raises the question of globalization, which entails concerted action on many fronts by the international community. But what is required with regard to trade, finance, climate change, and a host other areas is not being done. Many people attribute these failures partly to an absence of American leadership. But, while Romney may summon bravado and strong rhetoric, other world leaders would be unlikely to follow him, owing to the belief (correct in my judgment) that he would take the US – and them – in the wrong direction.

American “exceptionalism” may sell well at home, but it does poorly abroad. President George W. Bush’s Iraq war – arguably a violation of international law – showed that though America spends almost as much on defense as the rest of the world combined, it could not pacify a country with less than 10% of its population and less than 1% of its GDP.

Moreover, it turned out that US-style capitalism was neither efficient nor stable. With most Americans’ incomes stagnating for a decade and a half, it was clear that the US economic model was not delivering for most citizens, whatever official GDP data said. Indeed, the model blew up even before Bush left office. Together with the abuses of human rights under his administration, the Great Recession – the predictable (and predicted) consequence of his economic policies – did as much to weaken America’s soft power as the wars in Iraq and Afghanistan did to weaken the credibility of its military power.

In terms of values – namely, the values of Romney and his running mate, Paul Ryan – things are not much better. For example, every other advanced country recognizes the right to accessible health care, and Obama’s Affordable Care Act represents a significant step toward that goal. But Romney has criticized this effort, and has offered nothing in its place.

America now has the distinction of being among the advanced countries that afford the least equality of opportunity to their citizens. And Romney’s drastic budget cutbacks, targeted at the poor and middle class, would further impede social mobility. At the same time, he would expand the military, spending more money on weapons that do not work against enemies that do not exist, enriching defense contractors like Halliburton at the expense of desperately needed public investment in infrastructure and education.

While Bush is not on the ballot, Romney has not really distanced himself from the Bush administration’s policies. On the contrary, his campaign has featured the same advisers, the same devotion to higher military spending, the same belief that tax cuts for the rich are the solution to every economic problem, and the same fuzzy budget math.

Consider, for example, the three issues that are at the center of the global agenda mentioned earlier: climate change, financial regulation, and trade. Romney has been silent on the first, and many in his party are “climate deniers.” The world cannot expect genuine leadership from Romney there.

As for financial regulation, while the recent crisis has highlighted the need for stricter rules, agreement on many issues has proven to be elusive, partly because the Obama administration is too close to the financial sector. With Romney, though, there would be no distance at all: metaphorically speaking, he is the financial sector.

One financial issue on which there is global agreement is the need to close down offshore bank havens, which exist mainly for purposes of tax evasion and avoidance, money laundering, and corruption. Money does not go to the Cayman Islands because sunshine makes it grow faster; this money thrives on the absence of sunshine. But, with Romney unapologetic about his own use of Cayman banks, we are unlikely to see progress even in this area.

On trade, Romney promises to launch a trade war with China, and to declare it a currency manipulator on Day One – a promise that gives him little wiggle room. He refuses to note the renminbi’s large real appreciation in recent years, or to acknowledge that, while changes in China’s exchange rate may affect the bilateral trade deficit, what matters is America’s multilateral trade deficit. A stronger renminbi would simply mean a switch in the US from China to lower-cost producers of textiles, apparel, and other goods.

The irony – again lost on Romney – is that other countries are accusing the US of currency manipulation. After all, one of the main benefits of the Federal Reserve’s policy of “quantitative easing” – perhaps the only channel with a significant effect on the real economy – derives from the depreciation of the US dollar.

The world has a lot riding on America’s election. Unfortunately, most people who will be affected by it – almost the entire world – will have no influence on the outcome.

© Project Syndicate

October 10 2012

"The Truth About Sovereignty" by Dani Rodrik

In the French parliament’s recent debate on Europe’s new fiscal treaty, the country’s Socialist government vehemently denied that ratification of the treaty would undermine French sovereignty. It places “not one constraint on the level of public spending,” Jean-Marc Ayrault, the prime minister, asserted. “Budget sovereignty remains in the parliament of the French Republic.”

As Ayrault was trying to reassure his skeptical colleagues, including many members of his own party, European Commissioner for Competition Joaquin Almunia was delivering a similar message to his fellow social democrats in Brussels. To succeed, he argued, Europe must prove wrong those who believe there is a conflict between globalization and sovereignty.

Nobody likes to give up national sovereignty, least of all, it seems, politicians on the left. Yet, by denying the obvious fact that the eurozone’s viability depends on substantial restraints on sovereignty, Europe’s leaders are misleading their voters, delaying the Europeanization of democratic politics, and raising the political and economic costs of the ultimate reckoning.

The eurozone aspires to full economic integration, which entails the elimination of transaction costs that impede cross-border commerce and finance. Obviously, it requires that governments renounce direct restrictions on trade and capital flows. But it also requires that they harmonize their domestic rules and regulations – such as product-safety standards and bank regulations – with those of other member states in order to ensure they do not act as indirect trade barriers. And governments must forswear changes in these policies, lest the uncertainty itself act as a transaction cost.

This was all implicit in the European Union’s single-market initiative. The eurozone went one step further, aiming through monetary unification to eradicate fully the transaction costs associated with national currencies and exchange-rate risk.

Simply put, the European integration project has hinged on restrictions on national sovereignty. If its future is now in doubt, it is because sovereignty stands in the way once again. In a true economic union, underpinned by union-wide political institutions, the financial problems of Greece, Spain, and the others would not have blown up to their current proportions, threatening the existence of the union itself.

Consider the United States. No one even keeps track of, say, Florida’s current-account deficit with the rest of the country, although we can safely guess that it is huge (since the state is home to many retirees living off benefits that come from elsewhere).

When Florida’s state government goes bankrupt, Florida’s banks continue to operate normally, because they are under federal rather than state jurisdiction. When Florida’s banks go belly-up, state finances are insulated, because the banks are ultimately the responsibility of federal institutions.

When Florida’s workers become unemployed, they get unemployment checks from Washington, DC. And when Florida’s voters are disenchanted about the economy, they do not riot outside the state capital; they put pressure on their representatives in Congress to push for changes in federal policies. Nobody would argue that US states have an abundance of sovereignty.

The relationship between sovereignty and democracy is also misunderstood. Not all restrictions on the exercise of sovereign power are undemocratic. Political scientists talk about “democratic delegation” – the idea that a sovereign might want to tie its hands (through international commitments or delegation to autonomous agencies) in order to achieve better outcomes. The delegation of monetary policy to an independent central bank is the archetypal example: in the service of price stability, daily management of monetary policy is insulated from politics.

Even if selective limitations on sovereignty may enhance democratic performance, there is no guarantee that all limitations implied by market integration would do so. In domestic politics, delegation is carefully calibrated and restricted to a few areas where the issues tend to be highly technical and partisan differences are not large.

A truly democracy-enhancing globalization would respect these boundaries. It would impose only those limits that are consistent with democratic delegation, possibly along with a limited number of procedural norms (such as transparency, accountability, representativeness, use of scientific evidence, etc.) that enhance democratic deliberation at home.

As the American example illustrates, it is possible to give up on sovereignty – as Florida, Texas, California, and the other US states have done – without giving up on democracy. But combining market integration with democracy requires the creation of supranational political institutions that are representative and accountable.

The conflict between democracy and globalization becomes acute when globalization restricts the domestic articulation of policy preferences without a compensating expansion of democratic space at the regional/global level. Europe is already on the wrong side of this boundary, as the political unrest in Spain and Greece indicates.

That is where my political trilemma begins to bite: We cannot have globalization, democracy, and national sovereignty simultaneously. We must choose two among the three.

If European leaders want to maintain democracy, they must make a choice between political union and economic disintegration. They must either explicitly renounce economic sovereignty or actively put it to use for the benefit of their citizens. The first would entail coming clean with their own electorates and building democratic space above the level of the nation-state. The second would mean giving up on monetary union in order to be able to deploy national monetary and fiscal policies in the service of longer-term recovery.

The longer this choice is postponed, the greater the economic and political cost that ultimately will have to be paid.

© Project Syndicate

September 25 2012

"The Institutional Foundations of Middle-Class Democracy" by Jacob S. Hacker

To protect and restore the hallmarks of a well-functioning market democracy, progressives in the United States and elsewhere must rebuild its institutional foundations and shift back the uneven organisational balance between concentrated economic interests and the broad public.

The financial crisis of 2008 seemed almost tailor-made to discredit the governing economic philosophy of the prior generation. Not only did it occur on the watch of an unpopular Republican president; it also laid bare the vast and growing gaps between ordinary Americans and the super-rich – and in particular between the economic travails of Main Street and the reckless behaviour of Wall Street. Yet, just two years after electing Democratic President Barack Obama in November 2008, American voters devastated the president’s congressional majority. Within weeks, the political agenda shifted entirely from measures to create jobs and bolster economic security to big spending cuts, the expansion of favourable tax provisions for the affluent and corporations, and a state-by-state push for deregulation, programmatic cuts and anti-union rules.

The temptation is to see these developments in personal terms, as a reflection of the poor strategies of Democrats or the savvy tactics of their opponents. But the immensity of the gap between expectations and outcomes calls on us to dig deeper into the sources of American liberalism’s contemporary woes. This digging suggests that the most fundamental problems are structural rather than personal. They reflect the way in which the “rules of the game” of the economy and polity have changed – changes that have played out distinctively in the United States but whose echoes can be seen in other English-speaking nations and, increasingly, in affluent democracies more broadly. Against the backdrop of these structural shifts, progressives cannot simply play the game with more determination or intelligence. They will need to reshape the rules as well.

The great reversal

The last generation has seen a remarkable turnaround in US economic outcomes. In the generation after the Second World War, the economy and the earnings of all income classes grew roughly in tandem. Since the 1970s, the economy has slowed modestly, but the big change has been where the rewards of growth have gone. In a word, they have gone to the top. Over the last generation, the share of pre-tax national income received by the richest 1 % of Americans has more than doubled. The share received by the richest 0.1 % has more than quadrupled, rising from less than 3 % in 1970 to more than 12 % in 2007 – the highest proportion since the creation of the income tax in 1913.

This is not a story of stagnant productivity or general economic malaise. It is a story of the decoupling of aggregate productivity and most workers’ wages. Even a college-educated, entry-level male worker earns barely more than a worker in the same position did a generation ago. While the economic boom of the 1990s temporarily reduced the pay-productivity gap, the gap returned with a vengeance in the 2000s. Indeed, the expansion of the 2000s was the first on record in which a typical family’s income was at the end lower than at the close of the prior business cycle.

As job security has eroded and gains have shifted towards the top, other pillars of security and opportunity have also come under strain. The first of these is education and social mobility. Class lines have hardened. American inequality is sky-high and American social mobility is below the advanced industrial norm. The United States has gone from the world leader in college completion to a middling performer. More and more of the skyrocketing college costs are financed through loans, placing a burden on students and their parents – except in the case of children of the rich, who gain a huge head start.

The second pillar is pensions and social insurance. America’s job-based framework of economic security has gone from basic to broken. Defined, secure pensions – once the hallmark of a good job – are vanishing, and tax-deferred savings accounts like the 401(k)s are not filling the gap. As medical costs continue to outstrip inflation, employment-based health insurance benefits are becoming rarer and less protective.

The third pillar is housing and economic assets. Beside their homes, most middle-class families have strikingly little in the way of private assets to cushion economic shocks or build their futures. And those homes look far less secure than they once did. The traditional strategy of gradually accumulating wealth through housing has taken a perhaps fatal hit, with implications for the economic security not just of the middle-aged but also of the young, aspiring middle class.

Winner-take-all politics and its discontents

Apologists for this staggering shift often attribute it to impersonal forces of technological change and globalisation. Along this view, computers and automation have reduced the rewards for routine skills while the entry of hundreds of millions of literate low-wage workers into the global workforce has undermined the earnings of less-educated Americans. Compared to these vast tides, the conventional wisdom suggests, American politics and policy have played only a bit role.

As Paul Pierson and I have recently argued in our book Winner-Take-All Politics, this view is profoundly mistaken. Politics and public policy have in fact played an absolutely central role. One clue that they have been central is the diversity of experiences among rich democracies. All rich countries have experienced the impact of technological change and globalisation and yet in many rich democracies increases in inequality and declines in economic security have been modest, and few have seen anything like the sharp upward shift of economic rewards, the implosion of unions or the breakdown of social benefits that have occurred in the United States. Moreover, in many nations where wage inequality has risen, policymakers have pushed back through active labour market policies and through taxes and public spending that are designed to reduce the remaining income gaps. Not so in the United States. According to the Congressional Budget Office, even after taking into account all public and private benefits and federal taxes, almost 40 % of all household income gains between 1979 and 2007 accrued to the richest 1 % of Americans – more than received by the bottom 90 % combined.

Another clue that politics and policy have been crucial is that America’s newly unequal economy developed hand in hand with a new politics. In the late 1970s, corporate America organised on an unprecedented scale to influence government policy, not just through campaign donations but also through vast lobbying efforts. At the same time, with campaign costs skyrocketing, money became a far more important resource for politicians – and, as we have seen, a far more unequally distributed resource in American society.

The rising role of money and the increasing imbalance between business and other organised interests fundamentally changed Washington. For the contemporary Republican party, these changes were welcome and encouraged the party to shift ever rightwards on economic issues. Democrats, by contrast, found themselves increasingly torn between their historical commitment to the little guy and the pull of money from the big guys, including, for much of the 1990s and early 2000s, the ascendant titans of Wall Street. The result was an ever more polarised economic debate in which a significant faction of one party, the Democrats, repeatedly proved willing to cut bargains that undermined the middle class’s standing.

The recent US tax-cut deal extending huge tax reductions to the richest highlighted the long-term role of the American tax system in abetting inequality. Even as the pre-tax incomes of the richest have skyrocketed, politicians have slashed federal taxes on the affluent. The effective federal rate paid by the top 0.1 % – that is, what these super-rich taxpayers actually pay in federal corporate, capital gains, income, payroll and estate taxes as a share of income – has fallen from over 60 % in 1960 to around half that in 2004. Just since 1995, the top 400 US households have enjoyed a 45 % cut in their federal income taxes (they paid 30 % of individual income in 1995 and 16.5 % in 2007). In 2007 alone, that saved the top 400 filers US$46m per household.

Far more important and less recognised, however, have been the ways in which Washington has remade markets to advantage the top. Failure to enforce policies supporting workers’ organising rights has undermined labour unions as a force for good pay while corporate governance rules all but asked top executives to drive up their own earnings. Financial deregulation brought great riches for some while crashing the rest of the economy.

Perhaps the least visible policy changes have been passive-aggressive – deliberate failures to address changing economic conditions, such as the need to balance work and family. Entire categories of support that have become essential to middle-class life, such as good childcare, are simply not a public responsibility in the United States. Meanwhile, responsibilities once shouldered by corporations are shifting back onto families. Uniquely among industrial nations, the United States came to rely on employers to provide healthcare, pensions and other benefits that elsewhere enjoyed state sponsorship. But as employers have pulled back, government has not filled the gap.

It is not so surprising, then, that many middle-class Americans feel abandoned. Asked in mid-2010 whom government had helped “a great deal” during the downturn, 53 % of Americans said banks and financial institutions. Forty-four % pointed to large corporations. Just 2 % thought federal policies had helped the middle class a great deal.

The lessons of winner-take-all politics

Three key features of these developments are crucial for grasping – and overcoming – the challenges that progressives face today. The first feature is the role of pre-distribution. When we think of government’s effects on inequality, we think of redistribution – government taxes and transfers that take from some and give to others. Yet many of the most important changes have been in what might be called “pre-distribution” – the way in which the market distributes its rewards in the first place. Policies governing financial markets, the rights of unions and the pay of top executives have all shifted in favour of those at the top, especially the financial and non-financial executives who make up about six in ten of the richest 0.1 % of Americans.

The moral of this story is that progressive reformers need to focus on market reforms that encourage a more equal distribution of economic power and rewards even before government collects taxes or pays out benefits. This is not just because pre-distribution is where the action is. It is also because excessive reliance on redistribution fosters backlash, making taxes more salient and feeding into the conservative critique that government simply meddles with “natural” market rewards. Further, it is because societies in which market inequality is high are, ironically, ones where creating common support for government action is often most difficult. The regulation of markets to limit extremes and give the middle class more voice is hardly easy – witness the fight over financial reform in the United States. But it is both more popular and more effective than after-the-fact mopping up.

The second feature is the problem of drift. Over the last generation, across a wide range of areas, public officials have deliberately failed to update policy in the face of changing economic circumstances, allowing outcomes to drift away from a more equal equilibrium. Although particularly pronounced in the United States, drift seems characteristic of many rich democracies today as they confront a rapidly changing economy and society. If this is so, preserving existing policies is not the only challenge. The welfare state traditionally understood remains deeply rooted. But the broader environment of the welfare state – a mixed economy characterised by a healthy civil society – is much more vulnerable.

To protect and restore these larger hallmarks of a well-functioning market democracy, progressives must preserve an effective capacity for robust governance. They should resist institutional reforms that abet gridlock. In the United States, this means altering the procedural rules that encourage the growing use of the filibuster, the Senate tradition of unlimited debate that has increasingly amounted to a universal supermajority requirement of 60 votes in the 100-member chamber. Progressives should also ensure that policies retain the capacity for over-time adjustment, whether automatically (as in benefits indexed to wages or prices) or structurally (through the preservation of basic regulatory, tax and spending powers that are too often sacrificed on the conservative altar of privatisation and delegation).

The third feature is the declining organisational might of the middle. The transformation of America’s political economy over the last generation has far less to do with the shifting demands of voters than with the changing organisational balance between concentrated economic interests and the broad public. Indeed, the sharp shift of economic policy towards business and the affluent occurred despite remarkable stability in public views on many economic issues, including views of government redistribution, progressive tax policy and the importance of key programmes of economic security. The agenda disconnect that we see today, as politicians ignore Americans’ concerns about the lack of jobs in favour of cutting programmes that the public likes and preserving tax reductions for the rich that it does not, is not new. It has characterised the politics of the last generation.

The root of the problem, once again, is organisational. Middle-class democracy rested on organisations, such as unions and cross-class civic organisations, that gave middle-class voters knowledge about what was at stake in policy debates as well as political leverage to influence these debates. Without this organisational grounding, voters simply have a very hard time drawing connections between what politicians do and the strains they face in their lives, much less formulating a broad idea of how those strains could be effectively addressed. So far, however, the most effective organising has taken place not among progressives but on the conservative side, with the rise of the loose organisation of conservative voters, right-wing media figures and corporate-funded ideological activists that travels under the “Tea Party” banner.

The Tea Party’s success is instructive. It rests on a combination of champions inside government and organisers working at the grassroots level; it has a clear agenda (scale back government) and enemy (President Obama); and it has effectively utilised both old-style organising (through local chapters) and new communications technologies. While the Tea Party cannot and should not simply be emulated by progressives, its three key features – grassroots organising linked to national reform leaders, a forward-looking vision that is directed against a perceived contemporary threat, and the use of flexible participatory modes enabled by new media – are preconditions for effective progressive organising.

Rebuilding the institutional foundations of middle-class democracy

The diagnosis outlined here is both encouraging and challenging. It is encouraging because there is nothing natural about the harsh divisions that have arisen in the United States. They are rooted in politics and policy, not the inexorable forces of globalisation or technological change. In many cases, moreover, they require not major programmes of redistribution – never easy to enact – but rather measures to reshape the market so that it distributes its rewards more broadly in the first place.

Nor does popular opinion dictate that this sort of politics and policy must reign. If progressives are losing the public, it is not mainly because citizens buy into the free-market fundamentalism of the right or are so distracted by social issues or racial animosity that they cannot see their own interests. The hallmark of contemporary public attitudes is not public conservatism but public cynicism and distrust, fuelled by the economic trend of the last generation and a sense that government is out of touch. To rebuild the middle class requires rebuilding a sense that government can make a positive difference. And that means addressing the bread-and-butter concerns of the middle class while also calling for responses to long-term threats, such as global warming and runaway health costs, that jeopardise US society.

The challenge, however, is that progressive reform will require using a broken political system to fix a broken political system. The main obstacle to change and the main vehicle for change are one and the same. This catch-22 affords no easy resolution. But it does suggest where reformers’ energies should be directed, and it points to opportunities that are too often missed by those narrowly focused on rhetorical messages and strategic moves. Perhaps the most important implication is that those seeking to achieve a new governing economic philosophy will have to rebuild the organisational foundations of democratic capitalism. An inspiring economic vision will be grounded in an institutional blueprint for using active democratic government to meet the challenges facing US society – challenges that, while frequently most pressing in the United States, are growing for all affluent democracies.

This column was first published by Policy Network

March 14 2012

"What Kind of Progress do we want?" by Matthias Machnig

It’s time to stop perpetuating perceived practical constraints, insists Matthias Machnig. New progress calls for political initiative, debates about the future direction of policy, and a passionate commitment. At stake here is nothing less than a more just society.

The hope was that technical advances would also enable us to achieve social progress for people along with environmental sustainability. That hope is now being put to the test – and not just since the shockwave of Fukushima.

“Progress” was the promise of a better future, of more opportunities for personal development, of a more just society. It was also a promise that hard work brings its own rewards in terms of more security, more opportunities and more prosperity for all.

But now progress is often seen as a threat. Today we can no longer be certain that progress goes hand in hand with a good job, a good income, social security, sustainability and democracy. People feel themselves to be at the mercy of markets and perceived technical or social constraints. They feel abandoned, helpless in the face of a society that is ruled by nameless processes and agents.

We are living a contradiction. On the one hand, growth appears to be necessary in order to deliver on the modern promise of affluence for all. But on the other hand we see the negative consequences of this same economism every day, in the shape of environmental and social damage.

Globalization is here to stay, and states, businesses and people supposedly have no alternative but to adapt to it. But there is a steadily growing awareness that this is causing serious economic damage, imposing high social costs and leading to the fragmentation of society.

Economic growth has reached the limits of what is ecologically viable. The financial industry is now decoupled from the real economy, and the financial markets have mutated into a self-referential system. The splitting of labour markets into well-paid jobs and casual employment is creating a serious social divide. And in the face of this development, democracy is entering a crisis of legitimation and confidence.

We need a new understanding of global and social progress. We have to reinvent the idea of progress. It must become a project for hope and for the future again. Where progress fails to deliver hope, prosperity for all, a better quality of life and more participation, democracy and progress soon find themselves on a collision course. I firmly believe that new progress is possible as a new, forward-looking project, which can succeed provided we imbue progress with its productive, liberating power again and define the direction it must take.

The future lies open before us. This is an opportunity to change our existing model of progress. Progress of any kind is always new: but not everything that is new counts as progress. The obvious ecological and social limitations of an industrialization based on the consumption of natural resources and raw materials are forcing us to revise and update our understanding of progress.

What can we expect from the new progress?

Any new understanding of progress must take human beings as its starting point and put the ideal of the good life back at the centre of political action.

There are many areas where a change for the better is not only desirable, but also possible. For the necessary debate about progress to take place, we need critical thinking in science and academia, in politics and in our social organizations. We also need our politicians to find new and different ways of using science, expertise and marketing.

The notion of a better society must be put back at the heart of political debate.

New progress means:

- guaranteeing a safe and functioning banking system
- developing a proactive and future-proof economic policy
- putting in place a fair labour market policy and social security system
- making it possible to invest in the future.

We need a bold government policy for Germany that is prepared to consolidate, regulate the financial markets, encourage innovation and generate growth. This calls for a new understanding of the connections between the economic, ecological, fiscal and social challenges that we face.

A just society committed to the new progress is more stable, more productive and more democratic. It is a society based on cooperation and equality for all. It opens up more opportunities for the individual to develop and prosper, and it provides collective safeguards for this personal development.

Only in such a democracy, founded on solidarity, can the idea of a society committed to the new progress be taken forward and developed. The strengthening of co-determination rights in business and industry, the establishment of direct democratic mechanisms in legislation, the extension of the rights of the European Parliament and the guarantee of equal opportunities based on sound social and education policies – these are just the beginnings of a comprehensive democratization of society, of a society committed to the new progress.

In this way the new progress can become a project for hope and for the future, a cause for which it is worth entering the arena of political debate. It rejects the conservative belief that all we need to do is to nurture the status quo and develop it further. It rejects the liberal belief that the hope of upward mobility and social participation is a matter for the markets to sort out. It distances itself from “green” thinking, which preaches self-denial from a position of material security. And it distances itself from “left” thinking, which persists in lamenting the present sorry state of affairs instead of taking the initiative and fighting for a better world.

So the central challenge is this: we must dare to become more political and more democratic again. Now is the time to ask the key questions about the future direction of policy, so that our basic beliefs find focused expression in political demands. We must be passionate about those beliefs, and willing to engage in a substantive debate about a better society. Only by doing so can we put ourselves at the head of a new progressive movement.

This post is part of the ‘Basic Values Debate’ jointly organised by the Friedrich-Ebert-Stiftung and Social Europe Journal. The German original first appeared in the Fortschrittsforum (translation by Allan Blunden).

March 12 2012

"Free-Trade Blinders" by Dani Rodrik

globalizationI was recently invited by two Harvard colleagues to make a guest appearance in their course on globalization. “I have to tell you,” one of them warned me beforehand, “this is a pretty pro-globalization crowd.” In the very first meeting, he had asked the students how many of them preferred free trade to import restrictions; the response was more than 90%. And this was before the students had been instructed in the wonders of comparative advantage!

We know that when the same question is asked in real surveys with representative samples – not just Harvard students – the outcome is quite different. In the United States, respondents favor trade restrictions by a two-to-one margin. But the Harvard students’ response was not entirely surprising. Highly skilled and better-educated respondents tend to be considerably more pro-free trade than blue-collar workers are. Perhaps the Harvard students were simply voting with their own (future) wallets in mind.

Or maybe they did not understand how trade really works. After all, when I met with them, I posed the same question in a different guise, emphasizing the likely distributional effects of trade. This time, the free-trade consensus evaporated – even more rapidly than I had anticipated.

I began the class by asking students whether they would approve of my carrying out a particular magic experiment. I picked two volunteers, Nicholas and John, and told them that I was capable of making $200 disappear from Nicholas’s bank account – poof! – while adding $300 to John’s.  This feat of social engineering would leave the class as a whole better off by $100. Would they allow me to carry out this magic trick?

Those who voted affirmatively were only a tiny minority. Many were uncertain. Even more opposed the change.

Clearly the students were uncomfortable about condoning a significant redistribution of income, even if the economic pie grew as a result. How is it possible, I asked, that almost all of them had instinctively favored free trade, which entails a similar – in fact, most likely greater – redistribution from losers to winners? They appeared taken aback.

Let’s assume, I said next, that Nicholas and John own two small firms that compete with each other. Suppose that John got richer by $300 because he worked harder, saved and invested more, and created better products, driving Nicholas out of business and causing him a loss of $200. How many of the students now approved of the change? This time a vast majority did – in fact, everyone except Nicholas approved!

I posed other hypotheticals, now directly related to international trade. Suppose John had driven Nicholas out of business by importing higher-quality inputs from Germany? By outsourcing to China, where labor rights are not well protected? By hiring child workers in Indonesia? Support for the proposed change dropped with each one of these alternatives.

But what about technological innovation, which, like trade, often leaves some people worse off. Here, few students would condone blocking technological progress. Banning the light bulb because candle makers would lose their jobs strikes almost everyone as a silly idea.

So the students were not necessarily against redistribution. They were against certain kinds of redistribution. Like most of us, they care about procedural fairness.

To pass judgment on redistributive outcomes, we need to know about the circumstances that cause them. We do not begrudge Bill Gates or Warren Buffett their billions, even if some of their rivals have suffered along the way, presumably because they and their competitors operate according to the same ground rules and face pretty much the same opportunities and obstacles.

We would think differently if Gates and Buffett had enriched themselves not through perspiration and inspiration, but by cheating, breaking labor laws, ravaging the environment, or taking advantage of government subsidies abroad. If we do not condone redistribution that violates widely shared moral codes at home, why should we accept it just because it involves transactions across political borders?

Similarly, when we expect redistributive effects to even out in the long run, so that everyone eventually comes out ahead, we are more likely to overlook reshufflings of income. That is a key reason why we believe that technological progress should run its course, despite its short-run destructive effects on some. When, on the other hand, the forces of trade repeatedly hit the same people – less educated, blue-collar workers – we may feel less sanguine about globalization.

Too many economists are tone-deaf to such distinctions. They are prone to attribute concerns about globalization to crass protectionist motives or ignorance, even when there are genuine ethical issues at stake. By ignoring the fact that international trade sometimes – certainly not always – involves redistributive outcomes that we would consider problematic at home, they fail to engage the public debate properly. They also miss the opportunity to mount a more robust defense of trade when ethical concerns are less warranted.

While globalization occasionally raises difficult questions about the legitimacy of its redistributive effects, we should not respond automatically by restricting trade. There are many difficult trade-offs to consider, including the consequences for others around the world who may be made significantly poorer than those hurt at home.

But democracies owe themselves a proper debate, so that they make such choices consciously and deliberately. Fetishizing globalization simply because it expands the economic pie is the surest way to delegitimize it in the long run.

March 08 2012

"The Inequality Trap" by Kemal Dervis

As evidence mounts that income inequality is increasing in many parts of the world, the problem has received growing attention from academics and policymakers. In the United States, for example, the income share of the top 1% of the population has more than doubled since the late 1970’s, from about 8% of annual GDP to more than 20% recently, a level not reached since the 1920’s.

While there are ethical and social reasons to worry about inequality, they do not have much to do with macroeconomic policy per se. But such a link was seen in the early part of the twentieth century: capitalism, some argued, tends to generate chronic weakness in effective demand due to growing concentration of income, leading to a “savings glut,” because the very rich save a lot. This would spur “trade wars” as countries tried to find more demand abroad.

From the late 1930’s onward, however, this argument faded as the market economies of the West grew rapidly in the post-World War II period and income distributions became more equal. While there was a business cycle, no perceptible tendency toward chronic demand weakness appeared. Short-term interest rates, most macroeconomists would say, could always be set low enough to generate reasonable rates of employment and demand.

Now, however, with inequality on the rise once more, arguments linking income concentration to macroeconomic problems have returned. The University of Chicago’s Raghuram Rajan, a former chief economist at the International Monetary Fund, tells a plausible story in his recent award-winning book Fault Lines about the connection between income inequality and the financial crisis of 2008.

Rajan argues that huge income concentration at the top in the US led to policies aimed at encouraging unsustainable borrowing by lower- and middle-income groups, through subsidies and loan guarantees in the housing sector and loose monetary policy. There was also an explosion of credit-card debt. These groups protected the growth in consumption to which they had become accustomed by going more deeply into debt. Indirectly, the very rich, some of them outside the US, lent to the other income groups, with the financial sector intermediating in aggressive ways. This unsustainable process came to a crashing halt in 2008.

Joseph Stiglitz in his book Freefall, and Robert Reich in his Aftershock, have told similar stories, while the economists Michael Kumhof and Romain Ranciere have devised a formal mathematical version of the possible link between income concentration and financial crisis. While the underlying models differ, the Keynesian versions emphasize that if the super-rich save a lot, ever-increasing income concentration can be expected to lead to a chronic excess of planned savings over investment.

Macroeconomic policy can try to compensate through deficit spending and very low interest rates. Or an undervalued exchange rate can help to export the lack of domestic demand. But if the share of the highest income groups keeps rising, the problem will remain chronic. And, at some point, when public debt has become too large to allow continued deficit spending, or when interest rates are close to their zero lower bound, the system runs out of solutions.

This story has a counterintuitive dimension. Is it not the case that the problem in the US has been too little savings, rather than too much? Doesn’t the country’s persistent current-account deficit reflect excessive consumption, rather than weak effective demand?

The recent work by Rajan, Stiglitz, Kumhof and Ranciere, and others explains the apparent paradox: those at the very top financed the demand of everyone else, which enabled both high employment levels and large current-account deficits. When the crash came in 2008, massive fiscal and monetary expansion prevented US consumption from collapsing. But did it cure the underlying problem?

Although the dynamics leading to increased income concentration have not changed, it is no longer easy to borrow, and in that sense another boom-and-bust cycle is unlikely. But that raises another difficulty. When asked why they do not invest more, most firms cite insufficient demand. But how can domestic demand be strong if income continues to flow to the top?

Consumption demand for luxury goods is unlikely to solve the problem. Moreover, interest rates cannot become negative in nominal terms, and rising public debt may increasingly disable fiscal policy.

So, if the dynamics fueling income concentration cannot be reversed, the super-rich save a large fraction of their income, luxury goods cannot fuel sufficient demand, lower-income groups can no longer borrow, fiscal and monetary policies have reached their limits, and unemployment cannot be exported, an economy may become stuck.

The early 2012 upturn in US economic activity still owes a lot to extraordinarily expansionary monetary policy and unsustainable fiscal deficits. If income concentration could be reduced as the budget deficit was reduced, demand could be financed by sustainable, broad-based private incomes. Public debt could be reduced without fear of recession, because private demand would be stronger. Investment would increase as demand prospects improved.

This line of reasoning is particularly relevant to the US, given the extent of income concentration and the fiscal challenges that lie ahead. But the broad trend toward larger income shares at the top is global, and the difficulties that it may create for macroeconomic policy should no longer be ignored.

Copyright Project Syndicate, the world’s pre-eminent source of original opinion commentaries. (Follow PS on Facebook and Twitter)

January 16 2012

"Leaderless Global Governance" by Dani Rodrik

The world economy is entering a new phase, in which achieving global cooperation will become increasingly difficult. The United States and the European Union, now burdened by high debt and low growth...

November 07 2011

"The Globalization of Protest" by Joseph Stiglitz

The protest movement that began in Tunisia in January, subsequently spreading to Egypt, and then to Spain, has now become global, with the protests engulfing Wall Street and cities across America....

October 21 2011

"From the American Century to a Cosmopolitan Order" by David Held

‘9/11’ is a term known across the world.  The notion of the ‘war on terror’ reached across continents.  ‘Sub-prime markets’ was a concept of the few before it became widely understood as a trigger of...

October 15 2011

Rawls's framework for global justice

Rawls's A Theory of Justice was immediately received as a major and progressive contribution to the theory of justice within existing societies. His Law of Peoples (1999) was intended to carry his basic ideas about justice to the international realm.  (Here is a PDF of a preliminary version of the title essay of the book as published in Critical Inquiry in 1993.) Here is how he defined the goal of a law of peoples in 1993:
The law of peoples ... is a family of political concepts along with principles of right justice, and the common good that specify the content of a liberal conception of justice worked up to extend to and apply to international law. It provides the concepts and principles by reference to which that law is to be judged. (43)
In contrast to the reception A Theory of Justice received, his work on the international part of the theory has not had much influence, and was roundly criticized for being too accepting of international inequalities.   Philip Pettit put the point this way in his contribution to Rex Martin and David Reidy's Rawls's Law of Peoples: A Realistic Utopia:
John Rawls's work on the law of peoples is notorious for its anti-cosmopolitan stance: roughly, its insistence that those of us in well-ordered societies do not owe to the members of other societies the sort of justice we owe to one another. (38)
This is exactly the critique that Philippe van Parijs offered to Rawls prior to publication of the book (link).

Given that Rawls's intuitions seem to have been solidly progressive in other spheres, it is worth considering why he took this very limited view of the obligations of justice in the global context. Why did he begin with the perspective of peoples rather than persons?  (Here I'll make use of the 1993 statements of the view.)

A number of the critics put their cases in terms of Rawls's anti-cosmopolitanism.  "Cosmopolitanism" is the view that we are all citizens of the world, and we have positive moral relationships with each other no matter what nation issues our passports.  No one would deny that everyone has some kinds of moral relationships to everyone else -- for example, the obligation not to impose harm on innocent people.  But cosmopolitanism extends to the idea of positive obligations -- the obligation to render assistance as well as the obligation to refrain from gratuitous harm.  The contrary to cosmopolitanism might be called "nationalism", but this implies assumptions that Rawls would presumably not have accepted.  So let's call it "bounded people-ism": the claims of justice that a person has against other persons extend only to other members of his/her people and government.

One deep reason for the direction that Rawls took was the assumption he made about how to make use of the original position and the veil of ignorance in arriving at principles of international justice.  If this framework involved all human beings, then the results would have been very similar to the argument made in the case of a well-ordered society: inequalities need to be the least system possible consistent with maximizing the position of the least-well-off stratum of society.  However, Rawls chose instead to include "peoples" rather than "persons" in the argument from the original position in the case of international justice. What is a people?
By peoples I mean persons and their dependents seen as a corporate body and as organized by their political institutions, which establish the powers of government. In democratic societies persons will be citizens; in hierarchical and other societies they will be members. (41)
And he directly addresses the question of why it should be peoples rather than persons whose perspectives are represented in the original position for international justice:
Wouldn't it be better to start with the world as a whole, with a global original position, so to speak, and discuss the question whether, and in what form, there should be states, or peoples, at all? ... I think there is no clear initial answer to this question. We should try various alternatives and weigh their pluses and minuses. Since in working out justice as fairness I begin with domestic society, I shall continue from there as if what has been done so far is more or less sound. So I simply build on the steps taken until now, as this seems to provide a suitable starting point for the extension to the law of peoples. A further reason for proceeding thus is that peoples as corporate bodies organized by their governments now exist in some form all over the world. (42-43)
So his reasons for beginning with this premise are, first, we have to start somewhere and there isn't a philosophically compelling reason to favor persons over peoples in this setting; and second, peoples (and states) exist as actors in the world, so it is feasible to begin the analysis at this level. This way of formulating the original position is designed to establish fair terms of interaction between societies -- or in other words,
... fair conditions under which the parties, this time as representatives of societies well ordered by liberal conceptions of justice, are to specify the laws of peoples and the fair terms of their cooperation. (45)
This formulation, of course, immediately precludes certain questions, including all questions of difference in outcomes for the least-well-off in the various societies.  The fact that the LWO in country X are worse off than the LWO in country Y cannot be a factor in this deliberation, and therefore there cannot emerge a positive obligation to transfer resources from society Y to X to ameliorate this difference.

Here are the principles that Rawls arrives at through this construction:
  1. Peoples (as organized by their governments) are free and independent, and their freedom and independence is to be respected by other peoples.
  2. Peoples are equal and parties to their own agreements.
  3. Peoples have the right of self-defense but no right to war.
  4. Peoples are to observe a duty of nonintervention.
  5. Peoples are to observe treaties and undertakings.
  6. Peoples are to observe certain specified restrictions on the conduct of war (assumed to be in self-defense).
  7. Peoples are to honor human rights. (46)
In the final version of the argument in 1997 he adds a final principle:
8. Peoples have a duty to assist other peoples living under unfavorable conditions that prevent their having a just or decent political and social regime.
Later in 1993 he comments on the idea of a human right:
Human rights have, then, these three roles:
1. Their being fulfilled is a necessary condition of a regime's legitimacy and of the decency of its legal order.
2. Their fulfillment is also sufficient to exclude justified and forceful intervention by other peoples, say by economic sanctions or, in grave cases, by military force.
3. "They set a moral limit to pluralism" among peoples. (59)
Several things are evident from these lists.  First, the obligations represented here are indeed minimalist; basically, they are limitations on the use of coercive means by peoples (states) to achieve their ends.  Even the 8th principle added in the 1997 version creates an obligation only to assist other peoples in achieving a just political regime.  Second, there are no requirements of distributive justice in this list of principles.  Each society has internal requirements of distributive justice; but there is no inter-society requirement of distributive justice.  The fact that there are large inequalities of resources between countries is not a basis for a claim of injustice, according to these principles.

This framework has been strongly criticized by philosophers and others who found that it was far too accepting of global inequalities.  Alan Buchanan focuses on the global inequality part of the story in his 2000 contribution in Ethics. Buchanan holds that even representatives of peoples would not have overlooked the significant inequalities imposed on peoples by the global economic system.  He maintains that the original position concerned with international justice would have to take into account two important facts:
There is a global basic structure, which, like the domestic basic structure, is an important subject of justice because it has profound and enduring effects on the prospects of individuals and groups, including peoples in Rawls's sense.
The populations of states are not "peoples" in Rawls's sense and are not likely to become so without massive, unjustifiable coercion, but rather are often conflicting collections of "peoples" and other groups. (700-1) 
The first fact, if recognized, would ensure that the international original position would necessarily take into account the inequalities created by this system for different peoples.  He also believes that the second fact raises salient issues for the international original position.  Essentially the issue here is this: what happens when the multiple peoples of a single state come into conflict? By making the assumptions that "peoples within unified states" are the agents within the international original position, Rawls makes it impossible to arrive at principles of international justice that would specify just behavior in the face of civil war or secessionist movements. This approach makes it impossible to address intrastate conflict.

Tom Pogge extends his own critique of Rawls's position on international distributive justice in a Fordham Law Review article (link) (also included in Martin and Reidy's Rawls's Law of Peoples: A Realistic Utopia).  Fundamentally, Pogge is highly critical of Rawls's failure to arrive at an international theory of justice that provides a basis for critique of global inequalities. In this piece he argues that Rawls's two theories are in fact inconsistent with each other.

As indicated above, much of this body of criticism has to do with the view that Rawls's Law of Peoples creates only the most limited obligations across peoples.  His view is not "cosmopolitan".  But a more fundamental criticism, which Buchanan hints at, is that there is a major strand of injustice embedded within the world system that is wholly invisible within Rawls's formulation of the law of peoples.  This is the fact that global institutions may create systematically imbalanced economic relations among states, with the result that some states are in a position to take unfair advantage of other states.  This is a form of injustice that would not be accepted within the terms of a domestic society. But there is not basis within the framework of the law of peoples to identify and criticize these types of injustices.

These criticisms are surely correct.  As a theory of global justice, the Law of Peoples doesn't begin to provide enough of a normative basis to arrive at sound judgments about international arrangements.  I began by asking how it came to pass that Rawls presented such a limited theory of international justice. The best answer I can offer is that he was focusing on the wrong issues.  He focused on issues of war and interstate violence, and he did not sufficiently bring into his view the empirical realities associated with a highly unequal world economic structure.  And this is puzzling, since questions of global inequalities -- of resources, of power, and of self-determination -- were certainly widely debated at Harvard in the 1970s and 1980s while Rawls's thinking on this subject was developing.

(In addition to critics, Rawls has some defenders in this area.  Samuel Freeman provides an extensive and reasoned response to many of these criticisms of Rawls's theory of international justice here (link).)
Reposted by02mydafsoup-0199percent

October 04 2011

"To Cure the Economy" by Joseph Stiglitz

As the economic slump that began in 2007 persists, the question on everyone’s minds is obvious: Why? Unless we have a better understanding of the causes of the crisis, we can’t implement an effective...

October 03 2011

"Globalization’s Government" by Jeffrey D. Sachs

We live in an era in which the most important forces affecting every economy are global, not local. What happens “abroad” – in China, India, and elsewhere – powerfully affects even an economy as...
Reposted by02mydafsoup-01 02mydafsoup-01

October 01 2011

Sen on well-being

In 1985 Amartya Sen published a very short book entitled Commodities and Capabilities. The book was reissued by Oxford after Sen received his Nobel Prize in Economic Sciences.

The topic is at the core of Sen's economic and philosophical work. Most basically, he is asking Aristotle's question -- what is happiness? -- and is putting forward an answer that combines analysis of economic behavior with philosophical analysis of action and purpose in human life. Economists from Mill to Samuelson sought to understand economic choices in terms of subjective utilities and unanalyzed sets of preferences. A consistent theme was that economics can't be concerned with the content or validity of the individual's utility function or preference ordering. Rather, economics is about the rules by which rational agents design their actions to maximize utility or preference satisfaction. Economic rationality has to do with the choice of means, not ends.

This approach to action also unfolded into the formal theory of social choice. Given that citizens have a set of preferences about social outcomes, what rational procedures can be designed to aggregate these preferences into a single coherent social choice preference ordering.  Essentially the underlying idea is that the social good is secured when we succeed in aggregating citizens' preferences onto a single social preference ranking.  And this is where Kenneth Arrow's famous impossibility theorem comes in: given a small set of reasonable constraints on social choice, there is no social choice procedure that is both complete and transitive (Social Choice and Individual Values, Second edition). Sen's first major book (1970) gave a different formal exposition to this set of arguments (Collective choice and social welfare).

One of Sen's most fundamental contributions in economics is to question the theory of subjective utility and revealed preference. He thinks that we can give a substantive, not formal, account of wellbeing that permits us to analyze the individual's behavior and choices in a more meaningful way.  He writes here:
It is fair to say that formal economics has not been very interested in the plurality of focus in judging a person's states and interests. In fact, often enough the very richness of the subject matter has been seen as an embarrassment. There is a powerful tradition in economic analysis that tries to eschew the distinctions and make do with one simple measure of a person's interest and its fulfilment.  That measure is often called 'utility'. (1)
He wants to complicate the issue by drawing distinctions -- that is, by breaking down the austere abstractions about choice that are most comfortable to the economists:
I would distinguish broadly between two ways of seeing a person's interests and their fulfilment, and I shall call them respectively 'well-being' and 'advantage'. 'Well-being' is concerned with a person's achievement: how 'well' is his or her 'being'? 'Advantage' refers to the real opportunities that the person has, especially compared with others. The opportunities are not judged only by the results achieved, and therefore not just by the level of well-being achieved. It is possible for a person to have genuine advantage and still to 'muff' them.  Or to sacrifice one's own well-being for other goals, and not to make full use of one's freedom to achieve a high level of well-being.  The notion of advantage deals with a person's real opportunities compared with others. The freedom to achieve well-being is closer to the notion of advantage than well-being itself. (3)
This discussion announces his important distinction between capabilities and functionings; functionings are the realized form that capabilities take when they are fully cultivated.  "A functioning is an achievement of a person: what he or she manages to do or to be" (7).  It is worth noticing that the idea of freedom comes into this formulation in a fundamental way -- fifteen years before freedom becomes central to his thinking about the good of economic development in Development as Freedom.

Sen's argument next moves into another topic that has been characteristic of his thinking throughout his career, the relationship between two or three central components of "satisfaction" or "well-being".  There is subjective satisfaction -- the degree to which the individual has accomplished a large portion of his/her preferences.  There is the role of commodities and material things in the composition of individual satisfaction -- the bundle of stuff that the individual can call upon in attempting to satisfy basic needs and desires, from grain and clean water to iPads and access to the Internet.  And there is the "fit" between the individual's material circumstances and his/her ability to fulfill capabilities and complete an autonomous plan of life.

The key idea expressed in this monograph and subsequently in Sen's work is that well-being is the aggregation of the individual's collection of functionings.  "It is possible to argue that the well-being of a person is best seen as an index of the person's functionings" (17).
On what does the claim of functionings to reflect well-being rest? Basically, the claim builds on the straightforward fact that how well a person is must be a matter of what kind of life he or she is living, and what the person is succeeding in 'doing' or 'being'. (19)
And Sen thinks about this formulation in formal terms: the person's functionings are represented as a vector of qualitatively distinct characteristics, and one of the central problems is to assign relative values to the components of the package.
The primary specification of a person's well-being is in terms of a functioning vector bi. It can be converted into a scalar measure of well-being only through a real-valued 'valuation function' vi(.), mapping functioning vectors into numerical representations of well-being. (33)
Sen's approach is appealing largely because it replaces "utility" with a more granular conception of "functionings".  This permits more concrete discussion of the individual's life activities and, as Sen argues here, a better way of assessing his/her overall well-being.

What has turned out to be enormously important in Sen's framework of capabilities and functionings is its relevance to the topic of economic development.  We want economic development to lead to an overall improvement in human happiness.  But how should such a goal be assessed and measured?  By offering a concrete theory of functionings, Sen lays a basis for attempting to empirically measure changes in functionings over time.  Literacy, for example, is an important functioning for the human being.  Extremely poor societies invest very little in formal education, and literacy in the population is low.  We can make a very concrete argument that a given strategy of development is improving human well-being if we can demonstrate that it is leading to a higher level of attainment of literacy.  Health itself is a complex functioning for the human being; here too, it is possible to measure progress in health achievements in different societies.  So the functionings approach provides a concrete way of trying to assess progress in economic development processes.  The approach is a great improvement over the "average GDP" approach, since Sen demonstrates in numerous places that average income implies something about access to commodities, but it has only a weak connection to the functionings that the population is able to realize.

The Human Development Index championed by the United Nations Development Programme takes advantage of this insight.  HDI includes three measures: life expectancy, literacy, and per capita GDP (link).  And a very powerful argument can be made that societies that make the most progress in improving their HDI levels have made more progress in improving human well-being than those that increase GDP but fail to improve factors like literacy and health.  It will not surprise the reader to learn that Sen's writings and advocacy played a crucial role in the design of the HDI.

September 26 2011

Is justice a security issue?

Most people would probably say they would prefer to live in a more just world to a less just one. There is a strong moral basis for preferring justice. But is this a consideration that states and large international organizations need to take into account as they design their strategies and plans for serving their present and future interests? Do national governments have good practical reasons to think about the consequences their policies and actions may have on the circumstances of justice in the world? What about policies and actions through which states attempt to secure their future economic wellbeing -- do policy makers need to pay attention to the social justice consequences of these actions?

There is a strong empirical and historical case for thinking that the answer to this question is "yes." Injustice is a source of resentment, indignation, and conflict. In the long run, the victims of injustice will not be ignored. Justice is a security issue for states and supra-national organizations, and simple prudence demands that policy makers take it into account. To put a simple label on this idea, justice is a security issue.

Here is a European Union statement about its longterm interests that makes this point fairly explicitly (link):
In the context of ever-increasing globalisation, the internal and external aspects of security are inextricably linked. Flows of trade and investment, the development of technology and the spread of democracy have brought prosperity and freedom to many people, while others have perceived globalisation as a cause of frustration and injustice. In much of the developing world, poverty and diseases such as AIDS give rise to security concerns, and in many cases economic failure is linked to political problems and violent conflict. Security is a precondition for development. Competition for natural resources is likely to create further turbulence. Energy dependence is a special concern for Europe.
What are the theoretical and historical arguments for this conclusion? Here are several.

On the side of theory, several points are well established. Chronic and unrelieved poverty leaves people with low attachment to their own societies and less for the global community. The frustration of very basic human needs is bound to fuel indignation and resistance. So poverty and deprivation are causes of resistance. But there is also evidence that inequality itself has negative consequences for a society's health; this is the central finding of The Spirit Level: Why Greater Equality Makes Societies Stronger (link). Finally, the social psychology created by a system that is perceived to be unfair and exploitative is likely to breed resistance and lawless action. Barrington Moore, Jr. was right when in Injustice he wrote:
Without strong moral feelings and indignation human beings will not act against the social order. In this sense moral convictions become an equally necessary element for changing the social order, along with alterations in the economic structure. 469
Gareth Stedman-Jones summarizes Barrington Moore's conclusion in these terms: "His argument is that human beings in stratified societies accept hierarchies of authority, so long as these hierarchies are not merely imposed by force, but based upon an 'unwritten' social contract, which binds together dominant and subordinate groups in a set of mutual obligations" (link).

So there are good empirical reasons, based in social psychology and the study of contentious politics, for expecting that injustice breeds conflict.

Are there historical demonstrations of the consequences of injustice for disorder? There are. We have the examples of slave revolts throughout the Americas in the 18th and 19th centuries; anti-colonial movements in Africa and Asia following World War II; the sustained resistance of the Burmese and East Timor peoples to dictatorship; and the sustained struggle for equal rights in the United States by African Americans, sometimes punctuated by major urban riots. In each case a set of social institutions had been created that were profoundly unjust for a sizable population, and this population gathered resolve and courage in opposing those arrangements.

So the conclusion seems clear. If we want to have a world in which there is a sustainable level of the rule of law and a low level of social conflict, we need to invest in justice. We need to work to create a system in which all peoples can satisfy their most basic human needs; where everyone can feel that he/she is respected in her humanity; and where no one judges that the basic structure of social life is exploitative.

In other words, states are well advised to actively include the basic requirements of justice in their plans for the future. Otherwise they are simply creating the tinder for future conflict.
Reposted by02mydafsoup-01 02mydafsoup-01

August 29 2011

"On Glocalization coming of Age" by Zygmunt Bauman

One is tempted to say: social inventions or re-inventions (as the newly invented/discovered possibility of restoring to the city square the ancient role of the agora on which rules and rulers were...
Reposted by02mydafsoup-01 02mydafsoup-01

August 15 2011

Global justice

There is a clear and reasonably uncontroversial basis for a simple theory of justice that all nations/cultures can accept. This is grounded a few core values about human development and is expressed in the Universal Declaration of Human Rights, the Millenium Development Goals, and other founding documents of the United Nations. This conception emphasizes several key values:
  • equal worth of all persons
  • value of freedom
  • value of democracy and self-determination
  • the injustice of hunger, lack of education, lack of healthcare
  • the injustice of capricious arrest and state violence (illegality)
These values provide a basis for steering our core institutions and practices in the direction of greater justice: whenever it is possible to reform institutions and practices in ways that enhance one or more of these factors, we should do so.  Policy makers and legislators can ask the question, how will this or that change to a set of institutions affect the well-being of individuals and populations affected; how will the change affect the freedoms and opportunities for self-determination of the people affected; how will it work to increase the effective scope of law within various societies?

John Rawls drew a strong distinction between ideal justice and imperfect justice, and noted that his contributions were directed to the formulation of a theory of ideal justice (Justice as Fairness: A Restatement, 13).  He did not believe that the ideal theory of justice would suffice to provide a road map for creating a more just society.  When we consider the complexity and difficulty of improving the justice of fundamental international institutions and relations, the program of arriving at an ideal theory seems unappealing.  Instead, we need to have some plausible and action-supporting principles that allow for practical improvement in the overall justice of the global system. We need to have some concrete ideas about how to get from here to there.

This approach -- the idea that we can improve justice in a piecemeal way -- spares us the heroic pretense of offering a general, universal theory of justice that we hope or expect all people can be persuaded to accept. It works from the point of view that injustice is more specific and more widely agreed upon. We don't need to engage in irresolvable debates about whether there are universal human rights in order to agree that the world will be more just if fewer people are forced into famine conditions.

This is the approach taken by Madison Powers and Ruth Faden in their study of the ethics of global public health in Social Justice: The Moral Foundations of Public Health and Health Policy (link), and it has the clear advantage of pragmatism.  It is pragmatic on the side of moral agreement, in the sense that it makes no strong claims about abstract moral theories that may be controversial across perspectives.  And it is pragmatic on the side of policy, in the sense that it provides an incremental strategy for improving the conditions of justice in the world.  And in fact, the premises mentioned above conform fairly closely to the six dimensions of personal well-being that Powers and Faden highlight: health, personal security, reasoning, respect, attachment, and self-determination.

One of the greatest advocates for justice in global development is Amartya Sen (Development as Freedom).  Sen's major contribution is the idea of the importance of creating conditions in which people can fulfill and actualize their human capabilities.  Sen's most recent work on global justice topics is his The Idea of Justice, in which he offers an alternative to Rawls's approach to the problem.  Here he gives primacy to the value of full human development as a benchmark for global justice.
I turn now to the second part of the departure, to wit the need for a theory that is not confined to the choice of institutions, nor to the identification of ideal social arrangements. The need for an accomplishment-based understanding of justice is linked with the argument that justice cannot be indifferent to the lives that people can actually live. The importance of human lives, experiences and realizations cannot be supplanted by information about institutions that exist and the rules that operate. (17)
Tom Pogge's work on global justice provides a good bridge between abstract moral theory and practical, real-world issues of justice in a developing world.  Pogge has sought to engage these issues in ways that have real, substantive engagement with the issues of poverty, hunger, and maltreatment that continue to set the stage for the majority of the earth's population today.  In an important recent volume, World Poverty and Human Rights: Cosmopolitan Responsibilities and Reforms, Andreas Follesdal and Thomas Pogge have pulled together an extended working group of scholars and activists concerned with global justice.  The volume took its origin at a conference in Oslo in 2003.  (Here is an article by Pogge on global justice and poverty (link), and here is a video interview with Pogge on the consequences of the global economic crisis on poverty; link.)  Pogge and his colleagues focus closely on the actual workings of international institutions to attempt to measure the degree to which they disadvantage the people of the less-developed world.
Consider for example a long-term contract concerning the exportation of natural resources which the government of some African country concludes with a rich Western state or one of its corporations.  Within the traditional philosophical framework, it is self-evident that such an agreement must be honored: "People are to observe treaties and undertakings" says Rawls's second principle of state conduct, and the third one adds: "Peoples are equal and are parties to the agreements that bind them" (Rawls 1999). But here is the reality. The African government is corrupt and oppressive, and its continuation in power depends largely on the military.  The sales it conducts impose environmental harms and hazards on the indigenous population. Yet, most of these people do not benefit, because the revenues are partly siphoned off by the small political elite and partly spent on arms needed for military repression. (These arms are suppled by other rich Western states in accordance with other contracts executed, without coercion, between them and the African government.) (5)
Why should gimlet-eyed policy makers take these arguments about global justice seriously?  What does justice have to do with the nuts and bolts of international economic policy reform?  Why should self-interested nations and their leaders adjust their policies to the demands of justice? The humanitarian and moral reasons are self-evident.  But it is also true that there is a powerful reason to care about justice that is based in self-interest.  This is because systemic injustice is itself a threat to national security.  Governments are destabilized, insurgencies are supported, cities experience riots, and anti-liberal violent movements flourish in conditions where masses of people are enmeshed in circumstances of injustice.  Barrington Moore, Jr. made these arguments in Injustice: The Social Bases of Obedience and Revolt (1978), and his conclusions seem even more compelling in the world today.

August 14 2011

Ethical thinking for global public health

Here is a fine recent book that brings together recent thinking about development ethics with some of the specific issues faced in the field of global public health. Madison Powers and Ruth Faden published Social Justice: The Moral Foundations of Public Health and Health Policy in 2008, and it represents a genuinely interesting extended essay on the topic of justice in global health policy.  Here is an early statement of their governing perspective:
Our central focus, only vividly appreciated in hindsight, was in a notion of social justice that went beyond issues of distributive justice, micro-allocational questions of priority setting in medical care, or any number of questions centered on how one individual fares relative to some other individual. Beginning, as we did, with moral questions in public health and health policy, it is perhaps not surprising that our focus in social justice is largely directed at the well-being of people in social communities or groups. (ix)
 What is evident here is that Powers and Faden are bringing the perspective of public health into the discussion of issues that have been raised in other contexts (development ethics, bio-medical ethics) without the population-based starting point.

A second important difference in approach taken by Powers and Faden is to take seriously the finding within public health studies that inequalities come into populations' health outcomes in ways other than inequalities of access.
We contend that it is impossible to make progress in our understanding of the demands of justice within medical care without looking outside of medical care to public health and to the other determinants of inequalities in health and indeed without situating an analysis of justice and health policy in the wider social and political context. (x)
This perspective brings Powers and Faden into a degree of connection to Kate Pickett and Richard Wilkinson in The Spirit Level: Why Greater Equality Makes Societies Stronger (link).

A third distinctive feature of the project is the authors' rejection of the goal of arriving at a simple, unified theory of health justice.
In place of some single theory of justice drawn from one of the leading contenders for being the "right" account of justice, we argue instead that most of these other contenders have it wrong.  Indeed, we use the term 'theory' somewhat  cautiously. ... We choose to steer a middle course on the question, and we agree with Thomas Nagel's conclusion that whatever we are likely to attach the label of 'theory' to in the realm of normative inquiry will reflect an aspiration to develop some systematic but noncomprehensive account of some part of the moral landscape. (x)
The job of justice, as we see it, is to specify those background social and economic conditions that determine whether certain inequalities, that may themselves result from the promotion of other indispensable moral aims, should be seen as unfair. Ours is an account of justice that denies that there are separate spheres of justice, within health policy or within social policy more generally. (x)
Ours is a nonideal theory of justice, intended to offer practical guidance on questions of which inequalities matter most when just background conditions are not in place. (30)
Their central concern is with justice in health; and this comes down to a theory about inequalities.
The central question we pose in this book is, Which inequalities matter most? The aim of this book is to develop a theory of social justice suitable for answering questions of this kind in a variety of concrete circumstances.  (3)
But they insist on the point that theirs is not an "ideal" theory of justice; rather, it is intended to provide the basis for reasoned decisions about the practical, real problems we face in a world of substantial inequalities in life prospects.  Moreover, their account does not begin with a principle of distributive justice, but rather with a conception of the human good.  They offer Amartya Sen and Martha Nussbaum as exemplars rather than John Rawls (4).
As Sen correctly notes, a theory of justice of this sort begins with some underlying account of what persons "can do and be" (Sen 1993). Theories in this tradition start with ideals, to be sure, but they are ideals of a very different kind from those that form the starting points of Rawlsian ideal theory. (4)
So their theory is one that begins with a rich conception of human well-being and flourishing, not with a contractual deliberation between hypothetical individuals behind a veil of ignorance.  Here is a general statement of their view:
Social justice is concerned with human well-being. In our view, well-being is best understood as involving plural, irreducible dimensions, each of which represents something of independent moral significance. Although an exhaustive, mutually exclusive list of the discrete elements of well-being is not our aim (and may not be possible), we build our account around six distinct dimensions of well-being, each of which merits separate attention within a theory of justice. These different dimensions offer different lenses through which the justice of political structures, social practices, and institutions can be assessed. Without attention to each dimension, something of salience goes unnoticed. (15) 
The six dimensions of well-being that they identify include health, personal security, reasoning, respect, attachment, and self-determination (16).

This approach has a lot in common with Amartya Sen's most recent thinking in The Idea of Justice (as well as Sen's earlier work and that of Martha Nussbaum).  Here is Sen's description of his work in The Idea of Justice:
What is presented here is a theory of justice in a very broad sense.  Its aim is to clarify how we can proceed to address questions of enhancing justice and removing injustice, rather than to offer resolutions of questions about the nature of perfect justice. (kl 183)
Here the emphasis is on "enhancing" justice rather than providing a conception of ideal justice.  Sen's work here is intended to be practical: it should assist policy makers in their deliberations as reforms are considered.  Sen refers to this approach as "comparative justice".
We are engaged in making comparisons in terms of the advancement of justice whether we fight oppression (like slavery, or the subjugation of women), or protest against systematic medical neglect (through the absence of medical facilities in parts of Africa or Asia, or a lack of universal health coverage in most countries in the world, including the United States), or repudiate the permissibility of torture ..., or reject the quiet tolerance of chronic hunger. (kl 225)
In terms of the analysis offered by Powers and Faden, we improve justice by moving a population forward in any one of the six (or more) dimensions of human well-being that were noted.

Inherent in the idea of comparing the justice of several different scenarios, is the idea of reasoning across different perspectives on justice.  Sen is committed to the notion that it is possible to engage in reasoned dialogue with people with whom you have deep disagreements about starting points.  And this theory of comparative justice is intended to help facilitate those reasoned discussions.

Sen contrasts his approach to justice with that of John Rawls in these terms:
In the approach to justice presented in this work, it is argued that there are some crucial inadequacies in [Rawls's] overpowering concentration on institutions (where behaviour is assumed to be appropriately compliant), rather than on the lives that people are able to lead. (kl 203)
Several things seem important to me in both books mentioned here.  First, each is an innovative contribution to issues that are core to what we might refer to as "global justice" -- hunger, health, abusive states, educational deprivation.  Second, each is aiming to create a philosophical framework within which practical, real-world issues can be handled in a reasoned way.  Third, each seeks to broaden the moral perspective of contractualism that has set the terms for discussions of justice for the past forty years.  And, finally, each shuns the goal of formulating a general system or a unified theory on the basis of which to judge all possible social arrangements in terms of justice.

These features make the moral ideas of Powers, Faden, and Sen particularly helpful when we turn our attention to trying to influence international practices and institutions in the direction of greater justice for the people of the world.  The arguments are pragmatic, modest in scope, and potentially less bound to a particular tradition of moral thinking.  (Sen makes this latter point quite explicitly: "Some of the reasoning of, for example, Gautama Buddha (the agnostic champion of the 'path of knowledge'), or of the writers in the Lokayata school (committed to relentless scrutiny of every traditional belief) in India in sixth-century BC, may sound closely aligned, rather than adversarial, to many of the critical writings o the leading authors of the European Enlightenment" (kl 268).)

January 12 2011

"New Rules for the Global Economy" by Dani Rodrik

Suppose that the world’s leading policymakers were to meet again in Bretton Woods, New Hampshire, to design a new global economic order. They would naturally be preoccupied with today’s problems: the eurozone crisis, global recovery, financial regulation, international macroeconomic imbal­ances, and so on. But addressing these issues would require the assembled leaders to rise above them and consider the soundness of global economic arrangements overall.

Here are seven commonsense principles of global economic governance that they might agree on. (I discuss them in more detail in my new book, The Globalization Paradox.)

1. Markets must be deeply embedded in systems of governance. The idea that markets are self-regulating received a mortal blow in the recent financial crisis and should be buried once and for all. Markets require other social institutions to support them. They rely on courts, legal frameworks, and regulators to set and enforce rules. They depend on the stabilizing functions that central banks and countercyclical fiscal policy provide. They need the political buy-in that redistributive taxation, safety nets, and social insurance help generate. And all of this is true of global markets as well.

2. For the foreseeable future, democratic governance is likely to be organized largely within national political communities. The nation state lives, if not entirely well, and remains essentially the only game in town. The quest for global governance is a fool’s errand. National governments are unlikely to cede significant control to transnational institutions, and harmonizing rules would not benefit societies with diverse needs and preferences. The European Union may be the sole exception to this axiom, though its current crisis tends to prove the point.

Too often we waste international cooperation on overly ambitious goals, ultimately producing weak results that are the lowest common denominator among major states. When international cooperation does “succeed,” it spawns rules that are either toothless or reflect the preferences of only the more powerful states. The Basle rules on capital requirements and the World Trade Organization’s rules on subsidies, intellectual property, and investment measures typify this kind of overreaching. We can enhance the efficiency and legitimacy of globalization by supporting rather than crippling democratic procedures at home.

3. Pluralist prosperity. Acknowledging that the core institutional infrastructure of the global economy must be built at the national level frees countries to develop the institutions that suit them best. The United States, Europe, and Japan have produced comparable amounts of wealth over the long term. Yet their labor markets, corporate governance, antitrust rules, social protection, and financial systems differ considerably, with a succession of these “models” – a different one each decade – anointed the great success to be emulated.

The most successful societies of the future will leave room for experimentation and allow for further evolution of institutions. A global economy that recognizes the need for and value of institutional diversity would foster rather than stifle such experimentation and evolution.

4. Countries have the right to protect their own regulations and institutions. The previous principles may seem innocuous. But they carry powerful implications that clash with the received wisdom of globalization’s advocates. One such impli­cation is the right of individual countries to safeguard their domestic institutional choices. Recognition of institutional diversity would be meaningless if countries did not have the instruments available to shape and maintain – in a word, “protect” – their own institutions.

We should therefore accept that countries may uphold national rules – tax policies, financial regulations, labor standards, or consumer health and safety rules – and may do so by raising barriers at the border if necessary, when trade demonstrably threatens domestic practices enjoying broad popular support. If globalization’s boosters are right, the clamor for protection will fail for lack of evidence or support. If wrong, there will be a safety valve in place to ensure that contending values – the benefits of open economies versus the gains from upholding domestic regulations – both receive a proper hearing in public debates.

5. Countries have no right to impose their institutions on others. Using restrictions on cross-border trade or finance to uphold values and regulations at home must be distinguished from using them to impose these values and regulations on other countries. Globalization’s rules should not force Americans or Europeans to consume goods that are produced in ways that most citizens in those countries find unacceptable. But nor should they allow the US or the EU to use trade sanctions or other pressure to alter foreign countries’ labor-market rules, environmental policies, or financial regulations. Countries have a right to difference, not to imposed convergence.

6. International economic arrangements must establish rules for managing interaction among national institutions. Relying on nation states to provide the essential governance functions of the world economy does not mean that we should abandon international rules. The Bretton Woods regime, after all, had clear rules, though they were limited in scope and depth. A completely decentralized free-for-all would benefit no one.

What we need are traffic rules for the global economy that help vehicles of varying size, shape, and speed navigate around each other, rather than imposing an identical car or a uniform speed limit. We should strive to attain maximum globalization consistent with the maintenance of space for diversity in national institutional arrangements.

7. Non-democratic countries cannot count on the same rights and privileges in the international economic order as democracies. What gives the previous principles their appeal and legitimacy is that they are based on democratic deliberation – where it really occurs, within national states. When states are not democratic, this scaffolding collapses. We can no longer presume that its institutional arrangements reflect its citizens’ preferences. So non-democracies need to play by different, less permissive rules.

These are the principles that the architects of the next global economic order must accept. Most importantly, they must comprehend the ultimate paradox that each of these principles highlights: globalization works best when it is not pushed too far.

Copyright Project Syndicate

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