At a recent launch of my new book, The Globalisation Paradox, the
economist assigned to discuss it had an unexpected
“Rodrik wants to make the world safe for politicians,” he huffed.
His point was illustrated by his reminding the audience of the former
Japanese minister of agriculture who argued that
Japan could not import beef because human intestines
are longer in Japan than in other countries.
The comment drew a few chuckles.
Who does not enjoy a joke at the expense of politicians?
The remark had a more serious purpose and was evidently intended to
expose a fundamental flaw in my argument.
Allowing politicians greater room to manoeuvre was found to be a
cockamamie idea by the economist, who assumed the
audience would concur. Removing constraints on what
politicians can do would result in silly
interventions that throttle markets and stall the
engine of economic growth, he implied.
This criticism reflects a serious misunderstanding of how markets
really function. Raised on textbooks that obscure
the role of institutions, economists often imagine
that markets arise on their own, with no help from
purposeful, collective action.
Adam Smith may have been right when he said that, “The propensity to
truck, barter, and exchange is innate to humans.”
A plethora of non-market institutions is needed to realise this
propensity. Consider all that is required.
Modern markets need an infrastructure of transport, logistics, and
communication, much of which is the result of public
investments. They need systems of contract
enforcement and property rights protection. They
need regulations to ensure that consumers make
informed decisions, externalities are internalised,
and market power is not abused.
Markets also need central banks and fiscal institutions to avert
financial panics and moderate business cycles. They
need social protections and safety nets to
legitimise distributional outcomes.
Well functioning markets are always embedded within broader mechanisms
of collective governance. That is why the world’s
wealthier economies, those with the most productive
market systems, also have large public
Once it is recognised that markets require rules, the writers of those
rules must be determined.
Economists who denigrate the value of democracy sometimes talk as if
the alternative to democratic governance is decision
making by high-minded Platonic philosopher kings,
the ideal economist.
This scenario is neither relevant nor desirable. For one thing, the
lower the political system’s transparency,
representativeness, and accountability, the more
likely the rules are to be hijacked by special
interests. Democracies can be captured too, but they
remain the best safeguard against arbitrary rule.
Rule making is rarely about efficiency alone. It may entail trading off
competing social objectives such as stability and
innovation or making distributional choices. These
are not tasks that should be entrusted to
economists, who might know the price of many things,
but not necessarily their value.
The quality of democratic governance can sometimes be augmented by
reducing the discretion of elected representatives.
In well functioning democracies, rule making power
is often delegated to quasi-independent bodies when
the issues at hand are technical and do not raise
This is the case when log rolling would otherwise result in suboptimal
outcomes for all or when policies are subject to
short-sightedness, with heavy discounting of future
An important illustration of this is provided by independent central
banks. It may be up to elected politicians to
determine the inflation target, while the means
deployed to achieve that target are left to the
technocrats at the central bank. Even then, central
banks typically remain accountable to politicians
and must provide an account when they miss the
There can be useful instances of democratic delegation to international
organisations. Global agreements to cap tariff rates
or reduce toxic emissions are valuable. Economists
have a tendency to idolise such constraints without
sufficiently scrutinising the politics that produce
It is one thing to advocate external restraints that enhance the
quality of democratic deliberation, by preventing
short-termism or demanding transparency. It is
another matter to subvert democracy by privileging
particular interests over others.
The global capital adequacy requirements produced by the Basel
Committee, established in 1974, overwhelmingly
reflect the influence of large banks. If the
regulations were to be written by economists and
finance experts, they would be far more stringent.
Alternatively, if the rules were left to domestic political processes,
there could be more countervailing pressure from
opposing stakeholders, even if financial interests
are powerful at home.
Despite the rhetoric, many World Trade Organisation (WTO) agreements
are the result not of the pursuit of global economic
wellbeing but the lobbying power of multinationals
seeking profit making opportunities.
International rules on patents and copyright reflect the ability of
pharmaceutical companies and Hollywood, to name two
examples, to have their way. These rules are widely
derided by economists for imposing inappropriate
constraints on the ability of developing economies
to access cheap pharmaceuticals or technological
The choice between democratic discretion at home and external restraint
is not always a choice between good and bad
policies. Even when the domestic political process
works poorly, there is no guarantee that global
institutions will work any better. Often, the choice
is between yielding to domestic rent seekers or to
foreign ones; in the case of the former, at least
the rents remain at home.
Who becomes empowered to make the rules required by markets?
The unavoidable reality of the global economy is that the principal
focus of legitimate democratic accountability still
resides within the nation state.
I readily plead guilty to the critic’s charge: I want to make the world
safe for democratic politicians. Frankly, I wonder
about those who do not.