Book Review: Globalization Paradox

I enjoyed this book although I admit that global trade and world economy are way out of my depth. Rodrik presents economic globalization as a trilemma. As the saying goes, "winners write the history." The post-war world economy system was penciled by policymakers and economists, laying a path for their own (in their self-interest) and the underrepresented nations. Rodrik presents economic globalization as a trilemma. That is, we cannot pursue democracy, national sovereignty, and globalization all at once. Pick two. There is no one-size-fits-all solution. A "thin" layer of international rules that leaves room for nations is better globalization.

Summary

Different societies have different needs and preferences in shaping their institutions, democratic pressures are likely to lead to a variety of different institutions across different territories. This diversity inhibits the global integration of markets by raising transaction costs across jurisdictions. As a consequence, a world which is fully responsive to democratic preferences will be unable to achieve full globalization. A "thin" layer of international rules that leaves rooms for nations is a better globalization.  

Two takeaways from the book:

• Market and government are complement to each other, they do not substitute each other.  As contrary to the popular belief to free market, market are most efficient and developed when they are blended with governmental institutions. Long distance market exchange does not exist without rules. In today's globalization world, government provides legal framework to conduct international trade. Therefore, governmental bodies are largest in those economies most exposed to international markets.
• Capitalism does not come with a unique model. Economic stability and prosperity can be achieved through combinations of institutional arrangements in labor markets, finance, corporate governance, social welfare, and other areas.

Who should read the book:

Those interested in globalization and free market.

* * *

Unlike the last two books, this book is very much thought-provoking. Of particular interest to me, is how Rodrik describes the phenomenal rises of Pacific and Southeast Asian economies, including South Korea, Taiwan, Hong Kong, Singapore, Malaysia, Indonesia, and Thailand, since the early 1960s. Citing the examples from South Korea and Taiwan, the two of the "East Asian Tigers" adopted strategies to reduce frictions between government interventions and private investment and grant tax holidays to foreign investors, fueling the private sector. Corruptions, poor infrastructure, and high inflation are greatly emphasized. The goal was to create new, modern industries by diversifying the domestic market and less reliance on natural resources. When these "infant industries" became capable in the world market, these governments lowered the trade barriers, inviting international competition. China did something different. They pulled off a miracle with a series of experiments tailored to their needs and societal preferences like the Special Economic Zones and Township and Village Enterprises. By the time China joined the WTO, it had already created a strong industrial base. For this reason, globalization --- exporting --- plays a crucial role in these countries.

On the contrary, the East Asian countries' counterparts in Latin America, the Middle East, and Africa adopted a completely different strategy, called "import-substituting industrialization." These nations shut off their borders and gradually replaced import goods with domestic productions, by heightening governmental interventions. Most adopters did well; others, not quite. Brazil, Mexico, Turkey, and others saw the highest economic growth in their histories. Globalization does not work well in these nations. This diversity inhibits the global integration of markets by raising transaction costs across jurisdictions. Consequently, a world that is fully responsive to democratic preferences will be unable to achieve full globalization. As a side note, Rodrik pointed out the underlying force for ambitious economic growth comes from determined leaders.

Another interesting point is the labor market, the only market that is still highly protected. Rodrik proposes rich countries to loosen their immigration quota with a temporary visa program. These visa holders come in for 5-year, then return to their homes; replaced by new waves of foreign workers. The trained returnees would spark positive economic and social dynamics in their home countries. This does not only fill the void of labor shortage in rich nations but also produces a substantial gain in these developing countries, arguably the poor countries. That is a smart proposal. But I argue that it only works for early-career workers, who are ironically relatively inexperienced. Who in their mid- or late-career would venture out of their norms? I may be missing a point. Someone in the room, please advise.