"The Globalization Paradox"
Dani Rodrik’s new book The Globalization Paradox: Democracy and the Future of the World Economy is a pretty good book lurking behind a terrible framing device. So to start with the framing device, the conceit here is that we have a trilemma—democracy, national self-determination, and globalization. Upon scrutiny, however, this actually has almost nothing to do with political democracy. What you’re actually left with is a tension between self-determination (where national governments decide what they want to do) and globalization (which requires national governments to all more or less do the same thing) and the right answer is, obviously, that which is best depends on context.
On to the book! It’s almost like three books in one. One is about the limits of the “Washington Consensus” as advice to developing countries. It’s a good book, though not necessarily better than his earlier One Economics, Many Recipes which covers similar ground. The second book is about the WTO and trade policy. Trade skeptics will love the rhetoric, but should pay attention to the actual policy proposals which are very modest. The provocative (but seemingly well-founded) point here is that the Doha Round issues are actually not a big deal growth-wise and the level of elite focus on pushing them reflects a kind of ideological fetishism more than anything else. He suggests that political capital and energy would be better expended on liberalizing immigration.
The third book, which I wish he’d just done as the whole book, is about “financial globalization” and how it went very bad. These aren’t the terms he uses, but I think the point he’s making about this is that total lack of capital controls makes it very difficult to do effective macroeconomic stabilization so you end up with large output gaps so even if you assume that there’s some microeconomic inefficiencies associated with capital controls you still end up with more robust, more stable growth if you have controls. It takes a lot of Harberger triangles to fill an Okun gap is, I believe, the phrase for it. This seems very persuasive to me. Obviously, one could go too far with capital controls but the point is that the regulatory regime should do what it needs to do to meet its goals, and not treat the imperatives of globalization as a unshakeable impediment to creating a well-regulated system.
If you have some specific reason to think your country is in need of a large infusion of foreign cash seeking short-term profits, then of course it’s time to re-evaluate, but there doesn’t seem to be any reason to think this is a widespread problem.