The Globalization

Paradox: Democracy
and the Future of the
World Economy (Rodrik,
2011)
Patricia Santiago
Charly Sarmiento

Your Date Here Your Footer Here

Can You Save An Economy By
Tying It To The Mast Of
Globalization
Introduction
 ARGENTINA (1990) - Economic
problems

HYPERINFL SHRINKING CRUSHING

ATION (UP INCOMES DEBT
TO 20,000%) (25%) BURDEN

Solution:
strict monetary discipline
3
Domingo Cavallo

Convertibility Law
● changed Argentine
currency to 1$ = P1
● prohibited restrictions
on foreign payment
+
↑ privatization,
deregulation, opening up
of the Argentine economy 4
= trade liberalization, tax
reform, financial reform

5
 GLOBALIZATION

HARNESS ENGINE
discipline and imports will also
credibility in force domestic
economic policies producers to
↓ become more
foreign capital competitive
would flow into
the country,
domestic
investment ↑
SHORT TERM LONG TERM
Eliminated Abrupt reversal in
01 hyperinflation and investors’ views on
restored price stability 04
Argentina
practically overnight
Capital inflows, Asian Financial Crisis
02 investment, reduced
exports, incomes 05 international money
Argentina = managers’ interest
poster child for in emerging
03 markets
globalization
Brazilian
06 devaluation (40%
against the dollar)
 SOLUTION
● Austerity policies and sharp fiscal
cutbacks
● Zero-deficit plan

● Domestic depositors pulled out out their

money from the bank
● nationwide strikes → freezing domestic
bank accounts, reimpose capital
controls, devalue the peso, shrinking
income by 12% 8
 PROBLEM:
Domestic Politics got in the
way of hyperglobalization

9
The Inevitable clash between
Politics and
Hyperglobalization
 HYPERGLOBALIZATION
the exponential increase in
the international trade.

(D. H. Pavan Kumar,2017)

 ARGENTINA

● Solved 1 problem: monetary

mismanagement
↓
● problem: uncompetitive currency

NATIONAL DEEP
DEMOCRACY GLOBALIZATION
= INCOMPATIBLE
12
 Electronic Herd
forced all the nations to do a
“Golden Straightjacket”(The
Lexus and the Olive Tree, Tom
Friedman)

13
 Golden Straightjacket
stitched together the fixed rules
to which all countries must
submit:
● Free trade
● Free capital markets
● Free enterprise
● Small government
14
 CORRECT WRONG
There is a globalization ≠ ↑
fundamental tension 02 economic growth
between
01 hyperglobalization
and democratic Golden
politics straightjacket
03
shouldn't be treated
as a reality
When Hyperglobalization
Impinges on Democratic
Choices
 Hyperglobalization on
Democratic choices
llustrations of how globalization gets
in the way of national democracy:
● Labor Standards
● Corporate Tax competition
● Health and Safety Standards
● Regulatory Takings
● Industrial Policies in developing
nations 17
 LABOR STANDARDS:
International Trade setting:
outsourcing →
manifestation of gains from
trade
18
 CORPORATE TAX
COMPETITION:
The international mobility of firms
and of capital also restricts a nation’s
ability to choose the tax structure
that best reflects its needs and
preferences

19
 HEALTH AND SAFETY
STANDARDS:
What happens when their own
standards diverge across countries
either by their design or because of
difference in the application?

How should goods and services be

treated when when they cross the
boundaries of jurisdictions with
varying standards?
20
 HEALTH AND SAFETY
STANDARDS:
World Trade Organization (WTO) :
Sanitary and phytosanitary (SPS)
measures and General Agreement
on Tariffs and Trade (GATT)

Trouble arises when international

tribunals contradicts domestic
proceedings on substantive matters

21
 REGULATORY TAKINGS:
Foreign Investors may have
rights that domestic
investors do not have
through Bilateral
Investment Treaties (BITs)
and Regional Trade
Agreements (RTA)
22
INDUSTRIAL POLICIES IN
DEVELOPING NATIONS:
restrictions on industrial
policies. It prevents them
from reproducing the
strategies that had good
result
23
 REGULATORY TAKINGS:
Foreign Investors may have
rights that domestic
investors do not have
through Bilateral
Investment Treaties (BITs)
and Regional Trade
Agreements (RTA)
24
The Trilemma

Your Date Here Your Footer Here 25

 Hyperglobalization
Golden Global
Straitjacket Governance

National Democracy
self-determinism
Bretton Woods compromise

26
 WHY IS THERE A TRADE
OFF?
In a world where transaction
costs are removed and national
borders do not interfere in the
exchange of goods and services,
nation-states cannot exist.

27
 Hyperglobalization

Economic
globalization will Global
Golden
Straitjacket happen if domestic Governance

regulations and tax

policies are aligned
with international
standards.
National Democracy
self-determinism
Bretton Woods compromise
28
 Hyperglobalization

Global institutions with

regulatory and Global
Golden
Straitjacket standard-setting Governance

powers that would

align legal and political
authority

National Democracy
self-determinism
Bretton Woods compromise
29
 Hyperglobalization

The nation has control

Golden Global
as long as they Governance
Straitjacket
removed some border
restrictions and
treated all trade
partners equally

National Democracy
self-determinism
Bretton Woods
compromise
30
Core Feature Of Global
Economy:
hyperglobalization

domestic social
arrangements
31
Designing Capitalism 3.0
Pre-3.0
 Designing Capitalism 3.0

● Capitalism = unleashes the “collective

economic energy of human societies”
● Globalization = WORLDWIDE
extension of capitalism

33
Toward Capitalism 3.0

Your Date Here Your Footer Here 34

Capitalism 1.0 : Lean
Capitalism

● Adam Smith’s
idealized market
society →
governments
ensure division of
labor to enforce
property rights,
keep the peace
35
 Capitalism 2.0 : Mixed
Economy Model

● called the Mixed Economy Model =

balance between states and markets
leading to social cohesion, stability,
prosperity
● but with limited globalization,
“shallow” form of international
economic integration (Bretton
Woods compromise)
36
 We must reinvent
capitalism as the forces
of economic globalization
are much more powerful
than before

37
a new vision = safeguards
benefits of moderate
globalization +
recognition of national
diversity and centrality of
national governance
38
Principles for a New Globalization
Markets = deeply No right to
embedded in impose
01 government
05 regulations on
others
Democratic
International
governance are
economic
02 organized largely 06 arrangements =
within nation
traffic rules for all
states
Rights for
No “one way” to
03 prosperity
07 Non-democratic
countries ≠
democratic
Countries have countries
the right to
04 protect own
regulations

Your Date Here Your Footer Here 39

 1: Markets must be deeply
embedded in systems of
governance
● Markets are NOT self-regulating
○ they require support from other
institutions
● Markets should not be ABOVE the
governing power

40
 2: Democratic governance
and political communities
are organized largely
within nation states, and
are likely to remain so for
the immediate future
● Global governance is foolish
○ national governments will not cede control
to transnational institutions
● if global cooperation does succeed, it
often only benefits the powerful
states and not the less powerful
○ e.g. the WTO’s rules 41
 2: Democratic governance
and political communities
are organized largely
within nation states, and
are likely to remain so for
the immediate future
● Instead, we must focus on the
democratic governments, our own
governments and enhance them
from within

42
 3: There is no “one way” to
prosperity

● there is a wide variety of institutional

arrangements — not one model
● The most successful societies of the
future will leave room for
experimentation and allow for
further evolution of institutions
over time

43
 4: Countries have the right
to protect their own social
arrangements,
regulations, and
institutions
● countries can
uphold national
standard when
trade threatens
domestic
practices

44
 5: Countries do not have
the right to impose their
institutions on others
● similarly, they should NOT impose
their values and regulations on
others
● Nations have a right to difference,
not to impose convergence

45
 6: The purpose of
international economic
arrangements must be to
lay down the traffic rules
for managing the
interface among national
institutions
● multilateral regime that helps
different types of countries and
societies to function properly
together
46
 6: The purpose of
international economic
arrangements must be to
lay down the traffic rules
for managing the
interface among national
institutions
● there should also be “opt-outs” or exit
clauses in the rules when democratic
priorities clash with global
market/international economic
obligations
47
 7: Non-democratic
countries cannot count on
the same rights and
privileges in the
international economic
order as democracies
● we can assume that a democratic
country’s laws and regulations reflect
that of its citizenry

48
Critique
 Paul B. Stephan — Book
Review

● Skeptic, questions his claims

50
 Paul B. Stephan — Book
Review

In the end, Rodrik fails to make a persuasive

case for his approach to the negative
consequences of globalization. His alarm
seems misplaced and his solutions
unworkable. It does not follow, however, that
we should slip into complacency about the
future of the global political economy.
Rodrik's most fundamental point - that we
should not accept the transformation of the
world economic system over the last quarter
century as an unalloyed good - still seems
right.
51
“A world with moderate
globalization would be a
far better place to live in
than one mired in the
quixotic pursuit of
hyperglobalization.” -
Rodrik 52
 Rosa M. Lastra — Book
Review

● He disagrees that a return to national

states and national sovereignty
provides an answer to the current
problems

most of
53
the dichotomy between
international markets and
national laws and policies can
be best tackled by the
internationalization of the
rules and institutions
governing global markets.
54
 Rosa M. Lastra — Book
Review

● wants International Monetary Fund

(IMF) to be the “global sheriff” with
regard to international financial
stability

most of
55
Recommendation
 Sources

D. H. Pavan Kumar, 2017. “What is Globalization” . Retrieved from:

https://www.quora.com/What-is-hyperglobalization

Lastra, Rosa M. The Globalization Paradox: Review of Dani Rodrik, The

Globalization Paradox: Democracy and the Future of the World
Economy. International Journal of Constitutional Law, Volume 11, Issue
3, July 2013, Pages 809–812, https://doi.org/10.1093/icon/mot031

Paul B. Stephan, Book Review: Has Globalization Gone Too Far? By Dani
Rodrik. Washington, D.C, 18 Nw. J. Int'l L. & Bus. 246 (1997).
https://scholarlycommons.law.northwestern.edu/njilb/vol18/iss1/11

57