Staying the Invisible Hand

Martin Roemers/Panos Pictures
A clothing market in Cairo, 2011; photograph by Martin Roemers from his book Metropoli, published by Hatje Cantz in 2015

In 1997, when Dani Rodrik, a Turkish-born professor at Harvard’s Kennedy School of Government, published his brief book Has Globalization Gone Too Far?, progressive economists widely embraced his arguments that many free trade policies adopted by the US, which reduced tariffs and other protections, also weakened the bargaining power of American workers, destabilized their wages, and encouraged social conflict. “The danger,” Rodrik wrote presciently, “is that the domestic consensus in favor of open markets will ultimately erode to the point where a generalized resurgence of protectionism becomes a serious possibility.” I remember that Robert Kuttner, the coeditor of The American Prospect, was particularly enthusiastic about the book. Almost twenty years later, he again praised Rodrik for his continued devotion to an empirically grounded skepticism of what Rodrik now calls “hyperglobalization.”

Has Globalization Gone Too Far? challenged a mainstream economic belief that in 1997 was accepted with increasing fervor: that reducing tariffs to encourage trade almost always resulted in a healthier, more rapidly growing economy for all nations. If some workers in industries that directly competed with rising imports lost their jobs or had their wages reduced, it was assumed that the economy would create enough new jobs to compensate.

Free trade had been a principle of modern economic theory since Adam Smith. But an especially intense allegiance to it had grown out of the American drift toward laissez-faire economics that began in the 1970s with Milton Friedman, who advocated minimal government and the deregulation of markets. Best sellers like The End of History and The Last Man (1992) by the philosopher Francis Fukuyama and The Lexus and the Olive Tree (1999) by the journalist Thomas Friedman insisted that a reduction in protectionism and the development of free markets across the world would lead to prosperity and greater income equality. In 1991, Lawrence Summers told a reporter that in economics “one set of laws works everywhere”—that is, the benefits of free trade applied to all markets, big and small.

Rodrik is no proponent of Donald Trump’s recently imposed tariffs, however. He thinks we need a balanced new trade policy, and for him Trump’s bravado has no place in formulating one. We can reduce income inequality and retain the benefits of free trade with intelligent negotiation among nations, he argues, not grandstanding. Among other things, a new policy should include substantial funding and training for those in the US who lose jobs. One of Rodrik’s most important points is that the nation needs a generous safety net if free trade policies are to succeed.

Paul Samuelson, the Nobel Prize–winning adviser to John F. Kennedy and Lyndon B. Johnson, wrote that the theory of comparative advantage, the theoretical foundation of free trade, was the one tenet in…

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