In 1996, only five years after the end of the Soviet Union – with Russia’s once-protected markets having been forcibly opened, leading to a sudden decline in living standards – a communist won 40% of the vote in Russia’s presidential elections.
The post-Soviet decline in living standards is grossly overstated. Among other things they went from a system which didn’t count economic output nor consumption to one that did. Seriously, Soviet GDP accounting was dire, even counterproductive.
But even so, blaming this on the country’s openness to trade is ridiculous.
I have to admit that I’ve never really gelled with this idea of Rodrik’s:
For Rodrik, it was “the process that has come to be called ‘globalisation’”. Since the 1980s, and especially following the collapse of the Soviet Union, lowering barriers to international trade had become the axiom of countries everywhere. Tariffs had to be slashed and regulations spiked. Trade unions, which kept wages high and made it harder to fire people, had to be crushed. Governments vied with each other to make their country more hospitable – more “competitive” – for businesses. That meant making labour cheaper and regulations looser, often in countries that had once tried their hand at socialism, or had spent years protecting “homegrown” industries with tariffs.
One reason being that globalisation was at least in part (and I would argue more than a minor part) a technological issue, not a policy one.
As an historical example, post Civil War US import tariffs doubled, at least upon manufactures. Yet imports kept going up by leaps and bounds. This is because trade barriers are not just tariffs, policy. They are those plus transport and logistics costs. The ocean going steamship lowered transport costs by more than the rise in tariffs – trade barriers actually fell (See O’Rourke and someone, The Power and The Glory).
What has also been happening since the late 1950s? Container ships and cheap flights and telecoms. It is vastly, hugely, cheaper now to go look for, find, and transport goods and services from other countries. Add the internet more recently. Actually, I was using the internet to do international trade in the early 1990s (shipping code from Moscow to Silicon Valley).
The point being that in order to have a neutral stance upon trade, or globalisation, policy against trade would have had to be enacted. Substantial levels too. Think about it a little. Alibaba has made it vastly easier to buy from mid and low level Chinese firms. Sure, there are problems etc. But how much higher would trade barriers like tariffs have to be to overcome that greater ease of trade?
Globalisation was and is at least partly a technical matter, not a policy one at all.
These moves were generally applauded by economists. After all, their profession had long embraced the principle of comparative advantage – simply put, the idea countries will trade with each other in order to gain what each lacks, thereby benefiting both.
Christ. Can we even get Ricardo right? That’s absolute advantage.
This then descends into gibberish:
While many economists attributed much of the insecurity to technological change – sophisticated new machines displacing low-skilled workers – Rodrik suggested that the process of globalisation should shoulder more of the blame. It was, in particular, the competition between workers in developing and developed countries that helped drive down wages and job security for workers in developed countries. Over and over, they would be held hostage to the possibility that their business would up and leave, in order to find cheap labour in other parts of the world; they had to accept restraints on their salaries – or else.
Entirely true. If there are losers then it’s going to be the low skill workers of the rich countries. Adding a couple of billion low skill workers to the global labour force will do that.
Over the course of the 1990s, an unwieldy international coalition had begun to contest the notion that globalisation was good. Called “anti-globalisation” by the media, and the “alter-globalisation” or “global justice” movement by its participants, it tried to draw attention to the devastating effect that free trade policies were having, especially in the developing world, where globalisation was supposed to be having its most beneficial effect.
That’s the idiocy. Because the people who undoubtedly benefit are those couple of billion low skill workers being added to the global labour force.
Activists were intent on showing a much darker picture, revealing how the record of globalisation consisted mostly of farmers pushed off their land and the rampant proliferation of sweatshops.
People sucked off their land by the greater opportunities of the sweatshops. Corrected that for you.
The rest of it is how evil the Washington Consensus was and the merits of infant industry protection behind tariff barriers. The bit being missed is that the second was tried and the outcome was it didn’t work. But apparently we should abandon the system which has, these past 40 years, caused the largest fall in absolute poverty in the history of our species and go back to something which provably doesn’t work.