We usually swear by free trade and rubbish whoever argues against free trade…After all, one of the first lessons of economics is comparative advantage (on which trade is based) and how the whole country/society benefits from trading.
Dani Rodrik on his blog points Lant Pritchett and Larry Summers teach a course on globalisation at Harvard. The duo invited Rodrik to speak to the class and warned him that most of the students are pro-globalization.
My colleague Lant Pritchett teaches a course on globalization with Larry Summers, and he invited me to his class recently to debate Summers on free trade. I used a few thought experiments to get students to understand how thinking about trade policy requires going beyond economics to considering questions of procedural fairness and distributive justice.
He explains what he did in the class in this must-read article.
What Rodrik does is frame questions differently. So instead of asking people whether trade/globalization works, he directly looks at the impact of trade and asks whether students prefer such a outcome?
I began the class by asking students whether they would approve of my carrying out a particular magic experiment. I picked two volunteers, Nicholas and John, and told them that I was capable of making $200 disappear from Nicholas’s bank account – poof! – while adding $300 to John’s. This feat of social engineering would leave the class as a whole better off by $100. Would they allow me to carry out this magic trick?
Those who voted affirmatively were only a tiny minority. Many were uncertain. Even more opposed the change.
Clearly the students were uncomfortable about condoning a significant redistribution of income, even if the economic pie grew as a result. How is it possible, I asked, that almost all of them had instinctively favored free trade, which entails a similar – in fact, most likely greater – redistribution from losers to winners? They appeared taken aback.
Further experiments showed students did not block all redistribution. What they did not like was unfair distribution:
Let’s assume, I said next, that Nicholas and John own two small firms that compete with each other. Suppose that John got richer by $300 because he worked harder, saved and invested more, and created better products, driving Nicholas out of business and causing him a loss of $200. How many of the students now approved of the change? This time a vast majority did – in fact, everyone except Nicholas approved!
I posed other hypotheticals, now directly related to international trade. Suppose John had driven Nicholas out of business by importing higher-quality inputs from Germany? By outsourcing to China, where labor rights are not well protected? By hiring child workers in Indonesia? Support for the proposed change dropped with each one of these alternatives.
But what about technological innovation, which, like trade, often leaves some people worse off. Here, few students would condone blocking technological progress. Banning the light bulb because candle makers would lose their jobs strikes almost everyone as a silly idea.
So the students were not necessarily against redistribution. They were against certain kinds of redistribution. Like most of us, they care about procedural fairness.
He says economists are deaf to such re-distributions:
Too many economists are tone-deaf to such distinctions. They are prone to attribute concerns about globalization to crass protectionist motives or ignorance, even when there are genuine ethical issues at stake. By ignoring the fact that international trade sometimes – certainly not always – involves redistributive outcomes that we would consider problematic at home, they fail to engage the public debate properly. They also miss the opportunity to mount a more robust defense of trade when ethical concerns are less warranted.
The idea is not to restrict trade etc. But to have more informed debate on the topic. One should neither assume that globalization is a win-win for all nor undo the globalization process by going towards protectionism:
While globalization occasionally raises difficult questions about the legitimacy of its redistributive effects, we should not respond automatically by restricting trade. There are many difficult trade-offs to consider, including the consequences for others around the world who may be made significantly poorer than those hurt at home.
But democracies owe themselves a proper debate, so that they make such choices consciously and deliberately. Fetishizing globalization simply because it expands the economic pie is the surest way to delegitimize it in the long run.
Hmmm…Very interestingly put..
Framing questions/choices was brought to limelight by Kahneman and Tversky. Framing qs differently they showed how people reacted differently to two questions which had similar answers/outcomes but asked or framed differently..
Rodrik uses the same framing to get different answers from the usual answers.
Actually much of economics revolves around consensus with a few economists challenging the consensus. The challengers should use these framing questions to bring their point. Like the way Rodrik does that though trade is beneficial it has distributive implications which needs to be thought very carefully as improper distribution can derail the whole globalization process..