Sunday, January 8, 2017

Tirole and the global economy

I finished reading these days the impressive book in French by Jean Tirole "Économie du Bien Comun." He explains the results of his research in the last decades, on regulation (which is his original topic) but more broadly and perhaps interestingly on behavioral economics, Europe, climate change or the labour market. It is the chronicle of a desperate appeal to change our institutions to better take into account the general interest, or as he would say to better align the individual interest (of human beings, organizations or states) to the social (global) interest. There is a very interesting paragraph on the loss of relevance of even the French state (p. 219):
"In the last thirty years, there has been a double loss of influence of the jacobin French state:
-To the benefit of the market as a result of privatizations, of the opening to competition, of globalization and of the more systematic use of auctions and bidding systems;
-And to the benefit of new actors, either of a political nature –Europe and the regions- or otherwise –judicialization and creation of independent authorities."
My only criticism of the book is that Tirole does not envision any role for the state as company owner. That is questionable in a normative sense (surely there must be some conditions under which arm's-length regulation becomes difficult because of transaction costs or some other reason), but it is blind in a positive sense, because state-owned firms seem to be here to stay. You don't need to look at China, you can start by looking at France itself, but you can look at China if you want.
The message of the book is clear in my view: there are so many changes in the way the economy works as a result of technological change and globalization, that we cannot afford the risk of leaving institutions as they are now, or of individual or nation-state laissez-faire. We should manage globalization better and not because there is necessarily a correlation with the rise of national-populism (perhaps there is not: the book "Globalization and its discontents" by Stiglitz was published in 2002, when Brexit and Trump were not in the political radar). As a speaker said in the WEAI conference that I attended in Santiago this week, human globalization started with the Homo Sapiens taking over the Neanderthals. Has the white (South and North) American man any moral authority to say that immigration should be stopped? When one sees Trump or Pinochet, one certainly has doubts that unselected migration yields good returns (good descendants of immigrants) in the long run but no, I don't believe that globalization can or should be stopped. We should manage it better because our institutions evolved to be fit in another era.
To me the big politico-economic questions of today remain 1) how to answer Rodrik’s trilemma (actually a dilemma when one realizes that globalization is unstoppable: it is, perhaps Trump is a nativist but he won with a decisive help from a foreign power, as Pinochet became a brutal dictator because of another foreign power…) and 2) what are the main causes of national-populism (because we should stop it if we are to make progress towards a better world). There are no easy answers.

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