Wednesday, March 31, 2021

My interview with Dani Rodrik

Here’s the English version of the transcription of my interview with Dani Rodrik, which was published in the March issue of the Catalan magazine Política & Prosa (I had published there before an interview with Branko Milanovic). The text in Catalan can also be found here, and the Spanish translation here. The full video of the interview is also available.

-Starting with your latest contributions, yesterday you published an article, addressed to the new Biden administration, calling for a more ambitious effort by the United States federal government to support the creation of good jobs. What is different about this proposal, compared to things that have been done before? 

-The type of local job creation programs I am referring to have so far been very small in size, with little public funding. The existing sectoral training programs that I describe are very small in scale, and there is much scope to expand them. These programs are local, adapted to the specific needs of the communities. Innovation promotion is done at the federal level with relatively ineffective subsidies and tax incentives. What I propose in the article is intended to be much more effective and precise, and has to do with local development. To have good jobs, you have to have good companies, you have to address both the supply side and the demand side of the problem. There is scope for much better coordination, through programs run by local authorities, but with support from the federal government. The federal level should redirect innovation programs to facilitate job creation. The idea comes from the British economist Tony Atkinson in his book on "Inequality,” where he says that the direction of technological change cannot be left purely in the hands of the market or companies because there are positive external effects derived from good tasks, in terms of the health and vitality of local communities. Instead of substituting, you have to expand work with technology, you have to innovate but do it in a friendly way for working people. Innovation must be given a direction, as is already done with defense, climate change and other areas, having specific objectives in mind. There are social and occupational consequences of technological change, which must be taken into account. 

-This has connections with an idea that you and other academics, such as Thomas Piketty, promoted in an article in May 2020, in the midst of the first wave of the Covid-19 pandemic, calling for putting working people at the center of policy attention. In that article, you spoke of "democratizing work" 

-Yes, and there are different ways to do it. In the United States, the new administration seems to be going in this direction, it will be friendlier with the unions. But I don't think unions are the ultimate solution. What you have to do is rethink corporate governance in a number of directions. Giving workers a voice in the governance of the firm is desirable in itself, and also contributes to this agenda that we mentioned to guide innovation in the right direction. With a working voice, there is more planning when new technologies are introduced, because people and communities are thought about. In Europe, in Germany and in the north, where there is an established practice of consulting and giving voice to working people, there is more planning, more training associated with technological changes. But this cannot be done by companies alone. It seems to be less difficult for the business community to talk about Corporate Social Responsibility than to empower working people. The actual change in practices is not a big deal, there is a lot of talk. But certain practices can prepare companies for the regulations that are necessary. On the one hand, I think that for some people talking about stakeholders or corporate social responsibility is a way of avoiding authentic changes. On the other, taking into account the idea of social and environmental responsibilities prepares companies for real changes. In France, a 2017 law significantly conditions the outsourcing of companies to other countries to social and environmental standards. If done well, there may be some complementarity between Corporate Social Responsibility, on the one hand, and laws and regulations on the other. 

-You are especially known for the "Trilemma" that bears your name, which highlights the tension between national sovereignty, democracy and globalization (or hyper-globalization). I think that the existence of this tension generates a certain consensus. But if I interpret it correctly, you add that your preferred way out of the "trilemma" is to somehow stop globalization, or at least hyper-globalization. 

-For the world as a whole, your interpretation is correct. I cannot imagine a global politics thick enough to translate democracy to the global level. I find it difficult to imagine, given the current differences in the world. For the European Union (EU), I believe that the founders of the EU had the ideal that European economic integration could be the basis for a strong quasi-federal political union that would strengthen economic integration. In this model of the founding fathers, national sovereignty would be very weakened. The nation states in Europe would be like the states in the USA. This has not happened at the moment. But in Europe, these would be my preferences, a more integrated Europe and less sovereign states. But the dominant politicians have not extracted all the consequences of this tension, they have always wanted the best of both worlds: to maintain national sovereignty, and to integrate some policies, such as the monetary one. They do not admit that more integration means limitations on national sovereignty. And this unclear attitude has led to a backlash from the far right. A Dutch finance minister once told me that the ultra-nationalist far right is the only one that truly admits the trilemma. They do not choose the way out of the trilemma that I would choose, because they are not interested in democracy as I am, but they capitalize on the trilemma because they understand it. 

-In any event, if we look at the intensification of phenomena such as the ubiquity of the Internet, climate change, tax havens, or the role of large technological multinationals, it is difficult to think how the world can be de-globalized. It seems that there is no choice but to try to democratize globalization... 

-Yes, that is why I emphasize the concept of hyper-globalization. I distinguish between hyper-globalization and globalization. Hyper-globalization implies treating domestic regulations and policies as barriers to trade, because they create jurisdictional discontinuities or transaction costs. After the 1990s, people have started to think about domestic policies and institutions, and not just about things that happen at the border, as barriers to trade. We began to assume that any barriers to globalization had to be removed, even if they were democratically elected national policies, such as industrial, tax and other policies. The free movement of capital became the norm and not the exception, reducing the space for the different states to make their policies through democratic means and adapting to local conditions. What I have in mind is that the states have more space for industrial, fiscal and monetary policies. That countries can choose their institutional arrangements. I am not calling for a reduction in international trade and investment. But a less hyper-globalized system can actually promote more volume of international trade and investment. This was the lesson of the Bretton Woods era. 

-You say it because in this case there was more political support for international trade and exchanges? 

-Yes, there was more support for international trade and investment. When globalization conflicts with social stability at home, it is very easy to blame globalization. Local social and political balances are very important. 

-You have just recently written a very interesting article on the relationship between populism and globalization. There you raise interesting distinctions, such as between factors of political supply and political demand that generate populism; or between economic factors and cultural factors behind the demand for populism; or between the influence of economic variables expressed in levels, and changes in these variables. 

-Indeed, to understand the rise in particular of radical right populism, one has to ask what has changed. You cannot explain a change in terms of a constant. In the United States, there has always been xenophobia and racist resentment, it is a constant. A constant that is very important, but it has always been that way. The change that occurred was economic and social disruption, job losses, changes in the labor market, which made it easier for far-right parties to capitalize on resentment and economic anxiety, and use them against agents perceived as external, like immigrants or other scapegoats. Cultural themes are activated by economic and labor changes. That is why policies are needed to correct changes and polarization in the labor market. 

-In this article you quote a very interesting book, “Let them eat tweets,” which raises the concept of "plutocratic populism" and which suggests that the political supply factors behind populism affect not only the extreme right, but also conventional right-wing parties, like the Republican Party of the United States. 

-The scholar Thomas Frank was I believe the first to talk about it in a book called “What's the Matter with Kansas,” where he talked about precisely these things. And myself, with a colleague, Sharun Mukand, in a theoretical article, we argue that when there is a shock that generates more inequality, and the typical voter who decides the elections moves further away from the preferred policy of the right-wing party, this party find it more attractive to invest and appeal to identity politics where they can hide their socio-economic package behind the defense of an identity. This is the argument of Hacker and Pierson (the authors of the book you mention) about the Republican Party. However, there is still the paradox, which these authors do not address, of why when the right does this strategically, the center-left does not respond, why they do not do things that directly address the underlying problems. 

-But they must do something well, because in the end they have won in the United States ... 

-Yes, although with some delay. The center-left, the Democrats in the United States, the Social Democrats in Europe, and Labor in the United Kingdom, were the drivers of hyperglobalization, with the North American Free Trade Agreement, with Blair and Schroeder in Europe. They have been slow to find their identity. Now at last, Joe Biden's economic program, although he is nominally considered a centrist, is far to the left of Hillary Clinton's economic program of four years ago, reflecting the influence of people like Elizabeth Warren and Bernie Sanders in the Party. It remains to be seen if Biden can develop strategies that respond sufficiently to the problems, but with some delay the left is developing an adequate identity. 

-You have also participated in the debate on the economist profession. You have said that conventional economics is wide enough that different recipes for economic policies can fit. In what sense do you think economics, as a discipline of knowledge, should change? 

-Much has improved recently, but there is a lot to do in terms of gender and racial diversity. Economics has become more empirical, and less guided by theoretical preconceptions. If the empirical results say that the minimum wage does not necessarily destroy jobs, the theoretical framework must be revised. If the data say that financial liberalization does not generate growth, the models need to be reconsidered. If the experiments show that there are elements of behavior different from the traditional ones, we cannot return to utility maximization models as usual. As a result, we are more diverse in theoretical approaches. If anything, what worries me now is that we go to the other extreme and throw the theory out the window. Not everything can be learned from big data, without taking into account a theoretical framework. 

-I tell my students that theory is good for asking good questions. 

-It is more than that. There is no evidence without theory, you have to give an interpretation to the data. If you flip a coin 20 times and it comes up 18 heads, this only makes sense within the framework of statistical theory about what happens when you flip a fair coin. Perhaps now we are also overcoming the problem anyway. There was a time when only doctoral theses with empirical work came out, without a theoretical framework.

-When it comes to renewing the economy as a discipline of knowledge, there are also dilemmas between interdisciplinarity, relevance of what is said for society, and the need to maintain high scientific standards. 

-I believe that interdisciplinarity does not require sacrificing rigor. Most of the interesting developments in economics come from taking advantage of knowledge from other disciplines, such as psychology with behavioral economics, medicine with randomized control trials (RCTs), or the economy of culture cooperating with evolutionary biologists. All the work on institutions, which greatly influenced the economic development recommendations of the last decades, came from the work of economic historians and political scientists. 

-Some members of our profession complain, possibly with good reason, that its "gatekeepers" are more arrogant than in other disciplines. What do you think about it? 

-Traditionally it is true that there has been significantly more arrogance in economics than in other branches of knowledge. It probably has to do with the perception of a certain pecking order among the social sciences. There was certainly fertile ground for this accusation. I also see some change for the better, but there is still a lot to do.

Friday, March 12, 2021

National Populism: the interesting Catalan case study

The economist Dani Rodrik mentioned in a recent interview the theoretical possibility that when the pivotal voters in elections are victims of a distributional shock in a crisis, the right wing parties are left farther away from the interests of these voters, and then these parties have stronger incentives to actívate identity dimensions. In Catalonia we have been seeing since the last global financial crisis that this possibility is probably more than a theoretical one. It is what others have called plutocratic populism. The association of the Catalan Independence movement to the family of eurosceptic national populist movements that have surged in the last ten years was made more credible this week by a tweet of pro-Brexit leader Nigel Farage, one of the closest political friends of Donald Trump, expressing his sympathy for Carles Puigdemont, the leader of the Catalan pro-independence movement. 

It is an interesting case, because it is a version of national-populism that tries to sell itself as progressive and sophisticated (and it has been more successful at this than Marine Le Pen), and it has at the same time the support of significant economic and intelectual élites (added to the resources of a powerful regional administration, which they control). When some fear that the next version of Trump may be smarter and more subtle, perhaps here you have a look into the future. It is relatively easy to mobilize a sizeable part of the electorate when the upper classes contribute resources to the movement, envolving into a false progressive narrative what is little else than the attempt to create a fiscal haven in the northeast of the Iberian Peninsula, as argued by Thomas Piketty in his last book (in a chapter aptly called “The Identity Trap”).

The Financial Times columnist Simon Kuper (who has studied well the Catalan society in the recent past, as he was doing research for his forthcoming book on FC Barcelona), has identified very well why the Catalan case is interesting. Kuper, however, is not misled by the apparent sophistication. On March 6th he wrote a column entitled "WHAT INDEPENDENCE MOVEMENTS TEACH US ABOUT BELONGING," where he says that “Anyone who has experienced Trumpism in the US or Brexit in Britain knows what a divided society feels like. Spending time in Barcelona last year, I recognised that atmosphere. Catalonia has been split down the middle by the region’s quest for independence from Spain. The resulting quarrels break up Sunday family lunches, or can end life-long friendships.”

He adds that “No new state has emerged in western Europe since Malta became independent from the UK in 1964 — but now there are three candidates. The May 6 Scottish Parliament elections are in effect a referendum on independence, with the secessionist Scottish National Party expected to win a majority. That same month, Northern Ireland marks its centenary amid a Brexit-inspired push towards Irish unification.”

The FT columnist draws some conclusions, with which I fully agree: 

-“None of these new states are likely to emerge anytime soon, if ever. Instead, these issues will probably stagnate into frozen conflicts, allowing polarisation to seep into everyday life.”

-“Identity issues are the most emotive in politics. Few people stalk out of Christmas dinner because they disagree about the nuances of the Green New Deal. But introduce binary choices like “Should we live in Catalonia or Spain?” or “Scotland or Britain?” and some will get overexcited. In Northern Ireland, of course, unionists and nationalists generally wouldn’t be having Christmas dinner together in the first place.”

-“The best way to keep a society united, argues philosopher Amartya Sen, is to encourage everyone to hold multiple identities. People can feel simultaneously Catalan and Spanish, Scottish and British, even Irish and British, as long as they are left in peace to muddy their identities. Some are happiest living outside all ethnic clubs. The numbers in Northern Ireland who identified as neither unionist nor nationalist rose in the years before Brexit, notes Katy Hayward of Queen’s University Belfast.

-“But independence movements push people to choose a single identity. From 2006 through 2019, the segment of Catalonia’s population identifying as “only Catalan” jumped 15 percentage points, according to José Oller of the University of Barcelona and colleagues. Worse, these national identities pile on top of other polarising identities. In Catalonia, most indepes, as they are called, are well-off, native-born people who grew up speaking Catalan. In some of their workplaces and social settings, speaking Spanish is now frowned upon. Dissidents risk being informally boycotted in their professional lives. Meanwhile, people in Catalonia of migrant origin — be it from Spain or abroad — mostly oppose independence. This social divide was pre-existing, but has recently become politically toxic.

-“Many Scots in recent years have found firm political identities online, with “rants emanating from all sides”, recounts Elizabeth Anne Bailey in her book Political Participation on Social Media. When a YouGov poll last year found that only 16 per cent of Scots believed Scotland was united, Gordon Brown, the former British prime minister and a vocal unionist, said Scotland looked like “two nations”. He warned: “These divisions could dominate our lives for many decades to come.” “Divisive referendum” may be a unionist mantra, but it’s an accurate one. But dividing people into identity groups and then letting the biggest group decide rarely works brilliantly. Better to let sleeping identities lie, and to argue instead about boring issues like carbon offsets and street lights.”