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The Hindu
27-04-2025
- Business
- The Hindu
The ‘political trilemma' and the crisis in the West
Democracies in the western world are in crisis, marked by deepening polarisation, mistrust in democratic institutions and rising populism that is making those countries take an insular turn. Over two decades ago, economist Dani Rodrik put forward a proposition he termed the political trilemma of the world economy. Examining the state of economic integration in the western world, he claimed that countries face a difficult choice – over time, they could only have at the most two of the following: international economic integration (globalisation), the nation-state (sovereignty), and mass politics (popular democracy). Rodrik's paper, 'How Far Will International Economic Integration Go?' (2000), introduced this concept, arguing that despite the rhetoric of globalisation, international economic integration remains remarkably limited. Countries, adopting a protectionist stance, have erected barriers to free trade. National borders and the transaction costs significantly hamper international commerce, limiting the extent to which gains from globalisation could be realised. From theory to reality This idea, once an academic theory, is now playing out in real time across the world. And nowhere is its impact more visible than in the West where the contradictions resulted in consequences worse than what Rodrik might have envisioned. Let us examine the trilemma more closely. First, countries can embrace popular democracy and globalisation, but in order to do so, they have to cede elements of their national sovereignty. The European Union (EU) is the best example of this. Nations within the EU agreed to give up control over key policies — for instance, monetary policy, trade, migration — to be part of a larger economic and political bloc. While this has been an economic success, with a single market of 450 million people and Gross Domestic Product of $18.5 trillion representing about 15% of all global trade, it has also led to pockets of popular resentment from those who perceive that they have not had access to the same degree of economic opportunities, or from those who feel their way of life has come under threat from allowing free movement of people within the bloc. In turn, many people blame their governments for allowing EU regulations that are disadvantageous to them to prevail. This resentment has fuelled nationalist movements in Europe, from Brexit in the United Kingdom to now, the rampant rise of far-right parties across Europe — the backlash now is against both democracy and globalisation, accompanied by an antiquated and isolationist view of national sovereignty. The second and third choices The second choice that countries have is to pursue globalisation and national sovereignty while restricting the ability of 'mass politics' to influence economic choices. Rodrik suggests that in this context, governments take a technocratic turn, with economic policymaking controlled by independent central banks and autonomous regulatory authorities. Such institutions are insulated from the vagaries of popular politics and these countries run the risk of sacrificing popular democracy in the interest of pursuing economic integration. The engagement of international financial institutions in many developing countries around the world bear the hallmarks of this choice — these institutions have actively pushed governments to take steps aimed primarily at restoring the confidence of foreign investors and lenders at the expense of popular will. This writer would argue that this is also in effect, countries ceding sovereignty to 'global markets'. Over the last two years in Kenya for instance, the International Monetary Fund (IMF) has had to face a severe backlash for having pushed extreme measures of fiscal discipline at the expense of public welfare and consumer sentiments in the domestic economy. While this in itself is up for debate, the widespread criticism of the IMF does indicate the consequences of this choice — it would seem to degrade both democracy and sovereignty, while not particularly delivering on the benefits from economic integration either. The third possibility in Rodrik's trilemma is the option he calls the 'Bretton Woods compromise', where countries choose to preserve democracy and sovereignty, while limiting globalisation. Many developing countries such as India seem to have chosen this path, using a mix of protectionism, restrictions on foreign investment, and domestic industrial policies in order to promote their domestic economies. China and the East Asian tigers grew by leaps and bounds by picking and choosing how they allowed globalisation to work in their countries. They invited foreign investment and encouraged export-oriented enterprises, but maintained a tight grip on political power. The consensus among the elites in these countries have come to support this model, as did the social contract between the state and their citizens. Also in order to keep a tight grip on domestic politics, the state has (such as in China) had to impose restrictions on foreign news sources — also limiting the extent to which they have allowed globalisation or economic integration to truly take root. For years now, this model has delivered an impressive rate of economic growth, but curtailing political dissent and restricting individual freedoms could come at a price. The crisis in the West today is a consequence of Rodrik's trilemma playing out. For years, western democracies tried to balance all three — democracy, sovereignty, and globalisation — believing that free trade and open markets, national self-determination and popular participation in democracy could co-exist and flourish concurrently. But this balance has been unattainable. A backlash Globalisation, while lifting overall living standards in the West, has created winners and losers. Manufacturing jobs have vanished in many parts of the United States, the U.K., and Europe as industries moved to cheaper locations, deepening economic insecurity among those that feel left behind. These grievances, of people such as workers in old industrial towns, and small businesses struggling against global competition, have been coalesced by populist political leaders such as Donald Trump, Geert Wilders and Viktor Orbán. Over the years, one has seen an erosion of trust in mainstream political parties and democratic institutions, and a backlash against globalisation. In response, these political leaders have offered more protectionism, immigration controls and withdrawal from areas such as climate change and international development that require global collective action. Rodrik's trilemma remains as relevant as ever — countries cannot have it all, and as argued above, the consequences have been far worse than Rodrik might have envisioned. The choice between furthering globalisation, asserting sovereignty and popular democracy is a stark one. But if countries fail to navigate the trade-offs, they stand to suffer from social unrest and a poorer future. The western world has to find a way out, where it can ensure that economic gains are more broad based, and democratic institutions are responsive to all. This requires much more than a simple turn towards populism or the reckless dismantling of government. Suvojit Chattopadhyay is an international development professional with experience working on governance reforms across Africa and South Asia
South China Morning Post
16-04-2025
- Business
- South China Morning Post
As US retreats, Asian powers can reshape world order to meet their needs
The global order that once promised free trade, open borders and shared prosperity has cracked. The so-called liberal international order, constructed after the second world war and turbocharged after the Cold War, is dissolving . Its collapse is being brought about by the very country that built it: the United States. Advertisement Under the Trump 2.0 administration, the US is decidedly stepping back from open markets and liberal values. Its immediate predecessor, Joe Biden's administration, continued many of Trump 1.0's economic policies – on trade protection and reshoring of supply chains. There is now a bipartisan consensus in America that globalisation, at least in its past form, no longer serves US interests. Washington is no longer selling the dream of a borderless, liberal world. It is selling security, industrial policy and 'Made in America' – so America will be great again. In this frame, even long-standing allies are foes. To understand this shift, it helps to revisit Harvard economist Dani Rodrik's trilemma , which explains why countries can't simultaneously have full national sovereignty, deep economic globalisation and democratic politics – at best, they can have two. Much of the world, however, thought all three could coexist. Faced with rising inequality , the hollowing out of its manufacturing base and a restless electorate, the US has chosen populist democracy and sovereignty over globalisation. The original champion of open markets is rewriting the rules to protect its industries. Free-market rhetoric is giving way to strategic competition, especially against a China that has become the world's major industrial economy. Advertisement
Boston Globe
09-04-2025
- Business
- Boston Globe
‘Totally silly.' Trump's focus on trade deficit bewilders economists.
Get Starting Point A guide through the most important stories of the morning, delivered Monday through Friday. Enter Email Sign Up 'It's totally silly,' Dani Rodrik, an economist who studies globalization at Harvard University, said of Trump's focus on bilateral deficits. 'There's no other way to say it, it makes no sense.' Advertisement Some economists do agree with the Trump administration that America's overall trade deficit with the rest of the world reflects a problem for the U.S. economy, because the United States is so dependent on manufacturing elsewhere, including in China. But others don't see it as an issue. And nearly all economists say that focusing on imbalances from country to country can be highly misleading. Last year, for example, the United States ran bilateral trade surpluses with 116 countries globally. It ran bilateral trade deficits with 114 countries, according to World Bank data. Advertisement Often these relationships just follow the flow of trade, without suggesting much about a country's trade practices overall. Matthew Klein, who writes about economics for The Overshoot, points out that the United States runs a trade surplus with Australia because it sends out lots of machinery, transportation equipment and chemicals. Australia runs a trade surplus with China, sending it iron ore, natural gas and gold. And China runs a trade surplus with the United States by sending it car parts, electronics and batteries. The United States also has substantial trade surpluses with the Netherlands and Singapore, Klein pointed out. But that's not because Dutch and Singaporean people consume so many more American products than other nations. It's because those countries are home to major ports that import American goods. The Netherlands unloads U.S. goods in its ports and sends them throughout Europe to other consumers, while Singapore does something similar for Asia. But a trade deficit is calculated based on the country the good reaches first, not its ultimate destination. Economists have also criticized Trump's tariffs for targeting all foreign trade flows indiscriminately, without regard for how strategic the good is to the United States or even whether the country can actually make it. Trump's focus on bilateral trade deficits has meant that even close U.S. allies such as Canada, Mexico and Europe are considered enemies when it comes to trade, because they sell the United States more than they buy. Switzerland also ended up with high tariffs, in part because the country exports a lot of gold to the United States, as did tiny Lesotho, where the average annual income is $3,500. Lesotho received preferential trade treatment under legislation passed in 2000 and now makes bluejeans for Americans. Advertisement Trump's tariffs are calculated by a simple formula, which boils down to dividing the trade deficit the U.S. runs with each country by the value of goods the U.S. imports from it. That formula means that, until U.S. imports from and exports to every country balance out, other countries will face additional tariffs, whether the nation provides the United States with advanced technology, toys, cocoa beans or corn. Mary Lovely, a senior fellow at the Peterson Institute for International Economics, said the formula 'gives a gloss of science to what is essentially a made-up approach.' The formula makes several wildly unrealistic assumptions, she says, including that U.S. consumer demand responds similarly to all imports. That response 'cannot possibly be the same for all goods from all countries,' she said. 'How will U.S. supply respond to higher tariffs on cocoa and natural rubber from Côte d'Ivoire? The same way it responds to higher tariffs on machinery from Europe?' Trump's advisers have defended his methodology. Stephen Miran, the chair of the White House Council of Economic Advisers, said in an interview that the president had been 'clear for decades that he thinks that bilateral trade deficits are a major problem for Americans.' Miran argued that the trade deficit could be a 'proxy for the totality of economic policies that cause persistent trade deficits.' The Trump administration did a lot of analysis of the situation, he said, and the president decided that the approach 'was the fairest course for American workers.' The administration also seems to view the focus on bilateral trade deficits as a way to get at the fact that goods from China appear to have been routed through other countries and on to the United States. After Trump imposed tariffs on China in his first term, many factories moved outside China to avoid the tariffs, but continued to rely on Chinese parts, raw materials and technology. Advertisement With Trump's new tariff formula, countries that have been the destination for these factories and have had their trade surpluses with the United States balloon in recent years will be hit hard. 'Because the global economy is now so integrated, countries have been able to move goods through third counties to get into our market,' said Mark DiPlacido, a policy adviser at American Compass, a conservative economic think tank. As the U.S. bilateral trade deficit with China has decreased, the deficit with other Southeast Asian countries has increased, he said. 'So it's not enough to just target China anymore,' he said. 'There just needs to be this global baseline if we're going to see the overall trade deficit decrease.' The Trump administration is probably right that, in some cases, barriers to trade that foreign countries set up have lowered the amount that the United States exports to those places and exacerbated trade deficits. And many countries, particularly in Asia, have subsidized their manufacturing industries in ways that allow them to sell goods at much lower prices, making U.S. production of the same goods uneconomical and causing U.S. trade deficits with those countries to balloon. Michael Pettis, a professor of finance at Peking University in Beijing who studies the topic, said the new tariffs might reroute the way trade moves through certain countries, but still not do much to change the size of the overall trade deficit the United States runs with the world. Advertisement 'They're focusing on the wrong problem, bilateral deficits,' Pettis said. Pettis sees the overall trade deficit that the United States runs with the world as a problem for the American economy because it means that U.S. consumer demand for goods supports manufacturing activity elsewhere, like in China, rather than in the United States. But he insists that the trade imbalances the United States has individually with other countries are not always reflective of that problem, and that tariffs won't necessarily do much to fix it. In his view, government policies in countries such as China, Germany, South Korea and Taiwan are driving major trade surpluses. Because every trade surplus needs a deficit to balance it, that ends up inflating the U.S. trade deficit. Without bigger economic changes in China and other countries, these problems will still persist, he argues. 'There is a serious problem,' he said. 'We're not seeing the best solution to that problem.' Other economists still dispute the idea that running an overall trade deficit with the rest of the world is an issue for the United States. Other factors, like U.S. government spending and investment flows, are the ultimate driver of the U.S. trade deficit, not demand for goods, some economists argue. And they say that, if Trump's tariffs do reduce the overall trade deficit, it will more likely be because they tanked the U.S. economy or drove investors away from the United States by sapping the world's confidence in the U.S. dollar and its markets. Rodrik, the Harvard economist, said there was 'absolutely no relationship between a country's trade deficit and how well it's doing.' He pointed out that both Venezuela and Russia run trade surpluses. 'Does the United States really want to be a Venezuela or a Russia?' Advertisement This article originally appeared in
Forbes
31-03-2025
- Politics
- Forbes
The Challenges To Racial Equity Budget Scoring
Racial equity impact assessment is widespread among local and state governments, and has a variety ... More of uses With the storm of anti-diversity, equity, and inclusion (DEI) policies unleashed by President Trump, and the subsequent retreat by federal agencies, companies, and universities, you might think DEI is finished as policy. But many states and cities—including Washington D.C., Chicago, and New York--remain committed to racial equity in their budgets and policies. They continue working through technical and administrative challenges while anticipating major conflicts with the Trump Administration. As the Urban Institute notes in a 2022 report, 'for nearly 50 years, Congress has created and frequently amended scoring processes that provide…fuller information about the potential consequences of legislative proposals and advance various policy priorities.' Many states and cities also have adopted scoring procedures to give governors, mayors, and legislators more information about the potential impact of proposed or existing policies. At the federal level, the Congressional Budget Office (CBO) is legally required 'to produce a cost estimate for nearly every (non-tax) bill approved by a full committee of the House of Representatives or the Senate.' The Congressional Joint Committee on Taxation (JCT) makes similar official scoring estimates for all revenue bills. So racial equity budget scoring is not a radically new technique—rather, it draws on existing scoring practice, now seeking to assess proposed policies and programs on their racial impact. Most scoring work produces additional information for legislators and mayors; scoring policies on their own rarely require any concrete actions by government officials or legislators. Some critics of racial equity scoring sometimes say it is simply too complicated to do accurately, and just leads to unnecessary complexity and delays in policy and legislation, or people taking unfair advantage of it. (Others go further, seeing the entire effort as discriminatory and calling for its elimination.) The critique of too much complexity and delay recalls similar criticisms of industrial policy. Harvard economist Dani Rodrik once wrote: Rodrik cleverly points out that such factors are not unique to industrial policy (and, I would add, to racial equity scoring). Instead, such problems plague policy domains 'such as education, health, social, insurance, and macroeconomic stabilization.' But we don't reject working on those issues because there are recognized complexities in getting them right. Although racial equity budget scoring may seem controversial due to current divisions over DEI, it can be viewed as a logical and consistent expansion of budget scoring, a widespread practice in American government. Regular government practices already score budgets, legislation, and policies for their overall cost, revenue, and policy impacts, often for specific effects on particular groups of the population. For example, the JCT estimates tax changes for their impact on households by income bracket. Other analysts have combined JCT estimates with other data to produce racial equity analyses of tax changes, as the Center on Budget and Policy Priorities did for the 2017 Trump tax cuts. Detailed scoring work has also been done by the Social Security Administration, the Treasury Department, and other agencies. There is no single inventory of racial equity scoring policies around the country. In a 2022 report I co-authored with the Brookings Institution's Xavier Briggs, we reviewed and analyzed racial equity scoring initiatives. Scoring and analysis were stimulated by the 2020 murder of George Floyd in Minneapolis and also by the COVID-19 pandemic, where both the impact of the disease and the public health responses to it differed significantly by race. Briggs and I identified four functions of racial equity impact assessment: --legislative scoring—grading, not just pricing, selected legislation; --enhanced review—evaluating proposed projects and policies within existing legislative frameworks; --resource allocation—guiding spending and resources from executive agencies; and, --performance improvement—building learning and operating capacity, and helping policy implementation. Racial equity analysis more often takes place for a specific topic, or within an agency or program. At least eight states have legislation requiring analysis for some aspect of criminal justice policy. And the Government Alliance for Race and Equity (GARE), which provides technical assistance and networking on racial equity, reports working with over 400 local, regional, and state governments. President Biden issued two executive orders requiring federal agencies to review their programs and policies on racial equity grounds, and develop agency practices, including appointing Chief Equity Officers and other steps. 23 agencies issued Equity Action Plans in 2024. Of course, the Trump Administration has sharply reversed such actions by the federal government. They have issued executive orders against such planning and management, stopping spending and seeking to fire personnel working on racial equity, and prohibit the use of federal funds to universities, non-profits, and other organizations for DEI purposes. There is a tangle of lawsuits and cases against Trump's actions, which are not yet fully resolved by the federal courts. The political battle over scoring is just heating up. Many cities and some states carry out racial equity scoring on some or a broad range of their programs and policies. Others score selected legislation not only for budgetary impact, but for racial equity. And some of those efforts are written into local law, or have even more legal forces. In 2022, voters amended the New York City charter—the governing document of the City—to require city racial equity plans. The charter amendments require the city to take a variety of administrative and policy actions in favor of racial equity. What happens when such legal requirements at the state and local level meet the Trump Administration's deep antipathy and use of federal policy to fight against DEI, especially where it is mandated by law? We don't know how courts ultimately will rule on such conflicts. But for now, some cities and states are still pursuing racial equity policies, improving on how they can be one, and developing data sources, analytic tools, and management practices to put them into place. Expect a large amount of bitter and deep political battles over these policies in the coming year.
