Friday, June 26, 2015

The two trilemmas today

At a talk on global inequality that I gave at IESE Business School in Barcelona this week, Professor Francesc Trillas asked me a very good and unexpected question: how do you reconcile the Rodrik trilemma with what he kindly called the Milanovic trilemma (defined in my The haves and the have-nots). I had to confess that I never thought of these two trilemmas together, but the question looked most interesting and I promised to think about it. So, here is the preliminary result.

The Rodrik trilemma addresses the issue of what is the role of the nation-state in the era of globalization (see the graph below with three “cartouches”). You can have nation-states and democracy, as in Europe in the 1960s and 1970s, but you then have only a very limited globalization: tariff rates, monetary policy etc. are determined by each country separately. Or if you move more forcefully toward globalization, you have to sacrifice either national economic policies or democracy. Why? If you accept to combine globalization with democracy, you move to a cosmopolitan solution where the nation-state plays the role that cities or regions play today within countries. That is, none. If you combine globalization and the nation-state, then democracy suffers because the nation-state is enclosed within the “golden straightjacket” of policies dictated by the imperatives of globalization. This is similar to Greece’s situation today: it cannot democratically decide on economic policy it wants to follow.  

My trilemma is different: it does not deal with economic policy but with global inequality and movement of people. Globalization and large differences in mean country incomes cannot coexist with labor that stays put in their own countries. The knowledge of these income differences and the increasing ability to move from one county to another implies that people in poor countries are not going forever to forego opportunities to multiply their incomes by a factor of 10 by staying at home.  

 Migration must thus be regarded and accepted as an integral part of globalization. So, do not be surprised if Malians come knocking to your door: this was “pre-ordained” when your country joined WTO and Bill Gates (or was it Al Gore?) invented the Internet.

Now of course, you could  have globalization and a world without large migration flows if differences in mean country incomes were low (say, as within the EU-15). But if you have globalization and large income gaps then you have to get prepared for migration, or if you do not like it, you have to start building walls.  

How  do things seem today if we look at them through the Milanovic trilemma? First, globalization  continues as before despite some minor setbacks induced by the North-Atlantic financial crisis. Second, differences in mean country incomes (globally speaking) are being reduced, essentially thanks to the high growth rates in Asia. If this were to go on for another half a century, it could lessen migratory pressures in a big way. But—and this is the key point—currently the effects that encourage migration are much stronger than the negative effects on migration, stemming from an eventual reduction in the differences in standards of living between countries. This is obvious if we look at Europe and Africa. It will take a century until African incomes, even assuming high growth rates, come close to European incomes.  In the meantime, income gaps and knowledge of these gaps will continue to feed migration. The third cartouche “no migration” has therefore to give way. But the rich world does not like that and tries to stem the tide by building the walls and fences that would keep migrants out. That is where we are today.

However, the rich world, working within this trilemma, can, to some extent, influence migration flows by helping poor countries grow faster: through increased aid, or by opening its borders for their products, or generally by making poor countries somewhat better places to live in. This is not however what happened in the past 20 years.  Rather the reverse has occurred, especially in the Middle East, where military interventions in Iraq and Libya (and earlier in Afghanistan), have practically destroyed these countries and produced large flows of migrants. When this happens, and the flows of migration increase above what under peaceful conditions they would be, the response is to create more fences  and walls, which in turn also imply a retreat of globalization, defined to include more than movement of capital, goods and services.

It is through this effect that we can link the two trilemma. Notice that the only element common to the two trilemmas is globalization. So, if the two trilemmas are to be linked, the connection has to go through globalization. Now, if there is some retrenchment of globalization, it would seem that we may go back to the old 1960s solution: nation-state and domestic democracy. And looked upon from Europe such an evolution does not seem unrealistic.  The nation-state is on the ascendant as can be clearly seen in the interminable EU squabbles. Global democracy is being eroded by the creation of mechanisms of global governance which are avowedly plutocratic and respond to the interests and the needs either of the rich countries or rich people. Instead of within the UN, things are decided at the G7 and G20 summits; instead of (often unwieldy) global consultations à la Porto Alegre, we have Davos, Bilderberg and similar fora of the hyper rich.

However, the real world situation is not as clear cut as in Rodrik’s trilemma nor as it was in the 1960s. The rise of the nation-state may indeed occur to the detriment of globalization, but the economic and political structures that have been created (Davos, WTO, G7 etc.) are not going to be dismantled. The Rodrik trilemma seems, at present, to have been “solved”, not by the exclusion of one out of three elements but by the redefinition of “democracy”: some of it is national, but some of it remains “lost” in global, often informal institutions, that are not subject to any democratic oversight.

In the Milanovic trilemma, a similar uneasy equilibrium exists. Movement of people is neither fully free, nor is it totally absent. It continues day after day, pressuring rich countries to wall themselves in and create enclaves closed to the poor. What the trilemmas show is that while they are useful constructs to try to understand things, reality is more complicated to be shoe-horned into the schemata. In effect, in both cases, the three cartouches that we drew above continue to exist (none has been “deleted” as we would expect in a real “solution”) but are being redefined.

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