Rodrik, Dani. 2011. The Globalization Paradox: Democracy and the Future of the World Economy.

New York: W. W. Norton & Company.

History:
 1st Wave (19th century and WWI)
 Economic liberalism + the rules of the gold standard
 => decrease in transaction costs
 => globalization
 Imperialism
 Hardly free trade
 Hardly multilateral
 Global divide—core vs. periphery
 “Extractive” imperial institution
 => Vast inequalities and exploitation
 => Deterrent economic growth in Africa and Latin America
 => International division of labor (deindustrialization in the
periphery)
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 1st Wave Failure

 Industrialization, democratization & WWI in the West
 Social opportunity costs > net gains
 Unequal distribution & increasing inequality
 Growing discontents
 Empowered civil society due to democratization
 Social & political instability
 Weak social safety net and welfare
 => Great Depression
 => Protectionism in the interwar era
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 2nd Wave (WWII—the early 1970s): Bretton Woods consensus, golden

age
 Consensus:
 Politicization of trade policy: national policy > international policy
 Multilateralism
 => Customized version of capitalism
 The German, Scandinavian, French, Japanese, and American
models
 Moderate (smart) globalization, not hyperglobalization
 2nd Wave Failure
 <= GATT (The General Agreement on Tariffs and Trade)—too
successful
 Becoming a victim of its own success
 Oxymoronic—failure through success
 <= Ascendency of free market economy
 Hypermobile international capital—financialization of capital
 <= Oil shock & influx of petrodollars in the Wall Street
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 <= (fixed => floating) currency in 1971 by Nixon

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 3rd Wave—Current one

 WTO in 1995
 The onset of financial globalization
 International policy > domestic policy
 Successive crises
 Latin American in the 80s, Europe in the early 90s, Mexico
(“tequila crisis”) in 1994, Asian financial crisis, Russia in 1998, Brazil
in 1999, Argentina in 2000, Turkey 2001, US subprime mortgage
crisis.
 Asian financial crisis
 Not political cronyism
▫ “Clearly the crises indicated something endemic to financial
markets, not any egregious sins committed by the Asian
governments themselves.” [p. 93]
 An old-fashioned run on the bank—a short-term loan but long-term
investment
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▫ Jeffrey Sachs—“the crisis was a financial panic largely unrelated to

economic fundamentals and internal weaknesses. . . Banks had
overlent in the run-up to the crisis and now they are overreacting in
pulling back.” [p. 94]
 OECD—“effectively making removal of capital controls a condition
for membership in the OECD.” [p. 104]
▫ Rodrik:
 “What was heresy [capital control] and then became orthodoxy had
become heresy once again.” [p. 104]
▫ Financial crisis in Mexico and South Korea, shortly after joining
the OECD due to liberalizing capital controls
 Seesaw ride
 Recursive boom-and-bust pattern
 Havoc of financial market failure
 Loss of 20% of GDP under financial crisis
 Subprime mortgage crisis
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 Rodrik—“makes emerging market crises look like footnotes by

comparison.” [p. 127]
Washington Consensus
 The term coined by British neoliberal economist John Williamson in
1989
 “neoliberal dogma”
 Government restrictions => inefficiencies => poverty
 Liberalization => rescue from poverty
 “They fueled on an obsessive drive for globalization on the part of
developing country policy makers.” [p. 166]
 “the pursuit of globalization became a substitute for development
strategy, an end in itself, rather than an opportunity to be exploited
strategically.” [p. 167]
 “The idea of free trade as an engine of growth had become such a
sacred cow that someone who revisited the evidence needed to have his
motives questioned.” [p. 167]
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 Simon Johnson
 “A whole generation of policy makers has been mesmerized by Wall
Street.”
 Thatcher—TINA (There Is No Alternative)
 Anne Krueger (advocate of neoliberalism):
 “meant well, tried little, failed much”
 Crisis <= insufficient liberalization
 Nothing wrong in Washington Consensus in principle
 John Williamson in 2002
 Washington Consensus = “damaged brand”
 Jeffrey Sachs—UN Millennium Project leader
 Reject the Washington Consensus, stress the need of state intervention
to eliminate poverty, HIV/AIDS and to ensure primary education
 Rodrik:
 No global governance regulating global markets
 Lacking balance between the autonomy of national governments and
the efficiency of global markets
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 Complementary relationship between governments and markets

 Better markets <= more governance
 “In short, markets are not self-creating, self-regulating, self-
stabilizing, or self-legitimizing.” [p. 22]
 Democracy > global economy
 “Democracies have the right to protect their social arrangements,
and when this right clashes with the requirements of the global
economy, it is the latter that should give way.” [p. xix]
 Empowering national democracies => Safer, healthier world economy
 “And therein lies the ultimate paradox of globalization. A thin
layer of international rules that leaves substantial room for maneuver
by national governments is a better globalization. It can address
globalization’s ills while preserving its substantial economic benefits.
We need smart globalization, not maximum globalization.” [p. xix]
 Hyperglobalization—forces nations to don a “golden straitjacket”
 Only choice between Coke and Pepsi, no options for local flavors
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 “Hyperglobalization does require shrinking domestic politics and

insulating technocrats from the demands of popular groups.” [pp. 189-
90]
 The curvilinear relationship between globalization and development—
a “thin” version of globalization
 “keep the windows open, but don’t forget the mosquito screen.” [p.
138]
 “This way you get the fresh air but you also keep the bugs away.”
[p. 138]