Webdiary - Founded and Inspired by Margo Kingston

Great to see a contrarian view, but...

A comprehensive effort to enhance the mobility of temporary workers from poor countries to rich countries. This is where the gains from liberalization would be the largest, because it is here that the barriers are the highest.

Just to translate economospeak to English, the first point means something along the lines of "importing low skilled and low cost workers from developing countries and letting them work in developed countries at below market rates".

Up until now in Australia, we have simply tended to call them "economic refugees" and lock them up for years, so this might be a bit of a stretch for us...

The second point,

Creation of a "policy space" for developing countries in WTO agreements. Developing nations' pursuit of growth-promoting trade and industrial policies are increasingly running afoul of restrictive WTO rules. Growth superstars such as South Korea, Taiwan, China, and many others would not have been able to adopt the growth strategies that they did if today's WTO strictures had applied to them. Trade officials must acknowledge the lessons from these countries' experience and reform the rules accordingly.

means something along the lines of "stop subjecting devloping nations to the notion that they should employ people on first-world like wages and conditions, or that their industries should adopt first world environmental policies, and let them erect barriers to imports in the short term to allow their domestic industries to scale-up before they launch offshore".

Naturally the allegedly "fair trade" campaigners and the Unions will go ballistic at this one!

David Eastwood, you're mostly barking up the wrong tree re your last point here. Protection of key nascent manufacturing sectors from competition with mature producers - rather than simple wage-price competition - is undoubtedly what Dani Rodrik was getting at here... as all the nations he cited did exactly that.

In contrast, the WTO has never really pushed for the idea that "they should employ people on first-world like wages and conditions, or that their industries should adopt first world environmental policies". Nor did the author (necessarily) assume that economic refugees should then be subject to sub-standard conditions... merely that real "free trade" would mean they should be allowed to travel freely to where the work is...

These are complex issues, and the last - in particular - is where "free trade" ideologues invariably lose the the plot. For those of us whose ideal is properly-designed markets, however, it's basically a non-issue...given that no rich democratic polity would ever support it in a divided world.

But, aside from that proviso, I'm happy to agree with this piece. Let Doha fail - the sooner the better - since the entire WTO framework is fundamentally dishonest to poorer nations. Try reading McNeill's The Human Web - review here - for the most distinguished living macrohistorian's take on why Rodrik is right, and that globalisation - the process - is hardly to be confused with "Globalisation", the ideology. And John Ralston Saul's The Death of Globalization - the best current summing-up re the death-throes of the latter, is hardly in dispute on this point.

All the best.

JHC, on reflection I take your point about the WTO and the agendas they haven't actually pushed to date, but I am aware that these are agendas beloved by anti-WTO zealots that may well raise their ugly heads as bargaining chips in coming WTO negitiations, so there is always a risk.

I guess my "translations" were part interpretation and part spin - where that spin is how these strategies would likely be portrayed by various vested interest groups in developed countries like this one.

On another point I am intrigued by your notion that there are markets that can be "designed". If by that you mean the underlying rationale for the orientation of the legal or behavioural frameworks and conventions in which markets operate, I get it. Is that what you mean?

JHC I beg to disagree - I was suggesting that both wage-price competition and tariff protection were policy devices used by the cited countries, and others to boot. My main point is that while many of the critics of the WTO version of free-trade, and the concept in itself might crow at this article's main premise, they'd hate the author's suggested alternatives a lot more!

As to whether the DOHA round should fail, I really need to bone up on that. Zealot I am, I confess an instinctive desire to see it succeed and more, but I am sceptical to the practical ramifications of the compromises necessary to get it up. Overall I don't believe I understand the issues fully at this point. Links and references welcome...

David Eastwood... (truly) glad to see a "zealot" keeping an open mind - which means (of course) that you're not really one such.

Allright...as Stiglitz, Saul and many others on the sensible (definitely non-Marxist) centre-left have argued for years, now, what we are presented with in "inevitable" Globalization is, in essence, two very different processes. The most important - as the McNeill's outline, is a (very, very long-term) inexorable process by which communication/transport costs come down within regions - allowing them comparative advantage - but also driving social differentiation/hierarchy/inequality at the same time. So, very mixed outcomes for democracy and social stability...albeit great for the rich.

Trouble is, when such regions get too big - read (currently) the whole world - such wealth disparities necessarily break down the integrative consensus...leading to short/medium-term retrenchments, until a new (and much more stable - because more egalitarian) solution emerges.

And then real globalization - not the ideology - naturally grows apace again...

Read my review - and both books - because, quite simply, the pattern is very robust, so all genuine supporters of intercultural trade/contacts should be aware of exactly how their best wishes have been hijacked...and, how little chance said "project" has of succeeding in its (fraudulent) claims.

Because this "project" is merely an attempt to leverage the existing comparative advantage of the West's wealthy into an almost-entirely one-sided deal re trade barriers. If anything, Rodrik was too polite re this here...as the actual record - not the rhetoric - is much, much more clear as to exactly how the Third World has been pressured/conned into an impossible position...

And, make no mistake, their position IS impossible. The chances of any nation not already well-established on the road to development becoming the next Taiwan is - given WTO rules - pretty much zero.

So...read 'em and weep...

And let's have no more talk about globalization and the WTO in the same breath - please - since the viable version of the former is so clearly opposed by "our" bureaucratic representatives in the latter.

Given that we will have completely run out of oil, for all practical purposes by 2035, and that the peak of oil production, after which demand for oil will exceed supply, is imminent, most current global trade is a stupid waste of non-renewable natural resources, and, in any case, will not be possible for much longer.

We should aim to be self-sufficient in every corner of the globe and only trade in goods which are truly surplus.

I would be interested to know what Dani Rodrik thinks will be achieved by :

A comprehensive effort to enhance the mobility of temporary workers from poor countries to rich countries.

If it is to help developing countries, I would suggest, instead, that a much more cost-effective means to help those countries would be to increase our foreign aid, and to target that aid towards helping the poorest in those countries. Aid should also include birth control programs to prevent too much more strain being placed on this planet's ecology by our growing global population.

I don't see what else would be achieved, as there is no place in industrialised countries in which shortages of labour exist, except, arguably, the short term shortages in some skilled occupations caused by the laziness and incompetence of Governments such as our own, which have failed to invest in training and education.

David, an addendum. Sad to say, much (most/all?) of the cutting-edge in economic theory is never mentioned in our "free" press. And no, I'm not talking about the tired offerings of the "conventional" left here, but areas such as market imperfection (Stiglitz's acclaimed technical work, now entirely mainstream), behavioural economics, and market design. The latter - although it's yet to garner the (inevitable) Nobel Prize - uses experiments to work out exactly how real markets work and - informed particularly by the other areas listed above (which have taken said prizes) - attempts to build markets which actually work like neo-liberals blithely assume they all do...

Such research has gained - enormously - from the plethora of new markets opened-up by the internet... some of which, in fact, have been actively influenced by such academic work. And, the truth is, that - contrary to "free" market ideology - NO markets anywhere, ever, are free... particularly since all (especially in a money economy) interpenetrate - and, thus form one big market, in essence.

And, if you doubt that this matters, read Kenneth Arrow (one of the veritable founders of current economic modelling), or, just try buying slaves, or heroin - or many, many other things - whose free sale we either ban or heavily regulate.

So, ALL markets are constrained - directly or indirectly - so we should be thinking about how such constraints might best be regulated. By design, and not by mistake, which is the usual way of going about things.

Methinks that this is - exactly - where public policy ought to be already. That it (quite flagrantly) isn't - and that said work is also almost totally ignored by the left - I partly put down to our disastrously ossified two-party system, and to the media oligopoly that shamelessly panders to such deadbeats.

Let's have REAL competition - for a change - like they manage to do in Taiwan, for example, where small-medium sized firms are actively supported by government regulation (and big business penalised for their market power). Otherwise, as Saul has said - repeatedly - we're merely pretending to have capitalism...

All the best.

The danger that Professor Rodrik refers to from a failure of the Doha Round is not to be minimised,

that rich countries would take their own rhetoric seriously and react in unproductive ways that prove self-fulfilling. The US, in particular, could intensify its pursuit of bilateral deals, by which it is able to impose increasingly inappropriate policy priorities on smaller nations.

It seems likely that a failure of this round of WTO negotiations would lead to an acceleration of the trend towards bilateral and regional preferential trade agreements. The conditions imposed in these agreements could well undo any of the potential 'silver-lining' gains of a failure.

ed Hamish: hi Ben. Full name next time please or no post. Contact Margo if you have reason to request that you may use a non de plume.

JHC, you're hitting my hot buttons. While I am a devotee of free markets, I've always personally worked on the assumption that "free" is a term to be used figuratively in the context of the real amount of transparency, information flow and corruption that is exists in the real world as opposed to the utopian construct. My sense is that many critics of the theory, and by extension of "economic rationalism" are in fact critics on that basis, that the real world imperfections invalidate the theory. These critics seem to assume that there really are serious intellectuals and policymakers out there who believe the utopian vision is achievalble and desirable.

That said, it does hearten me that journals like the Economist and mainstream writers like Gittins do now acknowledge and explore the gap between utopia and here.

I suppose I must go and read more Saul now, which I don't like to do. I find his prose dense, long winded and often obtuse. He frustrates me because when reading his work I sense that he relies on a number of intellectually blank assertions, and/or logical omissions in support of his thesis, and that these imperfections get buried in the torrent of words he produces so I can never quite pin them down.

I certainly share your views on the two party system, and the nexus between it and the media (and big business forms part of a ruling triumverate IMHO). I am a persistent critic of bureaucracy and public service (broadly defined) as I believe it too has developed its own self-serving agendas and ossified around those.

I believe that these power relationships, interactions and interests in "the market for power and influence" render this ruling elite incapable of "designing" any market in good faith - hence my current deep scepticism of this idea. Like free markets themselves, great in theory, impossible and even dangerous in practice. My hope is that organs like Webdiary can start to shake off this sclerosis.

John Henry Calvinist: “the cutting-edge in economic theory is never mentioned in our "free" press.”

Why is it that whenever I hear the term “Free Press” the concept of an oxymoron comes to mind?

The “media alerts from Medialens and reports on Media Matter for America just reinforce this perception.

Rodrick, like many of his economist colleagues avoids (in this piece) any real mention of one of the critical underlying dynamics.

Until many nations deal with their fundamental demographic problems and associated issues you can move workers around all you like but the problems don't get solved and the problems don't go away.

The world has had a good 60 years to work on this one (and the result timeframes are usually at least a generation or two) ... and many are doing little or nothing to deal with the demographic realities. Migration, of workers, or anyone else, is merely twiddling at the edges.

In the end, as with the globalisation issues, faint hearted politicions add to the problems; the underlying "real" globalisation AND demographic patterns and pressures will silently and relentlessly press on unless fundamental issues are dealt with, be they health, infrastructure, water, energy, housing or food... just the basics.

JHC, all markets are designed by people. They are the quintessential human artefact - relying as they do on language and abstraction to operate in any fashion at all. There have always been markets as long as people have sought to obtain things they couldn't produce for themselves. The great silk road was a fantastic example of global trade at work long before the prattlers of the Economist and business journalists claimed the right to lecture the rest of the world on the precise nature of the social political and economic arrangments that the world should adopt.

The issue of market design is simply an issue of who gets to set the rules. What is different about the current situation is that the 'rules' are being written as though the highly abstract, articifical and culturally 'bound' notions developed in 18th and 19th century Europe (specifically England and Scotland) are applicable to all peoples everywhere for all time. They are not, and the rules applied now would simply mean that the nations that are applying them would not be in a position to dictate to others were that the case.

The other little wrinkle in the fabric is the uncomfortable fact that it is impossible to separate the use of military power, invasion and the subjugation of peoples from the spread of 'markets' (the use of the word 'free' is a vulgar rhetorical device) remember China and the Opium wars? Well you can bet that the Chinese do, and in part their drive to develop their economy now is in part a determination to never be in that place again.

The idea that the whole polity, and indeed, every transaction between people should be subordinated essentially to the merchants and others who actually design markets to suit their trade and interests is what is new these days. Markets are not new, and neither is global trade. Nor are powerful merchants, and all these things are valuable, in their place. What is new is the startling idea that whole societies, indeed, the whole planet, should conduct itself according the play book developed by the intellectual mouthpieces for US CEOs, and that rules have been develeoped to ensure that people either do what they are told, or they will be invaded, ignored or otherwise have their societies trashed for them.

Trade and the power to impose one's will on others has never been far apart in the relations between Europeans and the rest of the world (which is the majority of the world's people. This aspect of modern markets is the dirty little secret that sits underneath blather about 'free trade'. This is in stark contrast to the operation of markets as such which have ranged over the whole world, centuries before anybody had even heard of Adam Smith, the Economist magazine, the WTO or the Doha round.

Speaking of economics, population and resources...check this out.

Chinese city in chaos as water is cut off

The water supply in one of China's largest cities, Harbin, has been cut off in a warning to a country rapidly ruining its water sources.

The freezing city in Manchuria - home to 9 million people and poised to begin its peak tourist season based around its ice festival and its exotic 20th-century history of Russian and Japanese intrigue - started to live on bottled mineral water from late on Tuesday night. ...

Jane Doe You've touched on a few very important points, that I want to highlight.

1) Markets are not "designed". They simply take place, they grow virally. The rules are, initially at least, set by the participants to give them confidence to participate. This was the case along the silk road as that market evolved over a couple of centuries, and remains the case. Where rule setting by external parties occurs (that is external to the participants in the market) it seems to be because the market has crossed jurisdictional boundaries and threatens good order, or where the participants may have chosen rules that are not compatible with the constructs we call nations, conventions, treaties etc. Once these external rules are set, markets operate within a framework of external constraints and internal conventions.

2) For any market to work, and suit the interests of any participant it must suit the interests of all participants better than the alternatives. If not, they won't participate. You position participants as being merchants and unspecified "others", you imply that customers, people, you and I are not participants, but subjugated victims. We are, in a commercial market the most important and powerful participants as a class. Why? We have the money. Coles-Myer would be stuffed overnight if all its customers decided to shop elsewhere. As such, a free (undistorted) market is profoundly democratic.

3) Free and undistorted markets are a utopian construct. In the real world markets don't always work perfectly, for a whole variety of reasons. I'm not deeply steeped in market theory, but it's true that here in Australia for example concentration leading to oligopoly and duopoly, and sometimes collusion serve to bugger the function of what would otherwise be many good, competitve and fair markets. Where market design is relevant is in the elimination of these distortions, which truly do disenfranchise citizens.

Nothing I like better than the chance to quote myself:

Some very limited markets need few rules to run. If I take my old cow, Milky-White, to market and exchange her with the butcher for some magic beans, then both of us feel we’ve got a bargain, we have clear knowledge of the relative values of cows and beans, and there is no overhang of as-yet unfulfilled performance of the contract.

...

In the real world, almost all transactions are characterised by two big differences from the trading at a cow and bean fair. First, there is a time element. There are parts of the transaction that will not happen immediately – I want my new iPod to work when I get it home, not just in the store. Second, there is almost always an imbalance of information in favour of the supplier: you know more than I do about how mp3 players work and whether this one really is built “to the highest standards” – and you might even know what the standards mean: mp3, m4c, IEEE802.11b/g, ANSI Z400.1, and so on. Selling me insurance has both elements: you know whether you’ve put enough money aside to actually pay me if I claim at some future date, and I don’t. It is reasonably obvious that a firm that doesn’t intend to ever pay out on insurance can charge less than one that does, so will get the business every time (for a while).

Almost all the rules of markets cover these two points in some ways. If you sell me a truckload of sand and you fail to deliver, I can go to court to either get the sand or my money. Equally, if “David Trent” persuades you to sell him your NRMA shares at a fraction of their worth and you don’t deliver, he can go to court in the same way. Nearly all the rules of industrial relations are similar in essence, and define what exactly can be asked from employees under their contracts.

Most of the other rules cover the information problem in various ways: what do you have to tell me about what I’m buying, and how truthful and how complete does that information have to be. The share market and company accounting rules are subsets of this. So are all the myriad rules of the European Union so beloved of “red-tape” critics: it really matters if you are trying to have a single free market that you mean the same by “strawberry jam” as I do – if in my country you have to actually have strawberries in it, but in yours you don’t, we have a problem: my country’s courts might tell you to take this collection of jars of sugar and flavour back, but yours won’t enforce that. Someone has to make the rules (and decide on what standards mean), and though it can delegate much of the detail to NGOs like trade and professional associations, in the end that is a role for government.

On the other hand, too much control of markets can be a bad thing. At the extreme, centrally planned markets under communism abysmally failed their citizens, neither delivering choice nor certainty. There is also a real risk that market regulators can be captured (by corruption or simply by another facet of information asymmetry) and deliver rulings that distort the market in favour of specific players.

The general rules for market regulation are:

• Transparency and accountability: regulatory decision-making should be visible and understandable, operate in an open manner and be bound by a process that is subject to appeal.

• Consultation: anyone affected by regulatory decisions should have an opportunity to comment on proposed decisions.

• Minimalism: the minimum possible level of intervention to achieve the desired outcome – and in another form of minimalism, acting as speedily as possible within the constraints of transparency and consultation.

David Eastwood, glad we've reached an accord! The reason said critics play this game - the utopian one - is that policymakers/spin doctors for years have leaned on the combination of mathematical modelling/projected utopian outcomes... instead of honestly addressing the weaknesses of the neo-liberal model. Thus nonsense begets counter-nonsense, whilst doing real science is left to mostly obscure academics who rarely get a hearing in the media.

And yes, I like the Economist as well because, even when I don't agree with them, they usually give me sensible arguments and reasons for their positions. Can't say the "right" journals from the US join them in this, though.

Sad to say, of course, you're right about "this ruling elite" being incapable of effective market design - since that activity will require not only intelligence/common sense, but also a keen interest in the common good and strong resistance to special pleading by all vested interests. It's possible in the medium term, however - especially if both "our" parties go the way of the unlamented UAP come the next really serious downturn, as they certainly deserve to - but only if we think/debate seriously about democratic and market reform well-before this.

Because, otherwise, entropy will take over, and the result is unlikely to be pretty - or useful, in any meaningful way.

If you don't go for Saul, here's a few others I've found very useful. James S Fishkin's, The Voice of the People offers a brilliant approach to circumventing special interests, which his team have been road-testing for years now. Funnily enough though, every time I raise it with avowed "leftists", they're horrified by the idea. Other people, however, seem to find it fascinating. My reviews (built around lengthy quotations) of the books by Ostrom, Jacobs & Fischer will also provide what I think are very useful parts of the puzzle we citizens need to understand (albeit they do not substitute for the books themselves). You can access these here.

I also like Amartya Sen's "Development as Freedom", for one very interesting alternative to the World Bank/IMF/WTO model.

One book I'd like to recommend - albeit with the proviso that I'm yet to read same, since my copy has yet to arrive - is John Kay's The Trouble With Markets, strongly recommended to me by a mathematician/polymath acquaintance of mine, after I complained that no economist I'd struck had yet put the whole story together re what markets really are, and where they go wrong. Apparently, this one is the best we have for the general reader, and a carefully balanced account.

And finally, David Roffey, I think we definitely need to add one to your three general rules here - that is, the constraint of market power. Because, without this - preferably by using the stock market to break-up huge corporations - markets simply do not work as advertised, and corrupt the political process to boot.

All the best.

Hi Jane. Actually it is completely impossible to fully specify an employment contract - that's why a 'work to rule' is a very effective form of industrial action (actually I love the French term "Grève du zèle" - a strike of zeal).

Actually it's completely impossible to fully specify any contract that goes beyond the most simple exchange of goods. Read Michael Power's The Audit Society: Rituals of Verification for a great analysis of why.

David Roffey, absent statutory limits (those silly things called awards and collective agreements and laws placing requirements on the hirers of labour), employment contracts in fact do not have to specifiy what can be asked of an employee at all!

That is why the notion of the 'contract of employment' is such a difficult one for the liberal theory of 'contract' to get around, when it deals with relations of unequal market power in the labour market. The employment contract is termed a 'contract of service' as opposed to a contract 'for service'. In fact at common law, the only requirement on the employer is that s/he pay the amount agreed in the contract for the times agreed between the parties. After that the common law contract of service requires the employee to be available for any work in any manner, in any place and under any conditions required, unless the agreed terms stipulate something to the contrary.

The other thing required is that the person so employed devote her/his whole interests to the interests of the employer, and there is no scope under this traditional (and recently revived) form of 19th century dogma for the employee to insist on care for the 'capital' (intellectual and/or physical) that they bring to the task of 'growing' someone else's capital.

The employer of course has the problem of invigilating 'effort' and must spend resources in ensuring that employees don't slack off, that they attend to the many things that only humans can do (be alert for the unexpected, think ahead, be able to anticipate problems etc), in the same spirit as though the employee actually 'owned' the business or task on which they are employed.

The solution to this conundrum that lies at the heart of the employment contract is being pursued by employer organisations in this country by seeking the freedom to insist that employees in future will be deemd to be on 'contracts for service' (contractors) rather than employees. This ensures that the risk of every incident accruing under the 'terms of service' is placed squarely onto the employee (by deeming the nature of the relationship as one 'for service'), as if they were in fact, a little bundle of personal 'capital' but of course, without recourse to the civil law for damages and the like that larger collectives of capital (corporations) have when their collective 'capital' may have been damaged, depleted or otherwise wasted.

How would you specifiy the intellectual capital that a careful and diligent employee brings to the business? Normally 'remuneration' is the proxy for this value, and the theory is that if that proxy for value is insufficient, then the labour unit will seek an alternative contract. The Kemalux dispute is a classic example of the kinds of employment arrangments which will increasingly arise under the new laws.

It is important to understand that the debate about IR laws raises questions about the nature of the contract of employment, and matters that were once thought 'settled' are once again 'out there' for further consideration. Some of the issues raised as this debate gathers pace, will be matters that many would prefer not to have to air, including large slabs of 'liberal' theory as it is airily applied to the labour market, by people who have a vested interest in denying the reality of social power, and the reality of the nature of the relationship between humans and collective capital in the 'market place'called 'employment opportunites'.

This promises to be intellectually interesting as well as an opportunity, not available since the 19th century, to rethink the relationships that traditional liberal contract theory applies to labour. The outcome will depend not on the strength of the economy as such, as vulgar economic determinists like as neo liberals insist, but rather on the relative strength of the social forces arrayed on either side.