Rodrik’s Trilemma and its Consequences

1. Introduction: Rodrik’s Trilemma


In the present work, we will attempt an analytical study of the effects of Rodrik’s Trilemma in contemporary global governance and what governments can do in order to face the negative impact of globalization.

Firstly, Rodrik’s Trilemma needs to be explained in order to understand the following analysis and explanation about global governance and government’s implication. In 2011 Dani Rodrik theorized that to manage the tension between national democracy and global markets, states have to tackle three options and choose between two of them. States can restrict democracy in the interest of minimizing international transaction costs. They can limit globalization in order to build democratic legitimacy. Or the third option, states can globalize democracy and lose national sovereignty (Rodrick, 2011). States cannot have hyper-globalization, democratic policies, and national self-determination at the same time.

Therefore, we can configure three prototypes of the world’s economy:


1) Being an economically hyper-globalized state with national sovereignty in which all transaction costs and tariffs have been eliminated and national borders do not interfere with market exchange. In that case, the only services provided by governments would be those that reinforce the good functioning of international markets. According to Rodrik (2011), in this world governments seek policies to attract capital and trade entrance such as low taxes, deregulation, small government, etc. A world era called “Golden Straitjacket” occurred before World War I. It is an economic prototype in which social subjects disappear, policy-making bodies (central banks, fiscal authorities, etc.) remain isolated and there is a replacement of domestic goals in order to maintain the market. Once this structure is set, states can have globalization and nation-state, but only if they keep democratic policies aside.

2) The second option is to be an economically globalized state with democratic policies, a term that Dani Rodrik defines as “global governance”. In this scenario, national governments would not disappear, but their powers would be critically reduced by supranational rules and enforcing organizations dictated by democratic policies. For example, the European Union establishes a set of rules and norms that provide order and economic flow between the member states. According to this idea, we then face the risk of too little governance all around, with national governments giving up on their responsibilities and with no one else to take them over (Ortega, 2018).

3) Finally, the remaining option is to maintain a state’s national sovereignty and democracy but sacrificing hyper-globalization. This can be defined as the “Bretton Woods compromise”. A regime that allowed states to keep their own national sovereignty as long as they remove some borders restrictions on trade and treated all their trade partners as equal. It can be considered a prototype used, as an example, by China and Japan until the 1980s due to neoliberal economic measures of capital flows and trade extending beyond national borders (Pearlstein, 2011).


2. Globalization and government policy


The following section will be an analysis of how the three parts of the trilemma are happening simultaneously and how governments are trying to use policies in order to avoid the negative impacts of globalization.

Explaining and analyzing the trilemma, according to Rodrik (2007) argues that the world has been trapped in an uncomfortable zone in the the trilemma. Thus, any reform of the international economic system must face up to the problem. Besides, pretending that we can have all three all at once leads us into an unstable system.

According to that point, with the on-going emergence from international crises and a paradigm shift in incumbent international systems of communication and exchange, all three nodes of the trilemma are breaking simultaneously. The negative impact of globalization have been arising either with a “trade war” established by D. Trump; national sovereignty with territorial tensions and new nationalisms (ex: Catalonia); the crisis of the systems; BREXIT, or the rise of populist movements.


Globalization

Globalization has become the prevailing worry for governments because oligarchies of financers, economy-makers, and investors are using it as a way of enforcing their political priorities over national sovereignties. Thus, it becomes an instrument to expand oligarchies’ political opportunities and constrain what governments can do (such as taxation, regulation, etc.). Globalization is used to impose a particular set of rules that serve the interests of particular groups (Rodrik, 2016). Even though economic globalization has unimaginably raised the levels of prosperity in advanced countries (EUA, GB, France, China, etc.), it is unstable because there are no global monopolies authorities, no global regulators or no global democracy, etc. unlike national markets. In other words, global markets suffer from weak governance, and therefore from a lack of regulation that can provide balance in times of instability. Nevertheless, globalization has stumbled. The UNCTAD’s (United Nations Conference on Trade and Development) most recent report, shows a 23% reduction in the world’s flows of foreign investment in 2017. It also reports that from October 2017 to May 2018, the restrictive trade practices of G20 economies have been doubled compared to the same interval a year ago. This was when the Donald Trump administration’s “trade war” had not occurred yet (Ortega, 2018). This is because global economic integration, a key pillar of globalization, is limited as national policies are rarely up for negotiation.


European Union and the trilemma

European governments convinced themselves that they could achieve have the three vortices of the trilemma (hyper-globalization, democracy, and national sovereignty) all at once, something that Rodrik argued was unachievable. Besides, political elites have tried to either dissolve the trilemma or make the impossible in order to achieve their aims. The consequences have been shown with populists of different inclinations gaining power across Europe and the victory of BREXIT. Furthermore, xenophobic nationalist rhetoric gain ground in some EU member states in Central and Eastern Europe (Hungary and Poland in particular) in the wake of the 2015 migrant crisis.

At the same time, various states are being subject to territorial tensions, secessionist movements or internal divisions. Spain is one of them, due to the Catalan issue as along with other processes that are happening across Europe. There are many other cases, such as Italy being socially, politically and economically fractured on two sides, north and south, with two populist movements having different inclinations and policies (Ortega, 2018).

These policies of national sovereignty are affecting European integration, which used to be a response to Rodrik’s trilemma but is now weakened by political ideologies that are disbanding the principles of constitutional liberalism on which the European Union was built.


Populism

Economic globalization faces political walls, of which populism is a clear example. It emerged as an answer to the lack of faith in globalization’s outcomes that have produced wealth and inequality simultaneously. For instance, new governance in the United States has highlighted the fragility of the support for open trade in the world’s most powerful state. Furthermore, the 2008 crisis has shown how the lack of regulation, coordination, and democracy can aggravate the fragility of the global financial market. Besides, Trump’s “trade war” is the latest brick in economic globalization barriers.

Greece’s case is another example of populism and the negative impacts of globalization. On 5th July 2015, Greek citizens decided to reject the bailout conditions proposed by the International Monetary Fund (IMF), European Central Bank and the European Commission. It can be understood as an affirmation of their national sovereignty, their right as a nation to determine their own political, economic and social path. It was a victory of national sovereignty because, according to Rodrik (2015), globalization has eroded the national government’s ability to act and protect social groups most affected by the downside of globalization. Hence, the causes of the Greek crisis can be evidently found, in Greek politics and governance but also in global economic arrangements. These extreme circumstances seem to have driven Greeks to revitalize direct democracy as they tried on 5th July.


Democratic policies

To conclude, we will analyze contemporary democratic policies that are occurring nowadays due to the effects of globalization. According to recent reports by The Economist, democracy is in retreat across the world. Authoritarian regimes are becoming stronger and China is the best example of this. The Asian state has become one of the most powerful, important and influential states in the world through a political policy focused on national sovereignty and a single political party. Besides, even in Europe, the home of democratic values, democracy is losing value, and nationalist and populist policies are gaining strength. What has happened across the world, from European states to non-European democracies has led to the development of new policies or the transformation of the traditional political parties.


3. Conclusion


To conclude with the present work, we have seen that globalization has brought positive and negative effects to the international sphere and how the states have acted in order to adapt themselves.

As we have seen, Rodrik’s trilemma hypothesizes that states can only choose two of the three parts of the trilemma: globalization, national sovereignty or democratic policies. If they try to choose three all at once the system will be unstable. Thus, states developed different sorts of political strategies based on the trilemma in order to adapt their governments to the globalized world. Globalization has not only brought positive effects to states, but it also brought adverse reactions such as an economic crisis, migration, delocalization, etc. A set of negative aspects has led states to act in order to survive and even more at a time of emergence from an extended international crisis in 2008 and a change in the international sphere.

Therefore, from a general perspective view, we have seen how the main political policy for most of the states has been nationalism as an alternative to the negative impacts. For instance, USA, Greece, and others have chosen to be more self-determinant in order to improve their economy and the social status of their citizens. The option of national sovereignty has been driven by populism and even xenophobic nationalism in Hungary, Poland or Brazil. We have also examined how these nationalist political movements and their ideologies are affecting European integration that was based on constitutional liberalism and democratic policies.

In summary, states have made national policies either with populism, xenophobic nationalism or even authoritarian regimes in order to avoid the negative impacts of globalization and achieve their outcomes.

4. Bibliography


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ORTEGA, A. (2018), “The demolition of Rodrik’s trilemma”, Real Instituto Elcano. Available from: https://blog.realinstitutoelcano.org/en/the-demolition-of-rodriks-trilemma/

PEARLSTEIN, S. (2011), “The Globalization Paradox”, The Washington Post [On-Line], 13th March. Available from: http://www.washingtonpost.com/wp-dyn/content/article/2011/03/11/AR2011031106730.html??noredirect=on

RODRIK, D. (2000), “How far will international economic integration go?”, Journal of Economic Perspectives, Vol. 14 No. 1 (Winter, 2000) pp. 177-186. [On-Line]. Available from: http://www.columbia.edu/~mu2166/UIM/Rodrick.pdf

RODRIK, D. (2007), “The inescapable trilemma of the world economy”, Dani Rodrik’s weblog. Available from: https://rodrik.typepad.com/dani_rodriks_weblog/2007/06/the-inescapable.html

RODRIK, D. (2011), “The Political Trilemma of the World Economy” in The Globalization Paradox, New York: W.W. Norton and Company, pp. 184-206.

RODRIK, D. (2015), “El voto de Grecia a favor de la soberanía”, Project Syndicate [On-Line], 7th July. Available from: https://www.project-syndicate.org/commentary/greece-referendum-nationalism-democracy-by-dani-rodrik-2015-07/spanish

RODRIK, D. (2016), “More on the political trilemma of the global economy”, Dani Rodrik’s weblog. Available from: https://rodrik.typepad.com/dani_rodriks_weblog/2016/03/more-on-the-political-trilemma-of-the-global-economy.html

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