Globalisation and the failure of economic orthodoxy

JD Vance may be right

In short, had economists gone public with the caveats, uncertainties, and skepticism of the seminar room, they might have become better defenders of the world economy. Unfortunately, their zeal to defend trade from its enemies has backfired. If the demagogues making nonsensical claims about trade are now getting a hearing – and, in the US and elsewhere, actually winning power – it is trade’s academic boosters who deserve at least part of the blame. Dani Rodrik (2016)

Here is a prediction: Five to ten years from now, scores of economics professors will queue up to get onto the BBC, CNN, NBC (as well as lesser news outlets in Germany, Luxembourg, France, and Switzerland) to tell listeners what the more acute observers among them had been suspecting all along: that the free movement of cheap labour, as well as being bad for innovation, investment and productivity, is fuelling populism in the West. As a consequence, those economists will demand, in the intransigent way that marks out the late convert to a cause, that a new trade policy must be instituted as a matter of utmost urgency. The reason they will be giving will be the same they gave when defending their previous orthodoxy: there is simply no alternative!

I’m not an economist myself, but I have talked to members of that profession more often than I care to admit — mostly professors and journalists, but also the odd chief economist of a major company. As a history professor, I had always assumed, naively as it turns out, that they were less ideological than the member of your average History faculty; more focused on the real life unfolding in front of our eyes; more inclined towards sober analysis in the spirit of John Maynard Keynes: “When the facts change, I change my mind. What do you do, sir?” That dictum must have guided them ever since they entered graduate school. Or so, at least, I believed.

One thing that irritated me was that many of the economists I spoke to appeared to work from a thin canvass of historical and philosophical knowledge. This seemed to make them prone to technocratic thinking, as well as receptive to utopias of human perfection, deficiencies they seemed to wear as a badge of honour. I attributed this to the rigorous science they had chosen to pursue, to the fact that they spent most of their waking hours investigating facts and data. In such a culture, learning new things came with opportunity costs, a concept economists value more than anything else.

Yet the truth could not have been further from my expectations. Many of the economists I talked to only truly came alive when someone challenged their favoured orthodoxy. Not that they agreed on everything, of course. Some insisted that state depth was invariably bad, for example, whereas others wished for a more interventionist state. Some still believed in the rational individual, whereas others began to draw on the latest insights from experimental psychology.

So, there was some detectable variety of intellectual perspective and methodological approach. But on one thing they were all agreed, as though guided by some invisible hand: that open borders and free movement were good. Economically, because it boosted GDP on a universal scale. Socially, because it promoted the cosmopolitan virtues of multiculturalism. After all, we from the affluent West have to help everyone to get out of poverty and become a bit like us: rich, happy, and free to choose between twenty different kinds of mustard. They felt that the critics of globalisation had locked themselves into the waiting room of history — that sad and depressing place, where progress was a foreign word. Whereas they, who had picked up most of their historical knowledge from Yuval Noah Harari, were on the right side of history.

This conviction, although it has by now been falsified many times over, still prevails. A considerable portion of academic economists, along with hundreds of think tanks that self-identify as liberal to the core, would probably continue to take seriously a high-priest of open borders like Ilya Somin. Advocating a democracy based on superhuman reason, and hence purified of history and cultural solidarities, Somin is in effect reviving an old universalist utopia for a 21st-century audience.

Yet even now, in 2025, nearly a decade after Brexit and with Trump back in the White House, such views still carry weight amongst the technocratic Anywheres dominating government, the civil service and academia — at least in the West. Many would probably refuse to even consider having a rethink on globalisation and open borders even now. What are facts, after all, when what is at stake is a superior moral vision, one that can be sold, with profit, as serious theoretical insight.

If we consider the cost of that vision in the here and now, there probably exists no more drastic example than the European Union. And by cost I don’t just mean trade and innovation (where EU countries have fallen behind) but also the legitimacy of democratic politics that underpins social cohesion. Rather than trying to identify the causes of the crisis, the EU’s leadership class is preoccupied with its most blatant symptom: populism. Given the choice between drawing a vital lesson and defending the status quo, it has yet again opted for the latter. Eurocrats are still happy to see immigration and free movement being controlled by the ECJ and the ECHR, rather than by voters.

Among trade experts of global standing, Dani Rodrik has been the lone voice challenging this situation with persistency and intellectual rigour. For more than two decades, the Harvard-economist has argued against the open-border consensus of his peers. Not because he is opposed to liberal economics or has a penchant for national populism, but because he thinks that any decent liberalism must rely on a combination of civic rights and civic duties.

In a book entitled Straight Talk on Trade: Ideas for a Sane World Economy, Rodrik summed up his argument against hyper-globalisation, a summary of which can be found in a short online article published in 2016. In one of its key passages, Rodrik discusses how economists who agreed with him in private would refrain from articulating their honest view in public. One refused to provide an endorsement for the back cover of his book, Has Globalisation gone too far?, for fear of being shunned by his colleagues.

When Rodrik delivered academic papers to highlight the negative consequences of globalisation (for both the West and the countries to which labour was being out-farmed), he often got asked the following question: Would he not worry that his arguments “will be abused and serve demagogues and populists”? The question implies a position that contradicts the ethics of academic independence: namely, that economics teaching at major universities have a duty to lend academic credence to the sort of globalisation that pleases the powerful in politics and business. What some of Rodrik’s colleagues had in effect argued is that, by challenging the consensus on globalisation, he would inadvertently serve the cause of what they called “the barbarians”.

Rodrik’s reply to that supposition was spirited as well as clear: “The implicit premise seems to be that there are barbarians on only one side of the trade debate. Apparently, those who complain about World Trade Organization rules or trade agreements are awful protectionists, while those who support them are always on the side of the angels. In truth, many trade enthusiasts are no less motivated by their own narrow, selfish agendas.” Economists shading their arguments to legitimise what they deemed the liberal-progressive cause were thus favouring, as Rodrik put it, “one set of barbarians over another.”

Is protectionism the solution, as Trump and his administration think it will be for the United States? As Matthew Lynn argued in The Telegraph a few days ago, protective tariffs can be seen as a response to America losing the tech war against China. He claims it is the reason why Elon Musk is so supportive of Trump’s tariff war. For many American and European companies, protective tariffs may offer the only chance of survival. As JD Vance claimed in his speech about the conceits of globalisation, outsourcing enabled China to benefit from network effects, with the value chain now being squeezed from above (with product innovation now taking place outside the US) and below (with the cost of production remaining low).

But while Vance’s diagnosis may be broadly correct, it smacks of the power game by a neighbourhood bully. Besides, tariffs may be no more than a short-term answer to the challenge at hand, which is the relative decline in manufacturing capacity, skill and productivity as a result of hyper globalisation. Protectionism’s main aim is to buy time for major companies, including Tesla, Boeing, and Pfizer. What is more likely than companies innovating and investing while the tariff wall is up, at least according to Lynn, is that “chief executives will simply bank the easy sales” and “some massive bonuses” along the way, without seriously addressing the fundamental problems.

In the end, I decided to ask a friend of mine, a Zurich-based economic historian, for advice. He doesn't feel confident to judge the outcome of the tech war, but remains deeply sceptical about China’s alleged competitive edge. Not that he doubts the country’s manufacturing prowess or ingenuity. But he points out the multiple macro-economic challenges China is facing, each of which has the potential to throw a spanner in the works. This includes a real estate crisis, a deflation crisis, a demographic crisis, and a consumption crisis resulting from depressed wages. The magnitude of these crises isn’t remotely addressed by exporting even millions of electric cars. China, my friend notes, is still caught in an economic model relying on private saving, public investment and above all exports. To become affluent like Japan, South Korea and Taiwan, wages would have to increase. Yet this would damage China’s economic model, at least in the short term. The most pressing question seems to be: how much longer can a state exploit its people to finance the party’s industrial policy that prioritises power over affluence?

But that only means that China may be in trouble, too.

It doesn’t mean that JD Vance has been wrong on globalisation.