Dani Rodrik in his latest book moves much further outside the perimeter of conventional economics than before. He describes the battle within the economics profession between the "hedgehogs" (who know one big thing) and the "foxes" (who know many things).
He shows how former "hedgehogs" embracing the faith in free, "efficient markets," "rational actors" and all the other truisms of market fundamentalist, including Joseph Stiglitz, Simon Johnson and others, changed their views and became "foxes" after witnessing the failures of financial globalization.
Rodrik admits that he missed the coming financial crises of 2007-8, still unresolved in 2011, because his focus has been on trade. Rodik has been a breath of fresh air on trade issues, questioning in his earlier books the mad dash for narrow economic globalization based on WTO rules that ignored national sovereignty and catered to powerful countries, corporations and the agendas of global investors.
Rodrik championed the rights of labor unions and citizens as well as protecting environments. Yet, he does not dig deeper into how correcting economic models and internalizing social and environmental costs into company balance sheets, prices and national accounts could shift trade into healthier patterns.
These social and environmental costs omitted in conventional economic and financial models as "externalities" distort trade, prices and GDP. Ethical Markets Beyond GDP surveys with Globescan in 12 countries show that ordinary citizens understand this and favor including indicators of health, education, poverty gaps and environment in GDP (see my "GDP: Grossly Distorted Picture" CSRwire).
Similarly, Dani Rodrik skips over the new metrics used by social, ethical and green investors, which go beyond "efficient markets" and "rational actor" models and include social and environmental costs in their "triple bottom line" models: termed ESG (environment, social governance) accounting as material to asset valuation.
This is no small oversight since incorporating all these overlooked costs and un-priced assets both at the firm level and in national accounts helps us realize that the financial crises were not "black swans" or "perfect storms" but the result of intentional blindness and narrow, faulty economics. The term in economics: "externalities" is a classic Freudian slip!
Rodrik mentions the UN Global Compact in passing but not its partners, the UN Principles of Responsible Investing, representing over 800 institutional investors with some $25 trillion in AUM and the other UN agencies: ILO, UNEP-FI, UNEP and others with their global Green Economy Initiative.
They are joined by powerful NGO groups, including the WWF, IUCN, the World Business Council for Sustainable Development, Greenpeace, Friends of the Earth and thousands of smaller groups, as well as other business groups and individual investors in the transition to a cleaner, greener, information-rich global economy. Rodrik dismisses NGO activities for higher global standards, mentioning only Rugmark (to ostracize child labor) and Fair Trade as "labels."
Of course, deeper standard-setting with more oversight and enforcement is preferable – but NGOs and responsible, ethical, green investors are paving the way for the kind of careful, values-based globalization Rodrik also advocates. Ethical Markets' Green Transition Scoreboard® totaling $2 trillion of private investments is testament to their market-shifting power and provides buttressing for the Fair Globalization called for by the ILO and the new ethics of planetary stewardship offered in the Earth Charter.
While I am fully in concordance with Rodrik's call for less of the current, failing "hyper globalization" a la Tom Friedman's The World is Flat, Rodrik lacks imagination in offering the nation state as the main buttress protecting citizens, labor unions and the environment. Even in the USA and the EU, democracy is far from perfect, corrupted by money in politics, rent-seeking and regulatory capture by global corporations and financial interests and a subservient media fraught with commercial censorship.
I hope Rodrik will continue his powerful critique of the idiocies of "hedgehog" economics and "trade fundamentalism." He will find many creative powerful allies in those NGOs championing the global commons and indigenous peoples wishing to stay beyond the reach of markets, using traditional dispute-resolution cooperation in sharing access to common resources. Together with that $25 trillion in pension funds, charitable endowments and the $2 trillion found in our Green Transition Scoreboard®, these are the allies Rodrik needs! Here he will also find robust support for the financial transaction tax – the best systemic response to curbing the excesses of the global financial casino and its mis-use of public infrastructure in high-frequency trading, tax havens and all the other sins of today's bloated out-of-control financialization during hyper-globalization and the flywheel of social and environmental destruction. We also invite Rodrik to join the over 80 world expert signers of Ethical Markets statement on Transforming Finance at www.transformingfinance.net which acknowledges finance as part of the global commons.