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Overview

Part 1

Exchange rates and Balance of Payments

From Begg et al Ch 24 and 25

Part 2

What is Globalisation?

Specialisation and gains from trade

Winners and losers from trade specialisation

(From Core Unit 18 and Unit 1.8)

Part 3

Globalisation and anti-globalisation

Trade and Growth

Conclusions

(From Core Unit 18)

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Exchange Rates

The domestic price of foreign exchange it the quantity of domestic currency per unit of the foreign currency.
The foreign exchange market (forex) exchanges one national currency for another at a price called the exchange rate.
The foreign exchange market is the international market in which one national currency can be exchanged for another.
The exchange rate is the price at which two currencies exchange.

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Market for foreign exchange

DD shows the demand for pounds by Americans wanting to buy British goods/ assets.
SS shows the supply of pounds by UK residents wishing to buy American goods/assets.
Equilibrium exchange rate is e₀(eg $1.50/ UK £)
If UK residents increase the supply of pounds as they wish to import more from US, the supply of £ moves to SS₁
New equilibrium at e₁(e.g. $1.40/ UK £) (US Dollar has got stronger against the UK £)

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Flexible vs fixed exchange rates

In a flexible exchange rate regime

the exchange rate is allowed to attain its free market equilibrium level without any government intervention using exchange reserves.

In a fixed exchange rate regime

the national governments agree to maintain the convertibility of their currency at a fixed exchange rate.

For fixed exchange rate: Suppose the government is committed to maintaining the exchange rate at e₁
If the demand for pounds is DD₁ there is excess demand AC. The Central Bank must supply AC £s to buy $ which are added to reserves
The reverse occurs if there is not sufficient demand for pounds at DD₂then central bank must use up its finite reserves of $ to buy pounds and keep its value at e₁
When demand is DD, no intervention is needed. There is a balance in transactions between the countries.

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Monetary policy under fixed exchange rates

An increase in nominal money supply

tends to reduce interest rates
leads to a capital outflow
reducing money supply as the government seeks to maintain the exchange rate

so monetary policy is powerless

the government cannot fix independent targets for both money supply and the exchange rate
domestic and foreign interest rates cannot diverge

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Fiscal policy under fixed exchange rates

An increase in government expenditure, in the short run,

stimulates output
money supply expands
there is no crowding-out as the pressure for higher interest rates (increased demand for local currency) is met with increased supply of local currency so interest rates do not rise

In the long run,

wages and prices adjust, affecting competitiveness and
the economy returns to potential output

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Monetary and Fiscal policy under floating exchange rates

Monetary policy with floating exchange rates is highly effective in the short run but the effect is only transitional
Fiscal policy is less effective under floating exchange rates as following an increase in government expenditure, the crowding-out effect of higher interest rates is enhanced by appreciation of the exchange rate, which dampens export demand.

©McGraw-Hill Education, 2014

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Balance of payments (BoP)

The BoP is a systematic record of all transactions between residents of one country and the rest of the world
Current account

records international flows of goods, services, income and transfer payments

Capital account / Financial account

records transactions involving capital (savings) and the purchases and sales of financial assets

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What is globalisation?�

Globalisation refers to the integration of:

the world trade in goods and services
flows of investment, savings and asset markets
flows of people across national boundaries

Globalisation has led to the prices of goods converging across countries
But the global convergence of wages has been much less than the convergence of goods and asset prices
Globalisation is partly a policy choice and partly a technological necessity

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Key policy instruments of nation states

Policies associated with globalisation

Tariffs and other barriers to trade: taxes on imports to protect local producers by making goods produced in other countries more costly (tariffs are a key instrument in “trade wars” related to the rise in “protectionism”)
Immigration policies: the regulation of movement of people between countries
Capital controls: Limits on the ability to transfer financial assets among countries
Monetary and exchange rate policies: Affect the exchange rate, and so alter the relative prices of imported and exported goods

Nation-states enter into multilateral agreements to regulate trade and other elements of globalisation

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Arbitrage

By buying at a low price in export markets and selling at a higher price in import markets, traders can make a profit as long as the price gap is higher than the total cost of trade
The practice of buying a good at a low price in one market (or country) to sell it at a higher price in another.
Through the process of buying cheap and selling dear – the price rises in the low price market and falls in the high price market leading one price in both markets
Arbitrage explains why the price gap equals trade costs: Arbitrage continues until the price gap has been driven down to the trade cost, and further arbitrage is unprofitable

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Price gap

Greater openness to trade in goods and services, open capital markets, and open migration of labor should lead to convergence in prices
Even so, for most goods and factors there will be some gap
What is the gap between the price of a (tradeable) commodity in one country and another.
A low price gap reflects a much more globalised world in which trade is cheap
A high price gap reflects a world in which trade is expensive and globalisation is limited
The price gap is a function of policy choices about globalisation (tariff and non-tariff barriers to trade) and technological factors (e.g. speed and cheapness of shipping)

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Japan selling cars to the USA

price in Japan

price in the US

PRICE

QUANTITY

Trade cost (t) is the cost of shipping a car from Japan to the US (including transportation costs, tariffs, insurance etc). If the market is competitive, then the total cost of obtaining a car in the US will be the cost of buying it in Japan, plus the trade cost t

Falling trade costs (including falling tariffs) imply a decline in the price gap between the import price and the export price (from t to t’) this increases the number of cars traded from 4,000 to 6,000

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Trade costs have declined over time

As trade costs fall (and the price gap falls) – the volume of trade rises
The wheat price gap between the UK and the US started to decline at about the same time that shipping costs started to fall (due to the introduction of steamships on long-distance routes). The volume of wheat shipped across the Atlantic rose dramatically
The transatlantic trade in wheat is not an isolated example. International price gaps fell sharply on many routes and for many commodities between 1815 and 1914

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History of trade in mechandise

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Protectionist policies and deglobalisation

Transatlantic shipments of wheat fell after 1914, and price gaps rose, suggesting a rise in trade costs and therefore deglobalisation
When a country undertakes protectionist policies, its government is taking steps to limit trade, by reducing the amount of imports coming into the economy
This is often done to protect domestic industries and jobs against foreign competition
it also means consumers must pay more for imports
Protectionist measures include taxes to raise the domestic price of imports (a tariff) and quantitative restrictions on imports (a quota)

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Specialisation�and gains from trade

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David Ricardo

In his book “On Principles of Political Economy and Taxation”, Ricardo laid out the principle of comparative advantage, recognizing that two countries could trade to the mutual advantage of each, even if one of them was absolutely better at producing all goods
Ricardo was also known for successfully lobbying the British government to repeal the Corn Laws in the early 1800’s to allow the importation of corn into the UK from the USA and Europe
This was opposed by vested land-owning and farming interests
Once corn could be imported then food prices fell, workers wages were moderated by lower food prices
this allowed the UK to be more competitive in producing and exporting goods, helped the UK to be the world’s leading economy at the time

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What are the key policy issues?

The integration of national economies into a global economic system provides:

Opportunities for mutual gains
Conflicts over the distribution of the gains

When evaluating government policy we must assess whether policies:

fully exploit the mutual gains made possible,
distribute those gains fairly, and
reduce the economic insecurities involved in the globalisation process

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Specialisation and gains from trade

Specialisation : when a country produces a more narrow range of goods and services than it consumes
This requires trade you must engage in trade to acquire the goods you do not produce
Nations specialise in the production of the goods and services in which they are relatively low-cost producers
International trade is the outcome of specialization among countries
Specialisation and trade allows for mutual gains for the people of trading countries
Specialisation and trade may benefit some groups within a country while harming others for example, those producing goods that compete with imports

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Reasons for specialization

Two important economic concepts are important in explaining specialisation
Economies of scale, agglomeration and other positive feedbacks

The production of aircraft is subject to economies of scale. The Boeing Plant in Everett, Washington is the largest building in the world.
Writing computer code is not subject to economies of scale, but good software is produced in areas in which a very large number of people are working on similar tasks, sharing information and innovating.
There is an accidental quality to this aspect.

Differences between regions (comparative advantage)

The production of clothing requires a lot of labour but not an extensive amount of capital goods, this suits Mauritius.
Parts of Canada’s climate and land suites the production and export of wheat.
This aspect is more closely linked to differential factor endowments.

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Economies of scale/Increasing returns

Economies of scale: doubling all the inputs to a production process more than doubles the output.
Bigger volumes of output can be produced at lower cost per unit
For instance: doubling the amount of land and time used for production would more than double output

Imagine that we all need wheat and apples to survive
Two island-nations have 100 hectares each (and are the same in every respect)

They can be self-sufficient if they both devote half of their land to wheat and half to apples, total output will be 500 tonnes of wheat and 5,000 apples
It they both specialize, one in wheat and one in apples, and open to trade, total output will be 1000 tonnes of wheat and 10 000 tonnes of apples

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Different factor endowments

Greta lives on Wheat Island and Carlos lives on Apple Island.

Both islands have 100 hectares of land
The land on each island is suitable for growing both wheat and apples
They consume both wheat and apples in order to survive

Imagine now that the two producers have different factor endowments:

Greta is lucky: Wheat Island has better soil (for both crops)

Greta has an absolute advantage in both crops
Although Carlos’ land is worse overall for producing both crops, his disadvantage is less (relative to Greta) in apples than in wheat.
To see this note that for apples 1250/1000 = 1.25; for wheat 100/40 =2.5

Production if 100% of time is spent on one good, per hectare of land
Greta (Wheat island)	1,250 apples or 100 tonnes of wheat
Carlos (Apple Island)	1,000 apples or 40 tonnes of wheat

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Carlos’ feasible production

Feasible production frontier: The red line that joins points A and B is the feasible production frontier for Carlos. It shows all the combinations of wheat and apples that can be produced by Carlos in a year

Carlos’s choice: He can choose to produce any combination on (or inside) the frontier. For example, he could produce 2,000 tonnes of wheat and 5,000 apples, as shown by point C.

Carlos’ feasible set: He can produce anywhere between the origin and the feasible production frontier.

The slope of the production frontier shows the marginal rate of transformation between wheat and apples.

In this example the MRT is 2.5 (10000/4000):

If Carlos wants to product one extra (marginal) ton of wheat, he will have to produce 2.5 fewer apples. Therefore a ton of wheat costs 2.5 apples; the relative price of wheat to apples will be 2.5.

The relative price of apples to wheat will be 1/2.5 =0.4

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Wheat island has an absolute advantage

Greta can produce more of both goods than Carlos can. If she only produces a single good, she can produce either 12,500 apples or 10,000 tonnes of wheat

Wheat Island has an advantage in producing both goods
Greta’s feasible set includes Carlos’ within it

Carlos

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Without trade PRODUCTION = CONSUMPTION

In the absence of trade, the feasible production frontier is also the feasible consumption frontier. This is because each person spends time producing only wheat and apples, and can consume only the amount they produce
The shape of the indifference curves represents Carlos’ preferences over wheat and apples.
In the absence of trade, Carlos and Greta do best by selecting a point on the highest indifference curve possible, given the constraint of their feasible production frontier

Greta can consume more of both goods than Carlos because of her superior productivity. We assume her preferences are the same as Carlos’ (the indifference curves are the same shape). She consumes 6,000 tonnes of wheat a year and 5,000 apples, as shown by point E.

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Relative prices and comparative advantage (without trade)

An island has a comparative advantage in producing a good when it is relatively cheaper in their economy (in the absence of trade).
While Greta has an absolute advantage in producing both products, Carlos has a comparative advantage in producing Apples
For Carlos, the marginal rate of transformation between wheat and apples is 2.5: it takes the same amount of land and labour to produce one tonne of wheat as it does to produce 2.5 apples.
For Greta the relative price of wheat to apples on Wheat Island is 1.25. Greta has a comparative advantage in producing wheat. Her relative price of wheat is lower than on Apple island. If you were to vising Greta, you would notice that her wheat is cheaper.
The relative price of apples is the reciprocal or inverse of the relative price of wheat, so if Wheat Island has a comparative advantage in producing wheat, then Apple Island must have a comparative advantage in producing apples.

	Apple Island (Carlos)	Wheat Island (Greta)
Tons of wheat	4,000	10,000
Number of apples	10,000	12,500
Relative price of wheat	10,000/4,000 = 2.5	12,500/10,000 = 1.25
Relative price of apples	4,000/10,000 = 0.4	10,000/12,500 = 0.8

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Potential gains from trade

With autarky: The feasible production frontier is also the feasible consumption frontier
Total production between the two islands is

2,500 + 6,000 = 8,500 tonnes of wheat
3,750 + 5,000 = 8,750 apples

If they specialise

Greta can produce 10,000 tonnes of wheat and
Carlos can produce 10,000 apples

So there would more of both goods overall
If they can trade, both countries can consume more of each good

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Price convergence

Assume no trade costs so the price gap is zero
With trade relative prices of wheat and apples will converge
What will the new price be? We don’t know exactly with the information we have, but we can make a general deduction:

From Carlos’ point of view

The (potential) supply of wheat has increased MORE than the supply of apples
Why? Because Greta has a comparative advantage in wheat, while Carlos has a comparative advantage of apples
so the price of wheat relative to apples will go DOWN to below 2.5

From Greta’s point of view

the supply of wheat has increased by LESS than the supply of apples
The relative price of wheat will go UP for her to something higher than 1.25

The price will lie between the prices experienced by the two economies when they are closed

(Let's assume that price of wheat relative to apples converges at 2)

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Without trade

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Effect of specialisation and trade

The production frontier of each economy has not changed (solid lines)

We assume that the relative price of wheat after specialization and trade is 2 (an arbitrary price in between 1.25 and 2.5)

But the dotted lines show the shift of the feasible consumption frontiers due to specialization and trade.

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With trade consumption can diverge from production

Specialisation has enlarged the feasible consumption set for both Carlos and Greta
Because both countries are now specializing in the good in which they have a comparative advantage, the new consumption frontiers are above their production frontiers
For each country, the two frontiers meet at the point at which they do not trade (at the axis)
We can see that specialisation and international trade have led to an increase in the size of the feasible consumption set for both countries.
Note, Greta cannot consume more than the maximum amount of apples Carlos can produce (10,000), which is why her feasible consumption frontier does not extend beyond 10,000 apples.
The expansion of their feasible consumption sets makes it possible for both Carlos and Greta to reach a higher level of utility (a higher indifference curve)
Trade has been mutually beneficial: the welfare of both has improved

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Consumption after specialization and trade

Carlos specializes in apples, producing 10,000

He then trades with Greta along the new relative price line

He now exports 4,000 apples to Greta …

…. in exchange for imports 2000 tons of wheat

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With bargaining power

Suppose that Greta can determine the price of wheat because has more bargaining power
Since she is specializing in wheat (her comparative advantage) this means keeping apples cheap: she will choose a price that increases the amount of apples she receives for each tonne of wheat she sells to Carlos.
Here, we assume Greta has chosen a price of 2.25 apples for a tonne of wheat
This means trade and specialisation will increase the utility of both Carlos and Greta, but will increase Greta’s utility by more

At a price of 2,5 apples for a ton of wheat she would eliminate Carlos’ gains from trade entirely.
At this price Carlos would be equally well off if he produced his own wheat and would have no reason to engage in trade with Greta.

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Winners and losers �within and between

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Winners and losers from trade specialisation

Nations are composed of people with differing economic interests: workers and capitalists in different sectors
They are not like islands with only one person
Typically, when countries trade, there are winners and losers within each country
For example when South Africa imports cheap clothes from Bangladesh:

Workers in South African clothes factories lose
Consumers of clothes would benefit

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US-China Trade War

President’s Xi and Trump – negotiating trade issues in Argentina in December 2018
Trump agreed that he would leave the tariffs on $200 billion worth of Chinese products at the 10 percent rate, and not raise tariffs to 25 percent

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Assumptions in the US-China model

To think about winners and losers from trade we begin with a model of two stylized countries USA and China, where specialisation is based on factor endowments
Only two goods are produced (under constant returns to scale):

Aircraft (relatively capital intensive)
Consumer electronics (relatively labour intensive)

An advanced economy with a long tradition of manufacturing
Capital is relatively abundant
Has absolute advantage in producing both goods
Has comparative advantage in producing aircraft

China

Less developed, but has become the world’s second-largest economy by exporting manufactured goods
Has an abundance of labour relative to capital
Has a comparative advantage in consumer electronics production

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Conflicts of interest

Given these assumptions, when the economies begin to trade

the US will specialise in aircraft
China will specialise in consumer electronics

Opening trade between the US and China in aircraft and consumer electronics has the following effects:

It increases the consumption possibility set for both countries.
Conflicts of interest emerge between the countries.
Conflicts of interest emerge within each country.

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Conflict of interest between countries

The relative price of the two goods affects how the gains from trade are divided between the countries
The usual forces of demand and supply affect the relative price
The balance of bargaining power between the two affects the price too
Between countries:

USA will benefit if the relative price of aircraft rises
China will benefit if the relative price of consumer electronics rises

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Conflict of interest within the country

Within a country, the beneficiaries of a rise in relative price are those that specialises in producing that product
Trade and specialisation mean that resources shift from one industry to another.
In the US

the increase in production of aircraft means that the US increases the demand for capital, the factor of production used intensively in that industry
The owners of capital benefit more from trade than workers, because capital becomes relatively scarce as production of aircraft rises
Workers previously employed in electronics in the US must try to find work in the expanding aircraft manufacturing businesses
Since the wealthy tend to hold proportionally more of their wealth in capital than the poor, we would predict a rise in inequality

In China

The demand for labour (used intensively in producing consumer electronics) will rise
employment will expand in consumer electronics production
Workers are in higher demand as consumer electronics production expands
Wages rise as firms compete for workers. Lower unemployment lowers the cost of job loss, and firms raise wages
Workers benefit more from trade than the owners of capital, hence we would expect inequality to fall

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Impact on employment

Trade and specialisation in the US involves transferring labour and capital from electronics production to aircraft production.
In the US, when capital shifts from electronics production to aircraft production there is a net loss of jobs

An electronics factory closes, laying off X workers, and an aircraft factory opens, hiring Y workers. Which is bigger, X or Y?
The answer: X is bigger than Y, since one unit of capital provides the tools and equipment necessary to employ more workers in electronics than in aircraft production (since electronics is relatively labour-intensive).

In China the shift to electronics production means that there is a net gain in jobs

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Net effect

Overall net effect depends on growth in size of the economy from specialisation and trade
First Effect

in the US workers are initially relatively scarce and lose from trade, while employers gain
in China workers are initially relatively abundant and gain from trade, while employers lose.

Second effect

if the overall economy increases in size as a result of trade this could benefit everyone in the economy and could therefore offset the losses experienced by the disadvantaged group

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The pie grows and shares of the pie change

US and Chinese economies with limited specialisation and trade.

To make comparison easy, the economies are normalized to a size of one

the numbers in the pies show both the proportion and size (in brackets) of the slice of the economic pie that accrue to workers (red) and the owners of capital (blue)

With greater specialisation and trade, the total size of each economy is larger: The size of the US economy has increased by 30% and the size of the Chinese economy has increased by 40%.

The prices at which they have traded (as determined by bargaining) have resulted, in this case, in China securing more of the gains from trade.

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The pie grows and shares of the pie change

China’s shift into labour-intensive electronics has raised labour’s share of China’s larger pie, and reduced the share of profits.

Both capital and labour in China are, however, better off with higher specialisation and trade

the absolute size of the slices going to workers and the owners of capital have both increased (0.5 < 0.84 and 0.5 < 0.56).

In the USA the owners of capital goods (employers) now have a larger slice of the US’s larger pie

US workers’ slice is not only proportionally smaller (75% > 55%), but also smaller in absolute size (0.75 > 0.715)

So even after we take the growth of the economy into account, US workers are the losers.

US employers, Chinese employers, and Chinese workers are all winners.

US workers are losers.

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Capital flows

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International investment flows

If countries existed in isolation, they would have to finance their investment needs using their own savings
This would mean that they could not spend more than they earn in a given year
In reality, capital flows across borders creating obligations between countries by individuals, financial institutions, companies, and governments
These obligations can take the form of debt or equity
So a country the earns more than it spends will have a surplus of savings that it can export and earn a return on this investment (e.g. China)
A country that spends more than it earns can finance itself from foreign savings, but will have to pay interest on these investments (e.g. South Africa)

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Balance of Payments

Imports must be paid for with foreign exchange
Exports generate foreign exchange
Balance of Payments records the sources and uses of foreign exchange:

the flow of goods across borders “the current account”
The flow of finance across borders “the financial account”

Typically SA has:

A deficit on its current account (the value of imports > the value of exports)
A trade deficit implies that a country is “borrowing”, accumulating obligations to other countries
This would have to be met by a net inflow of finance
A surplus on its financial account (the value of financial inflows > the value of financial outflows)

In addition to trade finance, savings flow in order to purchase assets – this take the form of portfolio investment and foreign direct investment.

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South Africa’s Balance of Payments (1985-2018)

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Trends in international asset holdings

For the rich countries that dominated international lending, the share of foreign assets divided by GDP was high in the early part of the century, but declined after the great depression and in the inter-war period
After 1945, New York took over from London as the global financial centre and the US eclipsed Britain as the dominant international asset holder

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Migration of people

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Migration to the “new world”

When Europe was experiencing its population boom, as death rates fell sharply and birth rates fell only with a lag, it was able to ship its surplus population to America and other parts of the world (e.g. South Africa, Australia)
In the late nineteenth century, declining transport costs and rising wages made passage to America and other parts of the world affordable for millions: immigrants accounted for more than half of the increase in the US population

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Migration has been heavily restricted

Labour migration is probably the dimension of globalisation along which international economic integration has advanced the least
Immigration barriers became much stricter during and after the First World War, and rich countries retain strict immigration barriers
Labour into and out of some countries is less mobile internationally today than it was in 1913
The movement of goods and finance between countries is easier, and greater in magnitude, than the movement of people
In addition to policy choices, movement in people is complicated by language and culture.
There is no tendency of wages in different countries around the world to become more similar

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Manufacturing wages as a ratio to US manufacturing wages (1975-2012)

Norway

Sweden

Germany

France

Italy

Japan

South Korea

Portugal

Mexico

Taiwan

Sri Lanka

USA

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Immigration and workers

When new people arrive in a nation they are unemployed, so we might expect the first impact of immigration to be that it increases unemployment.
This means that immigration also increases the cost of job loss for residents, because the worker who loses a job is now in a larger pool of unemployed workers.
Workers have more to fear from losing their jobs, and firms will be able to make employees work effectively at a lower wage.
This is not the end of the story.

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Short-run and long-run effects of immigration

Firms are now getting work at lower wages, and so are more profitable. As a result they will seek to expand production. To do this, they will invest in new machinery. This will increase labour demand in the rest of the economy, and when the new capacity is ready, firms will hire more workers.
In the short-run impact of immigration could be bad for existing workers in that country: wages fall and the expected duration of unemployment increases. The short run may last for years or even decades.
In the longer run, the increased profitability of firms leads to expanded employment that eventually will restore the real wage and return the economy to its initial rate of unemployment (if no further changes in the situation take place, like another wave of immigration).
As a result, incumbent workers are no worse off. Immigrants are likely to be economically better off too—especially if they left their home country because it was difficult to make a living.

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The politics of globalisation

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Political backlash against globalisation

In the 1800’s European landowners in countries such as France and Germany they succeeded in getting governments to impose tariffs on agricultural imports (Corn laws opposed by David Ricardo)
In 2016-19, in the USA, UK and Europe there is a backlash against globalisation because workers have been losers as China and other countries have specialised in labour intensive exports
Workers losing in developed countries (and antipathy towards migration) have been the underlying causes of the populist political movements behind Trump, Brexit, and other European countries
There is survey evidence that unskilled workers in rich countries are more protectionist than skilled workers, but unskilled workers in poor countries are more in favour of trade than skilled workers.

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Glabalisation and anti-globalisation

Globalisation can undermine itself.
Freer movement of capital around the world in search of profit-making opportunities also allows businesses to seek countries with lax environmental regulation and low taxation or where workers do not have rights to organize in trade unions
If the losers, whether from the mobility of goods, investment or people, are ignored, globalisation may turn out to be politically unsustainable in a democracy
These concerns have been analysed by Dani Rodrik, an economist, who developed what he calls the fundamental political trilemma of the world economy

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Rodrick’s trilemma of the world economy

A world in which there are virtually no political or cultural barriers to the location of goods and investment

National government that respect both individual liberty and political equality

Each national government can pursue policies that it chooses without any significant limits imposed on it by other nations or global institutions

Rodrick’s trilemma

three things

all of which are valued but which cannot all occur at the same time

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Example: Hyper-globalisation vs democracy

hyperglobalisation means that countries have to compete with each other for investment, with the result that wealth owners will seek locations for their investments in which labour has fewer rights and the environment is less protected.
This makes it difficult for national governments to adopt regulatory standards or other policies, or raise taxes on mobile capital or highly paid workers, even when citizens think that fairness requires this.
Therefore, implementing hyperglobalisation may be impossible in a democratic society.
The outcome may therefore either be the demise of hyperglobalisation or the demise of democracy

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Example of Rodrick’s trilemma in EU

the political integration of Europe over the last few decades happened, in part, so that governments could obtain the benefits of free trade, plus the free movement of capital and labour,
while retaining some ability at the supranational EU-wide level to regulate profit-making in the interests of fairness and economic stability.
The obvious problem is how to make sure that this EU-wide or global governance is democratic as well as technocratic, and to allow voters to change the system if they don’t like it

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Example of Rodrick’s trilemma in South Africa

Democratic and globalisation, but limit on degree of policy sovereignty?
Exacerbated by dependence on foreign savings (capital flows)
SA cannot simply nationalize foreign owned companies or SARB without major negative economic consequences

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Trade and growth

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