Rodrik on Procedural Fairness and Trade

Harvard economist Dani Rodrik has joined the blogosphere. Welcome! I'm glad, because he seems like a thinker well worth disagreeing with. For instance, in this post on why people get riled by economic dislocations caused by trade, but not by technology, Rodrik writes:

[Economists conventionally] do not ask whether the trade opportunity involves an exchange that most people would consider unacceptable if it took place at home. So it is immaterial to our story if the gains from trade are created, say, by a company shutting down its factory at home and setting up a new one abroad using child labor. . . .

The thought experiment clarifies, I think, why the archetypal man on the street reacts differently to trade-induced changes in distribution than to technology-induced changes (i.e., to technological progress). Both increase the size of the economic pie, while often causing large income transfers. But a redistribution that takes place because home firms are undercut by competitors who employ deplorable labor practices, use production methods that are harmful to the environment, or enjoy government support is procedurally different than one that takes place because an innovator has come up with a better product through hard work or ingenuity.


I think Rodrik is either thinking too hard or not hard enough. First, I suspect many people don't really grasp how it is that the surplus from trade is increased by either comparative advantage or technological advance, so a change in the allocation of the surplus intuitively strikes these people as involving a new winner and a new loser. The main concern, then, is who the winner is: us or them.


The key word in Rodrik's anaylsis is “home” and the key phrase is “home firms,” members of our national coalition. If you watch Lou Dobbs for about five minutes, you'll see that the animating emotional force behind his protectionism is simple in-group/out-group coalitional solidarity. If it turns out that the other, who is so much poorer than us, happens to employ labor practices less luxurious than ours, or pollutes at a higher rate than we do, then so much the better for illustrating and reinforcing the differences between the enlightened at home and those miserable, dirty, slave-driving foreign savages who want to steal our jobs and undermine our way of life. Never mind if their next best alternative to the factory is worse for them. Never mind that they are making the same kind of trade-off between growth and environmental quality we made at a similar stage of development. Because, not to put too fine a point on it, we don't actually care about them.


The “archetypical man in the street” doesn't blink in the face of technology-driven distributional changes not because those changes are less procedurally unfair, but because there is no apparently competing out-group against which to galvanize visceral coalitional sentiments. Different states within the U.S. have different labor laws and environmental regs. When a firm in one state is undercut by a firm in another state, the difference in regulatory environments is often a part of the story. But this tends not to get anyone keyed up about “procedural fairness,” and I think that's largely because Minnesotans don't see Oklahomansthe same way Lou Dobbs's American audience sees the Chinese — as a threat. So there is no need to dress up tribal ugliness in the language of fairness.


Learning to “not ask whether the trade opportunity involves an exchange that most people would consider unacceptable if it took place at home,” is part of moral progress, not moral blindness, because our judgments of what is “acceptable at home” are myopic, reflecting our constraints, and the tastes that flourish within them, not theirs. But it is the constrainsts and desires of the people actually entering into the exchange that matter. If we aspire to be cosmopolitan humanitarians, instead of narrowly parochial self-serving moralizers, we will not attempt to see their choices through the lens of our circumstances. No doubt many people consider it “unacceptable” to exchange sex for money, because they cannot imagine any circumstances in which they would find that anything but degrading. But a failure of sympathy and moral imagination is not the way to a winning moral argument.