Trade Policy and Moral Leadership

David Warsh says that if the US wants to reestablish itself as a world leader in trade policy, it must “regain its traditional leadership in human rights.” That means the next president must acknowledge the “grim, incontrovertible truth” that US “officials committed what a dispassionate jury would recognize as a series of serious crimes under American law in the years after 2001:

On the Significance of Geneva, by David Warsh: It’s August. Is anyone surprised that trade talks in Geneva collapsed last week… As the Financial Times put it, “…the annual breakdown of the Doha round of trade talks is becoming a summer ritual. … It is time to be brave, swallow hard and accept that the Doha round in its present form has failed.†Indeed. …

What’s going on in the world of international trade? … To think genuinely august thoughts about what might come next in global trade, step back and ponder events on a grand scale. A couple of recent books come in handy here. …

Power and Plenty: Trade, War and the Global Economy in the Second Millennium, by Ronald Findlay … and Kevin O’Rourke … is the result of a collaboration between a political economist and a historical economist. A Splendid Exchange: How Trade Shaped the World, by William Bernstein, provides the movie version of the story. … You can get the flavor of the man and his … book from his well-attended website, Efficient Frontier.

It is Power and Plenty that has captured my attention. … I am not … going to summarize a thousand years of international trade, except to say the authors organize their account around what they say are the three great events of the last thousand years: the Black Death of the fourteenth century; the “discovery†and incorporation of the New World into the Old starting in the sixteenth century; and the Industrial Revolution, beginning in the nineteenth century. Nor should you spend much more of your time here. …

I will say that the dustjacket … conveys the book’s takeaway message. The authors write, “The greatest expansions of world trade have tended to come, not from the bloodless tântonnement of some fictional Walrasian auctioneer but from the barrel of a Maxim gun, the edge of a scimitar, or the ferocity of nomadic horsemen.â€

Thus successive epochs in global trade have, for the most part, been demarcated by the outbreaks of major wars or imperial expansions: Pax Mongolica, Pax Manchurica, Pax Mughalica, Pax Britannica, Pax Americana. “Each era can be seen as one in which trade is conducted within a geopolitical framework established by the previous major war or conflict, that is in turn altered by the outbreak of the next war, setting the stage for the next epoch, and so on. It is natural to suspect that the accumulating economic and geopolitical tensions unleashed in the course of each period of peace, prosperity and trade culminate in successive rounds of conflict, so that wars, rather than being exogenous or external shocks to the world system, have been inherent in its very nature as it has evolved over the past millennium.â€

That’s very far from the concerns for farmers’ shares that scuttled the talks in at World Trade Organization headquarters in Geneva last week. Nobody will go to war over India’s attempt to protect itself from cheap agricultural exports from Brazil. What, then, are the accumulating tensions that engage the attention of Professors Findlay and O’Rourke? It’s central Asia and the Caucasus that interest them, and the various routes from their petroleum riches to Western Europe and the Indian Ocean. …

For in the end, a book about trade is a book about geography – about how the human-built world grew up around straits, harbors, rivers, roads, and natural resources. Writers less well-grounded in the interdependence between trade and politics would have been astonished to find the twenty-first century dawn with the United States embroiled in a two wars along the route that Alexander the Great took to India 2300 years before, but not Findlay and O’Rourke. The US occupation of Iraq in 2003 inflicted a “devastating blow†to American prestige and its claims of moral leadership, they say. It may yet turn out that common threats emanating from the Eurasian heartland will force Japan and Western Europe to make common cause with their US ally once again.

The moral of Power and Plenty is that, instead of worrying about the collapse of the Doha Round, friends of trade should be thinking hard about what comes next. The fifty years of the Cold War otherwise had little to recommend it, but at least it imposed a collective discipline on the two major blocs and their client states. In a world of many different blocs, it appears that Pax Americana will be replaced by some new set of stabilizing rules. But what will they be?

That is what makes the next election so interesting. There seems to be widespread agreement that, in the first years of the new century, the leadership of the United States lost its way and behaved in uncharacteristic ways. The essence of the departure, however, is in much dispute.

I don’t mean the decision to invade Iraq. That fimage002_512_01.png

alls somewhere along a continuum that runs from Woodrow Wilson’s decision to intervene in Europe during World War I through Harry Truman’s decision to go to war in Korea in the summer of 1950 to Lyndon Johnson’s deceptive escalation of the war in Vietnam. Reasonable people can disagree.

I mean the assault on the principle that there exist basic human rights that must be observed and protected, even in time of war.

Jane Mayer is the former Wall Street Journal reporter who, in thirteen articles in the New Yorker since 2001, has documented the most important details of the behind-the-scenes American response to the 9/11 attacks. In her new book, The Dark Side: The Inside Story of How the War on Terror Turned into a War on American Ideals, she concludes by comparing the Bush administration’s panic to President Roosevelt’s internment of Japanese-Americans during World War II.

To me, that similitude seems too charitable. From Mayer’s account, it appears clear that US leaders in the office of the Vice President and the Justice Department engaged in a fundamental repudiation of the rules for the treatment of non-combatants and prisoners of war hammered out in treaty negotiations over 150 years and collectively known as the Geneva Conventions.

On the strength of reporting by Mayer and others, there is good reason to suspect that that these officials committed what a dispassionate jury would recognize as a series of serious crimes under American law in the years after 2001 – in Iraq, in the “dark prisons†in Europe, in the detention center in Guantanamo Bay, Cuba.

I don’t know whether or not it is necessary that these officials be prosecuted. Probably not: these matters are incredibly divisive. But if the US is to regain its traditional leadership in human rights – meaning if it is once again to become the world leader in trade policy, among many other things – its leaders, including both John McCain and Barack Obama, sooner or later must acknowledge this grim, incontrovertible truth.

I disagree on prosecution. Justice alone is enough to compel prosecution – people should be responsible for their actions – but the moral hazard issue is also worth worrying about. What’s to stop another administration from doing the same or worse? I don’t expect it will happen, but I don’t care what their title is or who might get upset about it, people who broke the law as it relates to torture or other crimes need to be prosecuted for it. Human rights begin at home.

[Let me add one more thought. In financial markets, the argument for ignoring moral hazard and letting some people escape responsibility for bad choices is that the punishment – letting banks fail – would potentially cause excessive harm to the the innocent by bringing down the larger economy. If the harm can be confined to those who caused the problem, or if the harm is minimal (there’s always some social cost to prosecution), then there is no reason to intervene, and good reasons to let banks fail.

I suppose a similar argument can be made here. Prosecuting for these crimes would create so much divisiveness that it would endanger the system by bringing it down now, or by doing long-term harm to fundamental institutions. Obviously I don’t buy that argument, I don’t think there’s much of a chance it would bring down our system of government, and I think the long-term danger to our important institutions is larger if we don’t prosecute.]

Posted by Mark Thoma on Tuesday, August 5, 2008 at 02:07 AM in Economics, International Trade

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The Anticommons

Can “too much ownership” cause gridlock and the “underuse and waste” of resourses?:

The Permission Problem, by James Surowiecki: In the second decade of the twentieth century, it was almost impossible to build an airplane in the United States. That was the result of a chaotic legal battle among the dozens of companies—including one owned by Orville Wright—that held patents on the various components that made a plane go. No one could manufacture aircraft without fear of being hauled into court. The First World War got the industry started again, because Congress realized that something needed to be done to get planes in the air. It created a “patent pool,†putting all the aircraft patents under the control of a new association and letting manufacturers license them for a fee. Had Congress not stepped in, we might still be flying around in blimps.

The situation that grounded the U.S. aircraft industry is an example of what the Columbia law professor Michael Heller, in his new book, “The Gridlock Economy,†calls the “anticommons.†We hear a lot about the “tragedy of the commonsâ€: if a valuable asset (a grazing field, say) is held in common, each individual will try to exploit as much of it as possible. Villagers will send all their cows out to graze at the same time, and soon the field will be useless. When there’s no ownership, the pursuit of individual self-interest can make everyone worse off. But Heller shows that having too much ownership creates its own problems. If too many people own individual parts of a valuable asset, it’s easy to end up with gridlock, since any one person can simply veto the use of the asset.

The commons leads to overuse and destruction; the anticommons leads to underuse and waste. … Even divided land ownership can have unforeseen consequences. Wind power, for instance, could reliably supply up to twenty per cent of America’s energy needs—but only if new transmission lines were built, allowing the efficient movement of power… Don’t count on that happening anytime soon. Most of the land that the grid would pass through is owned by individuals, and nobody wants power lines running through his back yard.

The point isn’t that private property is a bad thing, or that the state should be able to run roughshod over the rights of individual owners. Property rights (including patents) are essential… But property rights need to be limited to be effective. The more we divide common resources like science and culture into small, fenced-off lots, Heller shows, the more difficult we make it for people to do business and to build something new. Innovation, investment, and growth end up being stifled. …

In theory, one should be able to break a gridlock by striking a deal that would leave all sides better off. Sometimes that happens. … [But…] One reason deals founder is that there are simply too many interested parties. If, in order to create a new drug, you have to strike bargains with thirty or forty other companies… often things go awry because owners won’t make a deal at a reasonable price…

Recent experimental work by the psychologist Sven Vanneste and the legal scholar Ben Depoorter helps explain why. When something you own is necessary to the success of a venture, even if its contribution is small, you’ll tend to ask for an amount close to the full value of the venture. And since everyone in your position also thinks he deserves a huge sum, the venture quickly becomes unviable. So the next time we start handing out new ownership rights—whether via patents or copyright or privatization schemes—we’d better try to weigh all the good things that won’t happen as a result. Otherwise, we won’t know what we’ve been missing.

Originally published at Economist’s View and reproduced here with the author’s permission.