HOW DO WE GET ALONG? INTERNATIONAL ECONOMIC LAW AND THE NATION-STATE.

• Author: Shaffer, Gregory
• Position: Book review

STRAIGHT TALK ON TRADE: IDEAS FOR A SANE WORLD ECONOMY. By Dani Rodrik. Princeton and Oxford: Princeton University Press. 2018. Pp.xiii, 274. $29.95.

INTRODUCTION

How do we get along? International lawyers still mostly focus on international law and institutions in splendid isolation of national law and policy, as if they were a separate ring. Yet the two are inextricably, gravitationally enmeshed. International law and institutions affect domestic politics and law, and domestic politics recursively affects international relations and thus international law. The 2008 financial crisis, the ensuing rise of Donald Trump and the populist right, the decline of the European Union (EU), and the threat of escalating trade wars illustrate the links. Dani Rodrik (1) was the first leading economist to highlight this basic point regarding the implications of economic globalization and international economic law for the nation-state and the social contract. (2) In 1997, Rodrik wrote a seminal book with a question mark: Has Globalization Gone Too Far? He warned that it had. (3) Now, in his newest book, Straight Talk on Trade: Ideas for a Sane World Economy, he addresses trade and economic integration in light of the political fallout of Trump's election and the resurgence of nativism in Europe. (4) The book calls for striking a different, better balance--a reweighing of the scales--between economic globalization and the nation-state. It castigates the economics profession for too frequently expressing unabashed support in the media for globalization and trade agreements without necessary caveats, constituting bad economics.

The book interweaves theory, empirics, and proposals in the tradition of economic pragmatism. It is an important read not only for international trade and international law scholars, but also for those interested in international law theory and method, as well as legal theory generally. It is written in an empirical, pragmatist vein. Its focus on institutions, social context, and the importance of innovative, adaptive practice reflects new legal realism in legal scholarship. (5)

The book's twelve chapters can be broken down into three parts, respectively addressing the relation of globalization and the nation-state, the role of theory and method, and prescriptions for change in the current crisis. Chapters One to Four introduce the relation of national sovereignty, democracy, and economic globalization, highlighting the institutional choices at stake. Those chapters stress the critical role of the nation-state for social solidarity, economic prosperity, and democratic governance, as well as the risks posed when economic globalization and domestic governance fall out of balance. Chapters Five to Eight address the role of economic theory and methods to build empirical understanding and make policy recommendations. They hold critical lessons for legal theory and legal scholarship. Chapters Nine to Twelve propose what should be done and avoided in response to current crises. Decrying the risks to the "liberal international order" is not enough. We must also address the mistakes made so as to enhance policy space for nation-states. Otherwise economic integration could catalyze further social disintegration.

This Review addresses and responds to these arguments in relation to international economic law and legal theory. Part I assesses the book's first part in light of transnational legal theory, which analyzes the recursive relation of international and domestic law in an interconnected world. Part II examines the second part of the book in terms of its lessons for legal theory from a new legal realist perspective. Part III calls for the combining of economic and legal analysis to address current challenges in international economic law and policy. In particular, it maintains that international economic law should become less of a substitute for domestic law and more of a complement to support domestic institutions in building the rule of law and assuring economic prosperity and social inclusion. The message is clear. We need to bolster healthier democratic polities if we are to ensure better international cooperation through law.

1. TRANSNATIONAL LEGAL ORDERING AND THE NATION-STATE

   International law and institutions are transnationally linked with law, governance, and social relations within states. (6) Actors and institutions upload, download, import, and export legal norms, and they develop them in one domain to contest and shape those in another. (7) They engage in diagnostic struggles and paper over differences, giving rise to contradictions and indeterminacies in legal texts. Over time, transnational processes can lead to normative settlement at the international and national levels, comprising new working equilibria regarding the appropriate legal norms and institutions to order particular issues. But these processes also spur contestation and resistance in light of competing diagnostics, legitimacy challenges, internal contradictions, inflexibility, distributive bias, competition, and ineffectiveness. (8) Over time, normative consensus can erode so that a transnational legal order declines.

   The term "transnational" does not imply the withdrawal, decline, or disappearance of states as major actors in law and governance. Rather, states participate in their own transformations. (9) To understand transnational legal ordering, one must assess the interaction of lawmaking and practice across different levels of social organization, from the international to the local. These processes involve both state and nonstate actors, including transnational capital and international organizations. As states delegate greater public powers and informal norm making to international organizations and transgovernmental networks, they often implement rules of extrastate origin. (10) These processes are particularly pronounced regionally in the EU but are also developing elsewhere, including through trade and economic integration agreements. (11)

   Rodrik's core argument is that international trade and economic integration agreements in support of globalization have excessively constrained national policy space (pp. 13-14). They have done so through a web of multilateral, regional, plurilateral, and bilateral trade, investment, and economic integration agreements. (12) The World Trade Organization (WTO) lies at the pinnacle of trade governance, but it is just the big meatball in a spaghetti bowl of agreements. (13) Economists generally agree that trade liberalization is in a nation-state's self-interest because it raises aggregate national welfare. (1) 4 Yet "trade" and economic integration agreements have expanded in scope far beyond the reduction of tariffs and elimination of quotas. They regulate intellectual property rights, health and safety, the establishment and operation of services such as finance, and the administrative process more generally. (15) In some cases, they require the removal of all capital controls. (16) At times, they grant businesses direct rights to sue states, such as through investor-state dispute settlement (ISDS), which can chill regulation. (17) Increasingly, empirics show that these agreements contribute to adverse distributive impacts on the working and middle classes in the United States and Europe. (18) In short, these international agreements transnationally and recursively link with law, governance, and social relations within states.

   The problem with unqualified support of these agreements is twofold. First, advocates tend to view economic integration as a one-way endeavor, rather than a question of balance in light of the agreements' impacts within nation-states. This stance is captured in the famous "bicycle theory" of trade liberalization, which contends that an open trading system will be maintained only if forward momentum for trade liberalization continues; otherwise the bicycle will fall over. (19) Second, while this approach recognizes that trade creates losers as well as winners, (20) and while many trade liberals support compensating social policies at the national level (although often not with the same vociferousness and urgency), (21) it fails to address how economic globalization implicates domestic politics and social relations, affecting states' ability and willingness to do so. Economic globalization supported by international economic law creates bargaining leverage for capital over labor while constraining states' ability to tax mobile capital. (22) Unlike national law, moreover, international trade treaties lock in requirements that are difficult to undo because they require all parties' agreement, even though preferences within countries change in light of politics, experience, and changing conditions. In contrast, redistributive policies at the national level (including but not limited to trade adjustment assistance) are more easily undone. (23) Technology and changes in corporate culture may be more important factors for stagnant wages, job insecurity, and growing inequality, but these factors are not isolated from economic globalization and trade; they are linked. (24)

   This loss of balance between the unidirectional nature of liberalized trade policy and the lack of compensating domestic policy became salient following the 2008 financial crisis. The financial crisis resulted more from the free flow of capital than trade, and liberal trade economists long warned that their theories did not apply to capital. (25) Yet trade was not wholly innocent. Empirical studies show that it has increased risks to many communities in the United States and Europe. (26) The political fallout invigorated populist politics, playing off nativist, racialized fears and the loss of a sense of superior status in relation to others, such as foreigners, migrants, and citizens of color. (27)

   Any policy is subject to tradeoffs, and Rodrik captures these tradeoffs with his theory...