Be informed

It was a good number of years ago a friend and former colleague of mine recommended the work of Dani Rodrik (left) to me. What I liked about his work was its humanity. He is a rare economist who recognises real-world challenges whist making the case for globalization and its impact on world poverty. That humanity stretches not only to responding to communications but granting me the rights to use some of his intellectual property in my own book at no cost.

So what was it that I thought was appropriate for my own book on Sustainable Business Strategy? Rodrick uses a simple but effective form of challenge: the Trilemma. On one corner is hyperglobalization, on another is national sovereignty and on the third is democratic politics. Democratic politics and national sovereignty are linked together by the Bretton Woods Compromise, an economic system designed to maximise domestic performance, essentially a Keynesian approach. Hyperglobalization and democratic politics are linked together by so-called global governance. Hyperglobalization is a concept that assumes that states are no longer the pre-eminent arbiter of world order. Economics is. States are subjugated to a system of global governance. Finally hyperglobalization and national sovereignty are linked together by the golden straitjacket; namely trade liberalization, free capital markets, free enterprise, etc. Readers will have noted that it is impossible for all three to co-exist. We can have two but not all three. Perhaps the world we live in today is the golden straitjacket with free reign for big tech and nationalism? We can talk about this later.

Rodrik’s Trilemma dates back to 2012 in his book, The Globalization Paradox, though it featured in his blog in 2007. Of course all of this was before the Paris Agreement (2015). It was business as usual. In 2025 it is anything but business as usual. Suffice to say, Rodrik has a new “tri” – this time a trifecta which is equally intriguing. This time at the apex is rebuilding the middle class. This is linked to global poverty reduction with the explanation that at its heart are growth-promoting policies in the North and South, without regard to carbon emissions (equating with Keynesian social democracy + export oriented industrialization). Rebuilding the middle class also links with addressing climate change; i.e. industrial policies and climate clubs among rich nations with discriminatory provisions or, in other words, Bidenomics. And addressing climate change is linked to global poverty reduction through the transfer of technology, jobs and financial resources from rich to poor nations; migration from South to North or, in short, Global Rawlsianism (after John Rawls’ principle that justice requires maximum attention to the needs of the least fortunate – p4).

The trifecta is not a trilemma as we can – and must – at least reconcile the three. And that is what this book is about. However, the paradigm is important here. Rodrik is not a revolutionary. He is very much grounded in a Keynesian/Rawlsian ontology. There is also a splash of technological determinism. By definition he is not a “no-growther”. But neither is he a hyper-globalizer or an economic neoliberal. Growth of sorts provides political stability, resources – financial, human and, indeed, natural. Rich states are mandated to share clean technologies with developing countries and exchange personnel. This is important because straightforward rapid industrialization in developing countries will just release ever more carbon; it is also the case that there are significant challenges and tensions in the trifecta. So Rodrik is a pragmatist, and all the better for that approach. Modern states and economies are so polarised at the moment, anything less than pragmatism leads us to extremes.

Key concepts

Productivism (p155) is another term for industrial policy. It is an industrial policy that can reconcile the trifecta. For example, a policy of carbon reduction through technology. Clearly carbon reduction helps in mitigating climate change by eliminating the main greenhouse gas, carbon dioxide. But it is also good for those other pillars, rebuilding the middle class (larger markets for other nations’ exports and investment as well as reducing outmigration) and poverty reduction (poor countries are disproportionately impacted by climate change – heat, sea-level rise, extreme weather and loss of biodiversity, amongst others). Productivism is, in the end, a shared policy mindset.

Experimental governance (p172) is borrowed from Chuck Sabel and coauthors (right). It is a form of governance that challenges key assumptions about policy implementation: (1) policy makers have clear objectives; (2) uncertainty is low; (3) there is little added value in policy makers communicating with private actors. Bearing in mind my own work on policy implementation, these assumptions do seem misguided. However, working with these assumptions, experimental governance has four elements: (1) goals are set between policy maker and stakeholders; (2) the executing agents are given broad discretion in how goals are achieved; (3) agents’ performances are subject to periodic review and results compared across different experiments; (4) objectives, metrics and procedures pertaining to the experiments are reviewed, revised and disseminated to a broader set of agents. It is iterative.

In academic research, this appears to conform broadly to an action research methodology. Over time, trust and capacity grow as the ideas and initiatives develop and mature.

Some examples

Notwithstanding much Chinese industrial policy featuring experimental governance, Rodrik illustrates the concept with two explicit examples. For the first, he takes us back to the execution of the 1987 Montreal Protocol – an international treaty – that effectively stopped further erosion of the ozone layer directly attributable to the release of CFCs from refrigeration equipment and enabled it to replenish. The scientists behind it – Crutzen, Molina and Rowland (right) were honoured 20 years after their ground breaking work that made the link between CFCs and ozone depletion. Regarding implementation, firms, supported by government agencies including the EPA in the USA, innovated, even if only to avoid regulation more generally.

For his second example, Rodrik draws on a the case of Fundacion Chile (p158) acquiring a small local aquaculture company which imported Norwegian and Japanese salmon farming technology and, in a process of “learning by doing”, developed an entire supply chain from feed to export logistics. The knowledge from this experiment was widely disseminated which literally spawned a salmon farming “rush” enabling exports to go from 300 to 24,000 tons per year in the 1990s.

Whilst both of these examples are illustrative of experimental governance, they both have had significant environmental impacts. Unfortunately we replaced ozone-depleting gases with greenhouse gases. Potent ones. And as for salmon farming, it is not only a huge polluter, but it threatens wild populations through disease and mutation.

OK, I found some weaknesses in two examples. That by no means negates the notion of experimental governance. Far from it. It only shows that experimental governance can be used for good or not-so-good purposes. And to be fair in the case of the Montreal Protocol the urgency meant that we did have to move quickly to find alternatives. Another measure taken was to ensure that refrigeration gases did not get released into the environment, CFCs or not. Salmon farming, however, was always going to be problematic. It is, simply, factory farming. Ultimately when humans put lots of animals together, especially if they are bred for size, disease will follow and, in the case of fish farming, escapes will occur. Factory farms also undermine the effectiveness of antibiotics, one of humanity’s greatest discoveries, now threatened by greed and excessive protein diets.

Three buckets

As a pragmatist and economist of trade, Rodrik offers us four “buckets” in which to put policy options as they relate to globalization (having accepted that hyperglobalization is neither possible nor desirable). Sovereignty will – and perhaps should – always trump international homogenisation.

1

Here we place policies that are “prohibited”; namely those that cannot be part of a viable trading order. Note here that prohibition does not mean that they will not happen. An example would be violating sovereign territory. Sovereign territory is all-too-often violated. More contestable example are policies that are what Rodrik calls, Beggar-thy-neighbor [sic] (BTN), by which he means policies that generate economic benefits made possible by the harm they generate to other nations. Much of the second Trump Administration’s thinking on trade fits here. But more generally here we can place currency devaluations and export subsidies explicitly designed to improve the terms of trade domestically at the expense of other nations.

2

This bucket contains policies that may be amenable to mutual negotiations and adjustments. They may benefit the country enacting them, but the benefits are more widely spread such as potential spill-overs. The mutual benefit part was the basis of WTO most favoured nation status for countries not directly engaged in the negotiations between two nations but achieve a benefit from adjacent bilateral agreements. Here we may also find protective tariffs (protecting nascent sectors or employees in those sectors). It may still generate monopoly rents, but they are incidental, not the purpose. Moreover, affected parties might be expected to respond, but only in proportionate terms and should be directly linked to the damage caused by the state imposing the affecting policy. Equally, export controls on technology destined for countries representing a security threat are not BTN, but they probably will impose economic costs on the importing country (at least until that country develops the technology itself such as may be the case with China and the USA). On this latter point, Rodrik seems agnostic. In summary, states can pursue policies in their own interests subject to them not being explicitly BTN and may be subject to wider negotiation between affected parties.

3

Here we find policies that essentially invite an open discussion about the policies being touted. These are discussions that might not ordinarily take place but can be – what I would call – de-escalatory. We work this out together. Fairly. It might fall out of this bucket if the originating state is unable to explain the purpose, even if it is not BTN.

4

This bucket is for policies that require the agreement of at least two or more states. These are multi-lateral policies where we will find many of the climate change-driven policies. These are negotiations over the health of the global commons, debt resolution and, of course, pandemics. The Montreal Protocol was a bucket 4 agreement.

Making sense of climate change-driven policies

If we start with green subsidies, which bucket? What about China that now has serious advantage in terms of manufacturing and market access. Surely, these subsidies constitute BTN? This requires some logical gymnastics. First, let us step back. Carbon pricing is way too lax. Current prices do not reflect the impact of carbon emissions on the environment and their warming effect. If that is correct – which it really is – then how might we balance the account? We might try to install with haste photovoltaic cells. With a very low price facilitated by subsidies from the Chinese Government, the panels are available in volume to do just that. That is a collective benefit caused by a green subsidy from a country that may have been designed to outprice other countries. However, those countries could have responded with their own subsidies; On the whole they did but rather late and not proportionately (p201). Arguably there was insufficient subsidy overall, not enough rather than too much (as the neoliberals would argue). In the end, subsidies from the Chinese State provided an affordable resource that could compensate for inefficient carbon pricing (and hence emissions reductions, bucket 3). We’ll take that. Bucket 2. I sense it could be bucket 3 if there was an amicability about it, but I am not sure. Suffice to say, Europe has also tried to protect its EV manufacturers against Chinese imports with tariffs. But there is something about the superior technologies being offered by Chinese manufacturers and cost which add to the complexity and the attractiveness of the Chinese product(s).

What about the Carbon Border Adjustment Mechanism (CBAM) introduced by the EU (January 2026)? The EU imposes upon its manufacturers auditing of carbon emissions attributable to the product. Any imports that exceed the maximum allowed have to be paid for with a tariff reflecting the additional carbon emitted in manufacture outside of the EU (defined by the probably inadequate carbon price set under the ETS). It is, of course, a policy designed to change the behaviour of actors external to the EU.

The EU has engaged in this type of trade policy for a long time. It is not just about carbon. Food standards may be captured here. Medicines, toxic materials, exhaust emissions, etc. Is it acceptable? Surely the first job of a (supranational)state is to protect its citizens and if there is evidence that a product is dangerous or deleterious to wellbeing collectively defined, then blocking or controlling it is surely the right thing to do. With CBAM, the EU is trying to protect its citizens against the impacts of a warming planet. In doing so, there is a positive spillover as the atmosphere is a global common. Surely that is defendable? Bucket 2, surely. Or bucket 4 – multi-lateral, if only within the borders of the EU. Moreover, the British responded with its own CBAM (futile really, but proportionate).

What about not trading at all with countries that violate environmental treaties – or indeed those that block treaty ratification? Well, seemingly that is bucket 1. I trust that doing so is against WTO rules – but what are they worth in 2025? Rodrik takes an interesting position with regard to trying to impose barriers against states that have poor worker and human rights records; for example, China’s treatment of the Uyghurs in Xinjiang. Seemingly not in bucket 1 – so, it is allowable. Individual trade agreements could incorporate human/worker rights into the text. Presumably, also, the rights of indigenous people and, by association, the natural environment? And not to forget that the human/worker rights are part of the membership qualification for the EU. But they are hardly definitive and some member states are very much in violation as they progressively dismantle their liberal democratic structures and associated rights. There is no qualification needed for environmental protections, it seems. There could be, if agreed. But it seems very unlikely in the current incarnation of the EU and its parliament. The bigger question though is whether it is something that we must contemplate if we are to mitigate warming and adapt? Maybe the EU as a block could and should?

And one final one. I am just reading Kim Stanley Robinson’s novel, The Ministry for the Future. I will review the book elsewhere, but after serious heatwave in India resulting in the deaths of 2 million people (graphically described in the first chapter), the Indian Government goes ahead with a unilateral policy of geoengineering against a UN agreement that no country would go it alone because the impacts would be global, uncertain and temporary. In this case, geoengineering (depositing aerosols into the upper atmosphere to reflect heat) is in bucket 1. It’s a no-no. It is the violation of sovereign territory. There are many other examples. Damning of rivers has long been contentious and impacting downstream communities. Not to mention water pollution from human waste, fertiliser run-off and industrial processing. More recently, plastic beads (nurdles) and plastic waste more generally cross boarders. Apparel, equally, is exported and often dumped; for example in the Atacama Desert in Chile (right).

Summary

So, where does this take us? Arguably it leaves economists in charge for the time being. However, growing extreme right-wing/fascist blocs supported by the centre-right (as in the case of the EU Parliament and reporting rules under the CSRD) are rolling back efforts to mitigate climate change. To address the challenge something is going to have to give.

Pictures: Dani Rodrik from Harvard Magazine: https://tinyurl.com/5e4d22s9