I think Dani Rodrik is wrong

I am reluctant to pick a fight with Dani Rodi, but I think he is wrong. Writing on the global financial crisis, Rodrik asserts:

Deep down, the crisis is yet another manifestation of what I call “the political trilemma of the world economy”: economic globalization, political democracy, and the nation-state are mutually irreconcilable. We can have at most two at one time. Democracy is compatible with national sovereignty only if we restrict globalization. If we push for globalization while retaining the nation-state, we must jettison democracy. And if we want democracy along with globalization, we must shove the nation-state aside and strive for greater international governance.

I think he is wrong for three reasons. The first is the slippery (misleading?) way Rodrik employs the term democracy as this is not what he really means. Rather, he asserts that if you want sovereignty and to be engaged in the global economy, you must let markets dictate acceptable policies. Rodrik is thus not being completely honest as his argument excludes China’s managed authoritarian capitalism as well as democracy.

Second, bad regulation was the cause of the crisis, not democracy. And this bad regulation existed because powerful financial interests wanted it that way, not because this is what the average voter wanted. Further, look who is benefitting and suffering from the crisis: bankers are getting bailed out, while average people are losing their jobs, homes, and savings. Blaming the crisis on democracy seems a bit laughable when the crisis was caused by the elite.

Third, Rodrik implies that the trade-off between sovereignty, democracy, and globalization is difficult. I disagree. Globalization in the context of the current crisis means that the fallout from the crisis expanded far beyond the countries that were the cause of the crisis. Spain is the best example of this. The property boom in Spain was a result of changes in financial markets elsewhere. More broadly, there is no evidence that all unrestricted capital flows are a good thing, a point that Rodrik has highlighted.

Rodrik implies a difficult trade-off where I do not see one. The world could use a bit less globalization and a bit more democracy.