Sunday, March 29, 2009

Obama's "loose ends" theory of leadership

Many economists, advocates of free trade and students of the Great Depression have understandably been on red alert for signs that that countries worldwide will respond to economic crisis by raising trade barriers, as they did in the 1930s. Alarms have been sounded about the "buy American" provisions in the stimulus bill, softened though they were by stipulation that the U.S. would honor WTO and other treaty obligations; by the postponement of a pilot program to allow Mexican trucking in the U.S.; and by various protectionist measures taken by countries around the world.

In an interview with the Financial Times, Obama effectively suggests that democracies will have to toss out a few protectionist bones, but that the impulses can be contained. In the process, he sketches out an interesting theory of democracy:

FT: You mentioned the risks and dangers of protectionism. 73 separate measures have been identified by the World Bank since the last G20 summit so what again in practical terms can your administration do at the G20 to stop this - and I’m thinking to whether there are real risks that people worry in Europe a lot about what is going on, on Capitol Hill, with “Buy American” provisions.

Obama: Well first of all I think it’s important to note that here in the United States, despite some protectionist rhetoric and very real economic frustration growing out of the collapse of the financial markets and the huge rise in unemployment that the “Buy American” provision that was in the stimulus package was specifically written that had to be consistent with WTO. That the Mexican trucking provision is now subject to negotiations to ensure that we don’t see an escalating trade war.

I have sent a very clear signal that now is not that time to offer hints of protectionism and I will continue to discourage efforts to close off the US market. I think that in a democracy, there are always going to be some loose ends out there. That’s true here, that’s true around the world but overall I don’t think that we’ve seen a huge rush to protectionism that that isn’t the rhetoric that is emanating from the leaders that will be gathering in London.

And to the extent that the American people or Europeans or Asians, Africans, Latin Americans all feel confident that their leaders are doing everything that they can to encourage and promote economic [..] and that they have their populations interests at heart, I think we are going to be able to hold the line on any significant slippage (my emphasis).

Throughout the interview Obama expresses a similar confidence that he can ride the tiger of populist rage on several fronts - contain the anger over Wall Streeet bonuses if executives accept some constraints on pay, and win popular support for bailouts if people see the banking system begin to reboot:

I think it is very important for us to show that the money that has already been authorised is being well spent. That it is helping to result in loans going to small business and large business that are in turn investing and creating jobs. If voters perceive that it’s a one way street that we are just pouring more and more money into institutions and seeing no return other than avoiding catastrophe then it’s harder to make an argument for further intervention.

If on the other hand people start saying that they can refinance their house, and their child can get a student loan and that small business is able to retain its credit line, so that there is a tangible and meaningful result from our measures, then I think we can win back the confidence of the American public.

Obama also expresses tolerance for the way that democratic pressures shape different policies in different countries, suggesting that the G20 can embrace common goals without moving in policy lockstep. His respect for political process is similar in the international and national arenas. There's always going to be some loose ends out there.

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