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Economic news once confined to the business pages of the newspapers now receives headline coverage, whether it involves protests in Seattle or sweatshops in Asia. As attention is increasingly focused on economic policy, it becomes even more important for noneconomists to be able to make sense of these stories. Is the Asian economy sinking or rising? What effects will a single European currency have on the US economy? Kenneth W. Dam's The Rules of the Global Game provides, in clear and practical language, a framework to help readers understand and answer such questions. Dam takes us beyond the headlines and inside the decision-making process as it is populated by lobbyists, special interest groups, trade associations, and public relations firms. While some economists and thinkers have idealized plans for US international economic policy, Dam, currently the deputy secretary of the treasury, manages to merge this idealism with a consideration of what it means to govern at the intersection of competing groups with competing claims.
In The Rules of the Global Game, Dam first lays out what US international economic policies are and compares them to what they should be based on how they affect US per capita income. With this foundation in place, Dam then develops and applies principles for elucidating the major components of economic policy, such as foreign trade and investment, international monetary and financial systems, and current controversial issues, including intellectual property and immigration. Underlying his explanations is a belief in the importance of worldwide free trade and open markets as well as a crucial understanding of the political forces that shape decision making. Because economic policy is not created in a political vacuum, Dam argues, sound policymaking requires an understanding of "statecraft"-the creation and use of institutions that channel the efforts of interest groups and political forces in directions that encourage good economic outcomes.
Dam's vast experience with the politics and practicalities of economic policy translates into a view of policy that is neither academic nor abstract. Rather, Dam shows us how policy is actually made, who makes it, and why, using examples such as GATT, NAFTA, the US-Japan semiconductor agreement, and the Asian financial crisis. A rare book that can be read with pleasure and profit by layperson and economist alike, The Rules of the Global Game allows readers to understand the policies that shape our economy and our lives.
Democracy: Governments create rents in both democratic and totalitarian systems--as we now understand in the wake of the collapse of the Soviet Union--but democracy seems to be better in practice at limiting rents. The reason why is because blatant rent seeking is likely to be more open and controversial in a democracy.
Laws against bribery and corruption: A moment's reflection will warrant the conclusion that bribery and corruption amount to advanced forms of rent seeking; one of the things learned with increased globalization is that rent seeking is rife in many developing countries because they do not have or do not enforce laws against bribery and corruption.
Competition: In a large country such as the United States, the typical industry has more competitors than in smaller countries, where there may be just one "national champion"; with more firms in an industry, it is less likely that one competitor can, through political influence, gain over its competitors.
Antitrust laws: To the uninitiated, these laws might seem to outlaw collusive action to obtain favorable governmental action. However, the Supreme Court decision in the Noerr case held that competitors are entitled to combine to influence the government. The reasoning of that case may be constitutionally sound, but in actual practice it means that the representative institutions of our political system can operate as a mechanism for rent seeking.In the international economic sphere, rent seeking usually equates with protection seeking, since it is protection that is usually being sought: protection against competition from abroad. The competition often entails imports, but it can also be competition in the form of, say, foreign investment in the United States. Either way, the essential characteristic that we saw in rent seeking applies to the case because the protection is gained through governmental favor (not through becoming more efficient or more innovative).
The local companies alone have about five hundred full-time employees lobbying in Washington, not counting the innumerable law firms, lobbying firms, and public relations firms they also employ. They also have large lobbying efforts at the state level. Local, long-distance, and cable companies are also among the largest contributors to political campaigns and political action committees at both state and federal levels. In total, the telecommunications industry probably spends half a billion dollars a year on lobbying in all forms; that's serious money.Ferguson's spending number is hard to verify, but we do know that Bell Atlantic alone spent $21 million on lobbying and $2 million on campaign contributions in 1998, with unknown additional amounts for related public affairs activities.
Politics more than ever has become an offshoot of marketing. In such a context, most information is "interested." That is, the information reflects, sometimes subtly, sometimes not, the underlying views of the interests who sponsor and disseminate it.
Excerpted from The Rules of the Global Game: a New Look at Us International Economic Policymaking by Kenneth W. Dam Copyright © 2001 by Kenneth W. Dam. Excerpted by permission.
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List of Abbreviations
Part 1: Angles of Vision
1. The Tension between the "Is" and the "Should Be"
The Normative Approach
The Positive Approach: A Political Analysis
Interest Group Politics
Who Does What (and to Whom) in Washington
Political Contributions and Interest Groups
The Role of Political Parties
Limits to Political Analysis
2. The Role of Statecraft in Resolving the Tension
The Presidency, the Executive Branch, and the Congress
Implementing Statecraft Strategies
A Closer Look at the Private Sector
Statecraft in Search of Normative Goals
Interest Groups and Public Discourse
Openness, Productivity, and Per Capita Income
3. Political Dimensions of Trade Policy
The Institutional Setting of Interest Group Politics
The Influence of Different Kinds of Interest Groups
4. Normative Dimensions of Trade Policy
The Case for Eliminating Trade Barriers: Comparative Advantage
The Benefits of Opening Economies to Trade
Qualifications to the Case for Free Trade?
The Current State of Play
Part 2: Trade Strategies and Issues
5. Opening Foreign Markets
The 301 Process
Sanctions as the Achilles' Hell of 301
The Semiconductor Agreement Example
Market Access in the Uruguay Round: Procurement and Agriculture
6. Trade in Services
The Nature of Trade in Services
The Search for Services Trade Liberalization
From GATT to GATS
Financial and Telecommunications Services
The Path Ahead
7. The Regional Strategy for Opening Markets
Regional Trade Agreements Today
The Case for and against RTAs: Trade Creations and Diversion
Rent Seeking in the Trade Creation/Diversion Equation
The Third-Country Effect
Interest Groups and NAFTA
8. The Janus Faces of Fairness
From Protectionism to Fairness
Antidumping Proceedings in Actual Practice
Antidumping in a Statecraft Perspective
The Semiconductor Agreement, Part II
Larger Implications of the Antidumping Law
Part 3: Investment and Finance in a Globalizing World
9. Private Foreign Investment
Perspectives on FDI
Investment as a Driver of Trade
Restrictions on Investment as Restrictions on Trade: TRIMS
The Failed OECD MAI Effort
US Policy toward Inward Investment
US Options in Investment Negotiations
10. The Diversity of Monetary and Financial Issues
The Moving Theater of Monetary and Financial Issues
Exchange Rates and Patterns of Trade
Exchange Rates and Trade Compared
Managing Exchange Rates
11. The International Monetary System
Exchange Rate and Reserve Systems
A Political Analysis of US International Monetary Policy
The Key Currency Role of the Dollar
12. The International Financial System
Underdevelopment in Developing Countries
The Asian Financial Crisis
The Bailout Issue and Prospective Reforms
Policy Issues after the Asian Crisis
US Decision Making in International Finance
Part 4: Irrepressible New Issues
13. Labor Standards and the Environment
Trade and Labor Standards
Trade and the Environment
14. Trade in Information
The Nature of Information
The Uruguay Round TRIPs Agreement
Subsidies to High Technology
15. Cross-Border Flows of People
US Immigration Policy in Historical Perspective
An Economic Approach to Immigration Policy
The Consequences of Present Policy