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The Globalization Paradox – Dani Rodrik – chapter 1 notes
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Starts by looking at some examples of globalization
Beaver pelts were in huge demand in the 17th/18th century
Two French brothers travelled to England to get monopoly rights to trading beaver pelts
from the Hudson bay area in Canada – had been rejected by France – knew prince Rupert
Came to be known as the Hudson Bay company
Would trade weapons/alcohol with native American tribes for beaver pelts
The charter that Charles II gave the HBC gave them a lot of power
They could essentially operate as a nation state
Made them the “lords and proprietors” of the Hudson bay area, which turned out to be over
6 times the size of France – to a private company!!!
Had full power to rule over the local Indians
Could fight wars, make laws, dispense justice
Canada bought Rupert’s land for the equivalent of over 30 million dollars in today’s money
This is essentially what mercantilism is
The companies responsible for this early globalisation were monopolies similar to the HBC
E
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English East India Trading company
Had a standing army, could declare war on people
Ruled over India and essentially became a government – provided public goods and then
collected taxes to fund this
1858-Indian mutiny-control passed to British crown
Mercantilism again – close alliance between sovereign and commercial interests
Wealth of Nations (1776) attacked mercantilism
Argue that state interference in trade is bad for economics, i
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tariffs, monopoly rights
Rodrik then argues that markets do need some form of state intervention to set the “rules of
the game”
Rodrik argues that the HBC example shows that comparative advantage on its own is not
enough to ensure trade – high costs in making trade outposts, contacting Indians, making
dangerous journeys – needed to create infrastructure/rules in order to then trade
Trade would have been impossible without these state-like functions
For France and Spain, private companies had been granted monopoly rights in order to carry
out public services in order to provide trade
Rodrik argues that with Mercantilism, private companies often had to play the role of states
When the East Indian trading company and HBC lost their monopoly rights, the state had to
step in to take on control
Many things are needed to overcome transaction costs of trade – 2 parties need to be
brought together, needs to be peace/law and order, common language, medium of
exchange (money), trust, clear property rights over the goods
There must be strong institutions for companies like Apple to have the supply chains that
they have and trade across the world
Third party enforcers are needed to generate institutions, this has happened in all the
worlds developed economies – e
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tax collectors, central banks, police forces
Markets and states are complements, not substitutes according to Rodrik
Government expenditure has grown from around 11% to around 40% in the last 150 years in
the worlds advanced economies – also countries with more international trade had larger

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governments- Rodrik found this result held up to many controls and even in developing
economies
He argued that if markets are to expand, governments need to too – to protect people from
risks and insecurities that come with this
He argues that international trade does not have as good institutions as domestic trade –
less international rules and protections – different cultures also mean no guarantee of
trust/co-operation either
Differing labour laws, tariffs, currencies etc

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