The Rules of the Global Game: A New Look at U.S. International Economic Policymaking. (Book Reviews).

Feldman, David H.

By Kenneth Dam.

Chicago: University of Chicago Press, 2001. Pp. xvi, 341. $32.50.

A book on U.S. international economic policymaking written by a current deputy secretary of the Treasury warrants attention. When that deputy secretary is Kenneth Dam, you can count on clear-eyed analysis and a wealth of personal experience, as he puts it, "in the front lines of international economic policy warfare in government and industry" (p. xii).

His purpose here is twofold. The first is to build a common conceptual framework for understanding how policy toward international issues as diverse as trade, exchange rates, or the environment emerge from the U.S. political process. That framework is based on public choice analysis augmented by a refined understanding of the rules and institutional structures that influence legislative and executive branch decision making.

His second motive is part normative: to use his framework to identify why the political process has produced better outcomes, defined as higher average living standards, in some institutional settings or over certain issues but not in others. Dam borrows the term "statecraft" from his colleague and mentor George Schultz to describe how the institutional setting can be structured to shape political outcomes toward these preferred high-income results. Much of the book is dedicated to exploring the bidirectional causality between interest group activities and statecraft options in a wide variety of policy areas.

Although this book is suffused with economic reasoning and with concepts from political economy, the intended audience is the nonspecialist reader. For practicing economists, the insights are mostly about political processes under institutional constraints, or what Darn calls "the micro-politics of Washington." For our undergraduates, the interplay between economic theory and political behavior would add real spice to many courses in the economics curriculum, and I would expect selected chapters to appear in many syllabi in coming years.

The book is divided into four parts. The four chapters that make up part 1 lay out the analytic framework Dam uses later on to explore a wide variety of substantive issues. Chapters 1 and 2 introduce his view of interest group politics, rent seeking by private groups, the role of parties, and how statecraft strategies can make political outcomes more economically efficient. Economics students will have to get used to Dam's interesting terminology: normative analysis is pie-maximizing policy, and positive analysis is how the political process works. Yet Dam is effective in explaining why the distributional struggles that most of us think of as "normative" are part of the problem statecraft must resolve.

Chapters 3 and 4 use trade policy to illustrate his view of positive and normative analysis. Chapter 3 is a quick review of the political economy of protection, while Chapter 4 offers the familiar economic case for openness in trade.

Part 2 of the book explores four separate aspects of U.S. policy toward international trade. Chapter 5 evaluates unilateral strategies for opening foreign markets as an alternative to multilateral GATT or World Trade Organization (WTO) negotiations. Using the semiconductor agreement as his example, he makes a good case that section 301 actions are a poor vehicle for attaining stated American goals, in part because meaningful sanctions tend to catch politically important U.S. industries in the crossfire. More generally, Dam argues that unilateralism works only if it strikes a responsive chord among powerful interests in the target nation.

Chapter 6 is about trade in services. Dam views the Uruguay round of General Agreement on Trade in Services (GATS) as a perfect example of statecraft failure. Statecraft is about how to develop broad negotiations to maximize the possibility for horse-trading concessions among different industries and across as many issues as possible. To Dam, this is the genius of the multilateral GATT process. The weak and narrow GATS agreement reflects a U.S. failure to work out in advance how GATT principles could be applied to service industries whose regulation is divided among many competing ministries. Instead, the sector-by-sector approach that prevailed invited threatened domestic providers and their captured regulators to block all attempts at welfare-improving liberalization.

Chapter 7 explores the regional alternative for opening markets. Dam's nontechnical presentation of trade creation and trade diversion is a bit labored, and empirical evidence is lacking, but his discussion of the political role of trade discrimination is nuanced and persuasive.

In Chapter 8, Dam tackles the use and abuse of "fairness" through our mechanisms of administered protection. If statecraft is the process of shaping institutions and procedures so that actual political outcomes approximate the normative ideal, then "anti-dumping can best be thought of as negative statecraft" (p. 156). Worse, other nations have learned from us, and their mechanisms are even more biased than our own.

Since this is a 2001 book, Dam was unable to augment his analysis with an account of the current administration's abuse of safeguard proceedings. The politicized and highly discriminatory allocation of steel tariffs would have offered him another story to tell.

The four chapters of part 3 examine foreign direct investment, exchange rates, and the international financial system. Dam argues that statecraft devices are even more primitive in finance than in trade, in part because of the newness of many issues. Foreign direct investment rules, for instance, still reinforce the noncontestability of most national markets, in part because of the constraints ("trade-related") that bind the Trade-Related Investment Measures (TRIMS) negotiations.

In Chapters 10 to 12, Dam reviews monetary systems, the role of the dollar, problems with international bank lending, and the Asian Financial Crisis.

The final section's three chapters explore what Dam calls irrepressible new issues. These include all the "trade and . . ." problems, as in trade and labor standards, or the environment, or information. Immigration and cross-border flows of people round out the discussion. These chapters include a wealth of detail, including many telling anecdotes, and insights into the way interest groups affect policymaking on these issues.

The Rules of the Game could have been subtitled "confessions of an unrepentant globalist," and globalization skeptics likely will dismiss it as establishment cheerleading. That is too bad because anyone interested in global issues, the interaction of economics and the political process, or how our government actually works will find food for thought here.