I recently worked on a case study with Harvard Business School, called “Techint: Strategic Choices for Community Impact”. Students will appreciate how business profits can be used to lift some sections of society. But being capital-rich does not automatically guarantee success, for this would require careful navigation through the competing interests of various stakeholders. In any economy, nuances are everywhere. If economics is in the business of making predictions, more moderation is required because predictions rarely come true.

First off, once an economy has reached its balanced growth path, it would have to slow down. But economies that still actively develop, often with abundant labour availability, should register faster growth as they tend to have productive investments everywhere that put capital to good use.

Already advanced countries, on the other hand, wouldn’t have the same productive use of capital. Moreover, they would gradually become alike since their growth should look similar. I am referring to popular characterizations made by Robert Solow, the famed economist known for his economic growth theory. Although his predictions don’t usually pass scrutiny tests on the ground, what really bothers professional economists is his assumption that the improvements found in growth are unrelated to the country’s policy regime, essentially putting long-run growth rate mysteriously beyond our control. In other words, in Solow’s world of unexplained technical progress, there wouldn’t be much that policy-makers could confidently do to secure future economic growth. This belief in some exogenous force makes you yearn for a double-espresso.

Secondly, it is also not clear whether productivity always wins the day. Robert Lucas, another Nobel laureate, provided a memorable lesson wondering why capital did not flow from the rich US to the much poorer India where potential return would easily be some fifty times higher (Why doesn’t Capital Flow from Rich to Poor Countries? Published in 1990). But since such capital flow did not occur, Lucas’s logical conclusion was that capital in India, however scarce, must have been used much less productively than in the US. Of course, not many people would buy the idea. Unconvinced by it, in their 2019 book called Good Economics for Hard Times, recent Nobel winners Banerjee and Daflo criticise Lucas for being too optimistic about how markets function and for casually failing to realize that we do live in a sticky economy where nothing moves easily.

Conscious that neither Solow nor Lucas had found the holy grail of economic growth theory, Paul Romer (a student of Lucas) famously coined the term Mathiness (misuse of mathematics in economics analyses) and decided to have a shot at explaining away economic growth by basing his argument on the power of the exchange of ideas, for instance, by linking growth to technological innovations.

Unlike Solow who wrote that growth would slow down in the long-run, Romer posits that growth may be actively generated by policy measures such as investing in clever people (human capital) and embracing spillover effects of a knowledge-based economy. As such, if poor countries fail to grow fast, this failure would have a lot to do with their own bad policies. Romer, a former chief economist of the World Bank who won a Nobel prize after resigning from the post, at least sounds reasonably fashionable.

For whatever it is worth, the study on economic growth no longer captures the spotlight. Serious researchers have turned their focus on how to directly deliver the well-being of the people rather than on trying to measure growth, let alone to understand what drives it.

Not too long ago, the brightest ever formed group of experts led by Michael Spence (another Nobel winner) including Solow and several hundred of experts were commissioned by the World Bank to find ways to help poor countries attain high growth. Their findings published in 2008 were, in William Easterly’s opinion published on The Brookings Institution, quite clear: “we do not know, but trust the experts to figure it out”.

This inconvenient truth explains why Banerjee and Daflo passionately plead that “it may be time to abandon our profession’s obsession with growth”. Indeed, Nobel prizes in economic sciences in the last five years have gone to other areas of empirical studies, namely, the role of institutions, the role of women, the dynamics of bank runs, the labour market and its causal relationships, and the auction theory. No big claims of a breakthrough in economic growth theory.

Without a clearly leading theory to ride on, does this mean that we should let trade unfold as it pleases? At the minimum, it is self-evident that prosperous nations have become so by actively engaging with others. No isolated country has proved to be rich. Interestingly, how successful certain nations were at international trade might have been politically context-dependent. That is, not always entirely by their own bidding. For instance, as a well-known industrial policy-based economy, Japan in the 1960s all the way to the 1980s was recording massive surpluses through exports because the US had provided a generous consumer base. The geo-political necessity in the Cold War era had to secure economic successes for those aspired to become ones of the West.

But such rationale could not hold its ground for too long because the way international trade regime played out has unavoidably created so many losers, rendering the globalized system in its current form untenable. The Six Faces of Globalization by Nicolas Lamp and Anthea Roberts is filled with winner-loser narratives. The recent rise of populist movements in the consumer-base West (and elsewhere) vividly demonstrates the growing anger of those economically left behind because, as Robert Lighthizer’s titular 2023 book puts it, No Trade Is Free. Lighthizer fervently condemns the World Trade Organization for both its inability to live up to its own rules and for how it has failed America in particular.

As a former US Trade Representative under Trump’s first presidency, his accounts are as expected. But a better approach to striking a more equitable international trade system is not by simply getting rid of the WTO. Some improvements around the edges might fit the bill. For instance, a respected free trade economist Kimberly Clausing has long proposed several concrete steps aimed at better equipping workers for a modern economy, streamlining tax policy and nurturing a stronger partnership with the business community (Open, 2019). Wouldn’t hurt to try.

It is universally acknowledged that a great power in decline must be restless. I get it. But it need not be reckless. The duty is to convince others to implement needed changes to correct market failures peacefully.

Some deep alterations to the global trading system are necessary in order to deal with the elephant in the room — large and persistent trade imbalances. As is often portrayed in the cited literature, current rules cannot tackle imbalances equitably whereas the resulting shifting economic landscape can throw supply chains into chaos.

If Michael Pettis’s advice is heeded, the global trade system should be better off if we would embrace Keynes’s old proposal “in which surpluses and deficits could not persist” and that “the rules of trade must ensure that resources are in fact able to flow where they are most productive.” In doing so, we would need to stick to David Ricardo’s comparative advantage much more often, even though international relations are governed by realpolitik imperatives far more complex than trade realities. At any rate, as we continue to experiment with various missions to figure out a more equitable global trade regime, it is absolutely crucial to avoid causing irreparable harm to partners.

Virak Prum, LLB, LLM, PhD (2006 Nagoya University) teaches business law at CamEd Business School. The views and opinions expressed are entirely his own.