Michael Livermore 0:11
Welcome to the free range podcast. I’m your host, Mike Livermore. This episode is sponsored by the program on law, communities and the environment at the University of Virginia School of Law. With me today is Paul Stephan, my colleague here at UVA law. He’s a comparative and international law expert. And he’s author of the new book, “The World crisis and International Law, The Knowledge Economy and The Battle for the Future,” which was recently published by Cambridge University Press. Hi, Paul. Thanks for joining me today.
Paul Stephan 0:38
Thanks for having me, Mike.
Michael Livermore 0:40
So with the you know, with the Russian invasion of Ukraine, unrest and global energy markets, the you know, the ongoing turmoil associated with COVID, we do seem to have plenty to worry about these days. And I take the book project, in part to be an excavation of, of the root causes of the current state of affairs. My takeaway very broadly, my thumbnail version, my takeaway was the project of what you call in the book, international liberalism was for a long time mutually reinforced by the growth of another phenomenon, which is the knowledge economy, but that ultimately, features of the knowledge economy have kind of arisen that undermine the international liberal project. And the result is that international institutions are failing, and maybe the project of peace and prosperity as failing as well, or at least where we have reason to be worried. Given the focus of the podcast, environmental issues, I would like to talk at some point about what all this means for climate change, which you do touch on in the book, but maybe to just get our feet under us, let’s start with some definitions. So one is, is that sketch roughly fair, and maybe, you know, what are you referring to when you talk about international liberalism and, and a concept like the knowledge economy?
Paul Stephan 2:03
So you said it very well, Michael, probably better than I could. The only thing that I would add to the equation is liberal democracy at home. So I think there is a strong connection between liberal democracy at home and liberal internationalism, and the knowledge economy, as I understand it, has been undermining both, even though the liberal project and the knowledge economy have a lot to share.
Michael Livermore 2:35
And so when you talk about, well, let’s start with like, knowledge economy. So what are we talking about when when you refer to that, obviously, knowledge is an important part of the economy has been for a long time. You know, what’s different now than say, you know, obviously, intellectual property has been with us for a long time, what it what has shifted over the last, you know, several decades to bring into shape, you know, this force that you’re calling the knowledge economy?
Paul Stephan 2:59
Yeah. So, you’re right, that the insight is actually fairly old. I mean, the formula that economists use is that economic growth is tied to capital, labor, and X. X being called innovation, because we don’t know what else to call it. And over the last 50-60 years, I think from the scholarly perspective, we’ve gotten more insight into what we mean when we talk about innovation, what it looks like, and what its characteristics are. And one of the reasons why we’ve been, economists have been, as focused on this as they have over the last 50-60 years, is because it by any measure has had a significant impact in the structure of how we do things, both in terms of, of production and of products. That’s to say, we increasingly the world increasingly uses knowledge as an input as a factor adding value to things and also if it’s a valuable input, then you’d expect us to produce more of it and we also see knowledge as a product in the economy. So putting it at a very abstract level, knowledge economy is the increasing reliance on a conceptual approach to the world as opposed to manipulating physical things as a way of adding value to what in a very broad sense, we in the world make.
Michael Livermore 4:52
So is the end state of the knowledge economy like the metaverse where we don’t manipulate anything in the world, all we manipulate is symbols and ownership and NFT’s. And that’s the whole, you know, that’s some huge part of the economy is that the inextremist version of the knowledge economy?
Paul Stephan 5:11
So inextremist, that I might even take it off the table, it’s so far in the distance that we can’t really talk about it in any at least analytical fashion. It’s a great exercise of imagination. But I think that’s a little with all due respect to Facebook, I think that’s a little-I’m sorry, Microsoft, right? It’s Microsoft and
Michael Livermore 5:37
Facebook is meta. I mean, everyone’s in this space to a certain extent. Yeah, yeah.
Paul Stephan 5:41
And so I think we don’t have to go down the road quite that far. I mean, I used as an example, I think a very interesting facet of the knowledge economy is containerized shipping. I mean, the tech is pretty uninteresting, it was mostly developed by the 1920s. But it wasn’t until the 50s and 60s, that people figured out how to use containerization at scale as a way of solving some very significant logistical problems. And it happened to coincide with changes in communication and information processing technology, which facilitated containerization. So we have a in some a huge increase in the added value of the distribution of goods around the world, as opposed to local production. And it’s not what we think of as high tech, but it really is very much based on a knowledge breakthrough, that was implemented very concretely in the world.
Michael Livermore 6:51
Yeah, so Okay, great. Maybe just to hold with this for a second, before getting to some other terms. You know, obviously, as you know, the container shipping is a really interesting example. So, knowledge and innovation and technology have always been part of the economy since fire, right? And wheels and stuff, all the basic mechanics, the printing press. And so what, what is what characterizes, you know, I mean, we could say that the, you know, Neolithic societies were knowledge, were knowledge based economies to a certain extent, in that knowledge and technology was absolutely essential to production at the time. So what’s different about today, in the structure our economy today, is it just that the percentage of value add, that comes from innovation and technology is so much higher? Is it that the pace of innovation and change is higher? Is it the way-the reason I brought up meta is that you know, is there an element of de materialization of the economy that didn’t exist before? What is the character of the, you know, the kind of contemporary knowledge economy that’s distinct from, you know, what happened in the in the early 20th century, or what was going on in the early 19th century for that matter, where obviously, technology still had a huge role in structuring how economic activity functioned.
Paul Stephan 8:15
So I think your first point, it captures it best, or at least is the one I agree with the most. That’s to say, it’s not that there’s anything really new under the sun about innovation as such, but simply its contribution to value added across the board. And the world economy has grown considerably to a point where it’s become the driver of decisions to a much greater extent. I mean, Jack Goldsmith and Tim Wu’s book about the Internet back in I think was 1999. You know, they go back to a press story in 1899, that talks about long distance telephones, as an example of the deep materialization of society. And people regarded the invention of the phonograph very much the same way. So there’s nothing new about the merit being materialization. What’s new, I think, is just the scale of it, and the growing reliance on it in the world economy.
Michael Livermore 9:22
Got it. Okay, great. So then, so let’s just get some of our other terms on the table. So another that is a big theme in the book is international liberalism. And you know that’s a term that’s not totally coined here. But there are other phrases that sometimes stand in for similar ideas, some of which you don’t like some of which I might not like, but other people love right. So neoliberalism or globalization are sometimes used to describe similar suites of policies or institutions or occurrences or phenomenon. So why do you like internation-what do you mean by the International liberalism? I guess? Let’s start with that. And then why do you like that as a description of, you know, the phenomena that you’re interested in, as opposed to these other terms that are often used.
Paul Stephan 10:12
So there’s always a risk when you try and push something that’s not quite the mainstream term, that you, there might be confusion. I might be accused of trying to evade some of the unfortunate implications of some of those concepts. So the tech neoliberalism, the reason I don’t embrace that is A I’m not sure entirely what it means and B, certainly there are important sectors of the world, including friends of ours, who consider it to be an epithet. So I’m trying to at least dodge some of the stigma. And globalization says I, as I say, the problem with globalization, I think, is that it is too much, too often regarded as an input when I see it as an output. That is to say, I see globalization as a series of predictable, but by no means inevitable policy responses to certain changes in the method of production. So I see the knowledge economy as something that makes scaling, it does two things. One is it makes scaling more valuable because knowledge scales, right, it’s very expensive to produce, but very low cost to transmit.
Michael Livermore 11:40
Phonograph is a good example of that.
Paul Stephan 11:43
Yeah. And, and the other, I think, important aspect of the knowledge economy that we don’t take into account often enough, is its focus on talent, as the principal component of a person’s identity, the knowledge economy thrives on talent, however you define it. And a corollary of that is it’s hostile, anything that gets in the way of the realization of talent. So things that we, I think, quite rightly, have been seeking to repress in the course of my lifetime, certainly are racism, sexism, homophobia, just to name the things that are most on people’s minds today. There’s a very strong justice case for those things. But there’s also an economic case, once you buy into the knowledge economy, they all get in the way of the realization of talents. So we have these two features, which I think the reason that we have liberal internationalism is because knowledge scales, and therefore we want production and markets to be international, because you increase the size of the market. And the cost of meeting the demand from the increased size market doesn’t go up commeasurately, because knowledge scales, and we want the cost of production in terms of talent to be lower. And one way to do that is to get rid of barriers to the expression of talent. So all these things that we object to for many good reasons, they also happen to be rewarded by the knowledge economy.
Michael Livermore 13:29
Great. And so and as part of that response, you said, The reason we have international liberalism is you know, because it essentially unfetters the knowledge economy or acts to reduce barriers to talent and scalability, which are kind of core elements of the knowledge economy. So is that the worldview here, that’s underlying or kind of informing your project is, you know, the kind of economic realities drove the political processes, maybe that then generated international liberals, which maybe we should just know what I take that to be is, you know, essentially the set of institutions and norms that surrounded that, basically, the global trade system with the WTO, the World Trade Organization and the GATT. At its foundation, so maybe we could just start with, what are we talking about when we’re talking about international liberalism and its relationship to trade? And then this kind of second question is, you know, there’s a symbiotic relationship, or at least there had been a symbiotic relationship between the knowledge economy and, and international liberalism. And I guess, you know, which one’s the tail and which one’s the dog of that? Is it the policies that facilitated the knowledge economy? Is it the knowledge economy that then drove the policies or was it just a mutually beneficial feedback that was occurring over time?
Paul Stephan 14:51
Yeah, since I’m not trained as an economist, I can’t really propose a clear causal relationship. I’m mean, I would refer your listeners to Brad DeLong’s superb new book “Slouching Towards Utopia”, which I, I think goes into much greater historical detail than me and does propose a causal argument in which he links the modern knowledge economy to a number of important things, including corporate research, as an example. But to answer your question as to what we mean, when we talk about the concrete expression of liberal internationalism, I think the four freedoms, that is a freedom of movement of goods, freedom of services, freedom of capital, and freedom of the movement of people across barriers in and then the legal systems that have been developed, least greatly enhanced since the start of the 90s, although the concepts have been around much longer. And the you know, the EU is an example, as was the United States of implementing those freedoms locally or regionally. And what we’ve been trying to do since the end of the Cold War is to extend those four freedoms to the entire world.
Michael Livermore 16:26
Okay, good. So this is the project of international liberalism right, is to build an end. But there’s an institutional component to this, right. So it’s, you know, we could say, substantively, these are the freedom of movement of goods, services, capital, and people are the end goal, but there’s then this overlay of, you know, institutions and agreements and international law, right, because that at some level, that’s a big focus of the book. And so what, I guess maybe that’s the way to get at this is, what role does law play in that? So there’s, we’ve got the economy, right? We’ve got the substantive project of facilitating global movement, and goods, services, capital and people, and then what’s the institution or illegal manifestation of that?
Paul Stephan 17:14
Right. So my intuitions are formed centrally by Marxism, quite honestly, that is to say, the one piece of Marxism, that seems to me entirely right, is that the base dictates superstructure. But having said that, I think that is a perspective, it’s not objective reality. It’s a useful way of making sense of the world for me, but I won’t maintain that it’s the only way of understanding these things. But if you understand that these ideas we develop about how to make things, skew, change, economic incentives, and then we design legal institutions, to some extent to reflect those incentives. We don’t always respond to incentives, but we do a lot. And and be concrete, you know, the institutions that were developed in the two sectors during the Cold War, that’s to say, both the Soviet side and the United States on its allies, and its allies, built institutions to promote their separate conceptions of development, the four freedoms in the case of the West and greater central planning, in the case of what I call the South, if you can accept the South that includes the Soviet Union and China. You know, that what happened after 1989, and I’m being arbitrary and using that date, but it’s vivid, is, is extending the Western Institute, western sides institutional approach to globally. So a part of that is by accepting new members to the systems that had served the West, the GATT, the World Bank…
Michael Livermore 19:11
The general agreement on trade and tariffs, right, just for our listeners.
Paul Stephan 19:15
Yeah, the general agreement on trade and tariffs, the idea of investment protection through bilateral investment treaties that had developed, really going back to the 40s. But it’s really after the 80s that takes on, first of all, the new feature of giving investors a private right of action against states which had not existed before, and to everybody joining in, so that we take legal projects that were regional and became increasingly global. I think human rights is part of that for many reasons, but one reason that I argue is tied to the knowledge economy is the point that suppression of arbitrary obstacles to the realization of talent is a project of the knowledge economy. And I think that is one of the reasons by no means the sole reason, one of the explanations for the proliferation of human rights regimes on a global basis.
Michael Livermore 20:19
Right. And so, okay, good. So we’ve got this kind of like picture of the world, there’s 1989, we’re moving into the post Soviet era, the fall of at least European communism and communism in Russia. Where the institutions of broadly the West, including around this notion of liberal internationalism, and, and the free trade regimes, these institutions are then expanded out to other parts of the world. And there was the idea that the rest of the system would follow, right, the Human Rights regimes live, maybe liberal democracy, of course, that was the theory at one point is that Russia and China, after adopting market reforms, we’re going to rapidly shift over to, or at least on some timeline, were going to shift over to to liberal democratic political orders. And and this was the vision, right, this is the end of history stuff, right? We’re all going to live in this world. And, and the title of your book is the world crisis. So things didn’t work out quite as planned. And part of that I take your diagnosis is that there are, although the knowledge, economy, jives, let’s just say, who knows about causal relationship, but it jives with, with the project of liberal internationalism, and maybe the project of liberal democracy, human rights and the like, that there are also features of the knowledge economy that undermine this project, or-well-that operate at cross purposes, at least to the institutions that are necessary to maintain the project. And so, so you mentioned scalability. And in the book, you talk about locally concentrated benefits and these come about because essentially, because of the importance of talent and the the value of aggregation, so good, talented people, and companies and institutions clustered together in cities, where then that leads to lots and lots and lots of productivity happening in those cities, and you have scalability, so they can then sell their products to the whole world. And it’s just kind of mutually reinforcing cycle. You know, an economist might look at that and say, that sounds great. So So what are the what are the downsides here that that you see as ultimately, having been a threat to the system, and I take it to be your claim that like these are, these have threatened and will undo the system, at least to a certain extent?
Paul Stephan 22:58
Well, at a minimum, they pose very serious challenges. You know, when you write a book for what I hope to be a broader audience than the law professors I usually write for, you know, you need to be vivid. And the cost of being vivid, I think, is that you lose nuance, but sometimes nuance is boring. So I’m trying to do here is to say, we have some very serious challenges we’re facing. And the purpose of the book is not to preach despair, but to say, let’s face up to these challenges. Let’s grow up here. So you’re right, that I think one- because I think it is true knowledge is transmitted best, locally. That this is an observation of Alfred Marshall. It’s an observation of the new institutional Economists like Paul Krugman, you know, the insight is that you- the benefits of knowledge economy are not spread evenly, but rather you have what we can call knowledge clusters, and the sociologists in particular people like Saskia Sassen earlier, Jane Jacobs, you know, focus on the rise of cities and Sassen, and in particular global cities. And what we end up with is a- because of global economy, we have two complimentary things. First of all, we divide the world into winners and losers. You know, the global economy is a great economy to work in if you’re talented, especially as it’s working hard to erase the obstacles to the realization of talent that historical, cultural, arbitrary, unjust practices erected and people with talent, and a service class that supports people with talent congregate in cities. I mean, one of the features of the global economy that people like Sassen write about is that we, the great global cities have vast discrepancies of life- opportunity of wealth, if you will. Partly because the people who migrate to the cities who are not the talented people, but people who simply are willing to do tasks for a lower price than incumbents, often immigrants sometimes, in many cases, both in the west and the south, there are people who have legally problematic status. In China and Russia, they don’t have local passports. In Europe, in the United States, they are undocumented aliens, and the precariousness of their legal status, the precariousness of a life that’s been restarted without long connections or broad connections, makes those people vulnerable. And, therefore the cost of making the lives of talented people easier go down. And people are willing to do that, because as exploited as they are in the great cities, it’s still a better life than back in the countryside, where they come from. I think that this is as true in China and Russia as it is in Europe, and the United States, true in India. But when you divide the world into winners and losers, and the distribution is local, rather than evenly spread, so you have the people who are left behind, you know, the Case and Deaton’s “Deaths of Despair People,” you know, the people who are displaced increasingly by the knowledge economy, but not prepared to move into a low reward service sectors, and indeed, instead have disrupted lives, disturbed lives. And to trust Case and Deaton’s data, you know, often have very downwardly spiraling lives. And these people, the winners, and the losers live in different places, they- creating political conflict, creating division, certainly in the affluent West, you know, I see this, I think there’s actually good data, seeing this account as economical an explanation as any for both the Brexit vote and the Trump vote in 2016. You can see similar processes elsewhere in the world. And it also encourages revisionism among the states that were historically left out of the rich west. So that, you know, China is our best example. But India, South Africa, Russia, you know, the so called BRICS are all seeking a revision in the international order, that is, at least in part a challenge to the legal institutions and commitments that undergird the international knowledge economy,
Michael Livermore 28:32
Right. So there’s kind of two forces simultaneously at work and this is one of the things that’s an interesting argument in the book and a way of framing the current moment, there’s internal- you know, and there’s always of course, in conflict in democracies, right. You know, but there is conflict in democratic states, like the United States, there’s conflict in Europe. There’s anti- globalization in particular, that’s a term right, we could say, anti-international liberalism, but just the notion of skepticism and the EU about Europe as an entity, European Union institutions, obviously, Brexit being the extreme example of this, the United States, both political parties now have moved, you know, there was a huge consensus, you know, extending easily through Clinton into, you know, Bush-Obama, about the value of the project of international liberalism. And now, you know, the Trump’s severely disrupted that on the Republican side. And, and I think the Biden administration is in a very different posture these days, then. Than even the Obama administration, which obviously the current president was a huge part of. So there’s that on the one hand, and then there’s these international players, especially, you know, Russia, China, you mentioned, you know, there’s also Brazil, India, countries like South Africa. So then, I guess the question, one question I have with respect to the second piece of this, so there’s the internal one, the within country. And then there’s the kind of geopolitical, let’s say, two different levels that kind of play into the same. You know, there are forces that play into the same context. So you’re a Russia expert. That’s the subject you spent a big part of your career on. And, you know, obviously right now, you know, really crazy things are happening in the context of Russia, what- a question I have is a naive question, maybe, but maybe a way to get some traction on this is- why is Russia so interested in renegotiating the basic terms of this system? Right. So like, if international, liberal internationalism is kind of a level playing field, and it allows for countries to, you know, maximize based on their their comparative advantages, and it’s a way of, you know, increasing global economic output, and the rest, is it just that Russia doesn’t think it can compete in that environment? Does it think the rules are, you know, structured against it, like, what it what accounts for Russia’s pretty substantial at this point, I think, pretty clear, oppositional? You know, the way it’s kind of positioned itself, visa vie the rest of the, you know, the organized economic world.
Paul Stephan 31:29
Yeah, it’s a great question. And I can throw out some conjectures. But that’s all they are. I don’t have any firm answers. I mean, so- one of Russia’s many tragedies I’ve said before you, you can’t do Russia without living with tragedy, it seems to be what they ultimately do the best. So one of the tragedies, probably inevitable, but that’s what tragedy is, is a decision in the 80s and 90s to- rather than find ways to build social trust, or social capital, I think the latter is just an economic term for the former. I mean, Russia was historically a low social capital country, it was an paradox because it was a high human capital country, that’s a, you know, a high investment in the development of talent and skills. But in a social environment that was really inimical to cooperative behavior, which meant that the pathway they chose in the 80s and 90s was resource extraction as the basis of their economy, rather than, you know, disruptive innovation and production that would make smart people better off, that the definition of being smart in Russia meant being a better thief, a better embezzler, a better fraudster. Rather than trying to create value or putting it differently, Russia’s focus was much more on distribution of a fixed set of assets, many of which were in the ground, rather than trying to come up with a value added. And given the low social capital of the society as we find it in 1989, that may not be surprising, but it is really tragic, given the huge resources of human talent that they could call on at that time. And China’s a very interesting different- the contrast between Russia and China which is a country and kind of with vast human resources, some of which are high human capital, but certainly just a lot of people, also devastated in terms of social trust, due to, you know, decades of misrule under Mao, but they seem to find a way of reaching a social consensus starting in the early 80s, where it’s been so awful following the Mao’s path, that you will trust us to go in a different path, even though it’s a very traumatized, harmed population. And they seem to have reached a burden where, you know, we will trust our leaders, maybe from a Western liberal perspective excessively, as long as they provide prosperity, and the leadership understanding that prosperity based on knowledge is the real way of the future. So you know, even by the end of the 80s, the difference between China and Russia was really quite striking. And under Putin, Russia has just doubled down on that, and indeed, I think China, I mean, Russia, excuse me, Russia much more than China sees the social and political divisions in the West that are, I believe it part a consequence of the knowledge economy as a vulnerability to be exploited. So I think although China sees itself as our competitor, and to some extent, the West adversary, it doesn’t, I think, interfere with disinformation and provocative behavior of which the invasion of Ukraine, Ukraine is the most extreme manifestation. The Russians are, you know, going for broke, while China is waiting for the rotten fruit to drop into their lap.
Michael Livermore 35:51
Right, because I mean, that, you know, the China, as you note, the story with China is very different from the story with Russia. And, you know, the benefit of the knowledge economy, and the benefit of the international or the liberal international project for China has just been staggering. In terms of the alleviation of Harvard’s, like the one of the most important stories in like the history of the world in terms of pulling just hundreds of millions of people out of dire poverty and, and, you know, at least attending to their basic material circumstances. And so, you know, thinking about China, what is it about the institutions and the project of the liberal international order that China, at least at this stage, seems to be placing itself again, not in such a hostile relationship as Russia, which has, just as you said, completely kind of gone for broke on that. But still a very different relationship between the US and China and China and the international system than there was, you know, 10 or 15, or 20 years ago.
Paul Stephan 36:59
Yeah, so it’s very interesting. I mean, on the one hand, China, although we’re very we’re worried about Taiwan, we have every reason to be worried about Taiwan, we can take a little bit of reassurance in China’s cautious approach, I think kinda would much rather let Taiwan naturally end up in its hands than to take a dramatic action, although the threat of taking a dramatic action of force is- they certainly haven’t abandoned that. But I think they would prefer not to, while Russia seems to think they can get expressive benefits, through the exercise of force as it has done in Ukraine. So that’s one difference. Another very interesting difference is that China is on the case of the WTO, it’s really trying to co-op that so that the United, you know, the Obama, Trump and Biden administrations have at least one thru-line in international trade, which is to get rid of the more formal part of the WTO, World Trade Organization, judicial system. And we do that on our own, you know, with the Europeans in opposition to us, but we’ve succeeded in doing that. And China has responded to that by seeking to collaborate with the EU to create a substitute ultimate judicial authority within the WTO to replace the one that was created in 1995, and that the United States has gotten rid of. China is trying to create its own World Bank as a substitute for the more US dominated world bank. So and, you know, just looking at our own little world of law professors, China has really invested heavily in investment in trade, international law expertise, in a way that Russia has pretty much completely neglected those fields, Russia still does national security and human rights, sort of the old school international law. And they have not been much of a player in trade and investment law as well. So, you know, all this is consistent with the view that China is, has a long term perspective, while Russia for whatever reason, seems to find itself cornered and the only path forward for Russia is to try and exploit divisions, both internationally and internally that it sees in the West. I mean, I- this is kind of conjectural and overstated, to look at the Crimean invasion as motivated in part by an attempt to drive a wedge between Germany and the United States. There are many other reasons as well, but I wouldn’t neglect that as part of the explanation, you know, to get the West back on its heels. While China has done very little to get the West back on its heels, I mean, even our favorite story of the last two weeks the balloon, you know, that seems to have been a fairly innocuous intelligence operation, not a weapon system. And I think generally, you know, if you think about it, we think espionage promotes international stability rather than undermining it. So, you know, although there’s a lot of passionate rhetoric right now about the balloons, you know, my own view is, I guess we’re doing the same thing; I hope we are.
Michael Livermore 40:59
We better be. Right. That’s, you know, not to get sidetracked, but it’s it’s such an interesting perspective from folks who think about national security, right? That the broader public might not get that espionage actually promotes security, because, of course, you know, when everybody knows what everybody else is up to, they’re less likely to get into like, accidental conflict with each other, or, you know, start lobbing bombs at another person expecting them, because they’re about to attack when they weren’t about to attack, like that kind of thing. So, okay, maybe we- just to transition this a little bit to the, to the subject to the, to the podcast, more generally, which is environmental matters. You talk about climate change a little bit in the book. And just to add a little bit of context here to you know, because we’ve been talking about geopolitics and trade, and, you know, internet, you know, domestic conflict and dissent, you know, really a lot of kind of the environment of the politics these days, and how does climate change fit into the story and international and global pollution and global environmental issues. Generally, climate change is just, you know, the leading example, there are fisheries, there’s plastics pollutions. There’s other issues that we care, biodiversity, there’s other issues we care about. So I think if I was going to tell a story, an international liberalism story, or how climate change fits in to that, it would be something like, you know at the same time that we were negotiating this, this liberal, this newest version of the liberal order, with the WTO, expansions, and you know, that the fall of the Soviet Union and integration of China into the, into the global trade regime, we’re also aware of the problem of, we’re becoming increasingly aware of the problem of climate change. And the solution that the kind of policy elite reached for very naturally was a global- was integrated into this mindset, this way of thinking that we’re going to use global institutions. We were going to negotiate a treaty, and you could think of, you know, the trade freedoms, goods, services, capital and people, well, we’re just going to essentially add carbon into that; we’re going to create carbon markets that would actually be global. We were going to coordinate globally, our efforts to address greenhouse gas emissions, move emissions reductions to the cheapest places, just like we moved the production of everything to the cheapest places. And, you know, kind of shake out the distributional consequences of that, but the,kind of the, theory of addressing climate change that was prevalent for quite a while was very consistent with the institutions that you described as liberal internationalism. And obviously, that hasn’t worked out at all. We don’t have a system, a global, really any kind of serious global system to address climate change, there’s the Paris Agreement. We can talk about that. Obviously, there’s huge amounts of internal dissent along partisan lines on appropriate climate policy in the States, somewhat less so in Europe, although I think, you know, that can still be on the table to a certain extent. And so I guess, just the, you know, the question back to you is, how do you see the current moment kind of informing what path we should take moving forward on addressing climate change, which is truly a global problem in scale? And it’s not clear how, without some forms of global cooperation, we’re ever going to really get our way out of this.
Paul Stephan 44:34
Yeah, I agree completely. So I think we start with the claim that it is a collective action problem, and that some kind of solution that involves coordinating behavior and creating the right incentives for desirable behavior is essential. It is, I think, a problem where it’s hard to see how a single leader-state could all on its own fix it. I mean, I think the most we can hope for is to create incentives for particular states to come up with innovative solutions. You know, I think one of the, I think, and I’m not the technologist that you are, Michael, and there’s a lot I don’t know, but my impression is that if you don’t think the right solution is closing down the industrial modern economy, then we have to come up with technological innovations, and then apply them to fix this. And, perhaps as part of the solution, you know, creating for incentives for states to innovate with these technologies, and tolerating rewarding them for their innovation. So I, to get a little more law-oriented and concrete, I see this kind of as the path from Rio to Paris. So I think Rio was still informed by a sort of international agreement on commitments that would have something of a legal nature and aspiring to more, you know, so it was somewhat top down in its aspirations, although maybe not in its realizations. And what I like about Paris, it tries to sort out things we can do now, and give some formality, some legal content to. from the things that we’re just going to have to figure out. So as I understand Paris, and I know you have a much better grasp of it than I do, but just at a 30,000 foot level, you know, what Paris does is mandate, transparency, but not commitments. And, you know, some people think that’s a cop out, and maybe it will turn out to be, but you can make an optimistic case for it. As you know, the transparency means we know what other people are doing, including, we may have a better idea of what other states are coming up with. And then we can, when we see what they can accomplish, we might be able to try and surpass them and create, you know, a benign competitive environment about developing technologies that I think it would have to be a mix of carbon reduction and carbon capture, you know, reduction of the amount of carbon in the production process and new technologies that capture carbon that is extant in the world. And, having some reward system, it doesn’t have to be, you know, rigid patents or anything like that, but to have one reward system, so you don’t have to wait till you go to heaven to be rewarded for coming up with breakthroughs in these technologies. And at the same time, hoping that we can come up with distributional effects so that countries that do the technological breakthroughs groups that do the technological breakthroughs, will be able to transfer their technology without withholding that too much from other parts of the world that need to adapt it as well. Now, this is the problem we have with pharmaceuticals, right? I mean, that: as we saw with COVID, right, we want to make the vaccines available to everyone because we need herd immunity on a global basis. But you know, we don’t want to give away the vaccines for free because then we won’t get vaccines. And I think that basic concept applies to the kind of innovations we need for both carbon reduction and carbon extraction technologies. And also, as I mentioned, in the book, we need monitoring, because I mean, one problem we have right now, I think, is there’s too much scamming about, you know, carbon offsets that are really, it seems to me, some of them at least are kind of phony. And, but we need to identify people who are really successful at reducing carbon and reward them. And we need technologies to, you know, distinguish the scams from the accomplishments.
Michael Livermore 49:31
Yeah, I mean, I think the- so that’s helpful. So I’m going to be the pess- you get to be the pessimist throughout most of the books, so I’m going to be the pessimist on this a little bit, which is- so I don’t see that dealing with climate change is kind of exclusively a technological problem. So for example, you know, there’s a lot of technologies that we know that we could deploy right now that would reduce greenhouse gas emissions at pretty low costs actually around the world. And with respect to carbon capture and storage, someone has to pay for that. Right. And there’s always this problem, which is the United States or any actor, California, Europe, China, whoever, any carbon that they reduce, so that any carbon that they don’t emit, or any carbon that they suck out of the atmosphere and store, that the percentage of the benefits that they get from that activity, reducing emissions or storage, or capture and storage is small compared to the benefits that are generated, right, because the benefits go to the whole global community. And this is just the nature of the public good problem of climate change- it’s a global externality. So there’s always this problem of who’s going to pay for this stuff. And without a global regime of some kind, that either caps emissions or places a price on carbon, or places some kind of compensatory price that pays for carbon capture and storage. That’s just, it’s just very, very hard to imagine how any of that would ever get deployed, or, you know, even if the technologies existed. And then, of course, the technologies aren’t going to really get created, until there’s a financial system in place that will reward their ultimate deployment. So this is the tricky thing, I think where we find ourselves in. Now, part of- I take your reasoning to be like, “look, we have to also take the reality of the international system and where it is and where it’s likely to be, you know, in the at least the medium term. And we can do what we can do, but we can’t do more than we can do. So let’s, let’s think about how we can at least leverage the tools at our disposal as best we can, and not bemoan the fact that we can’t do some other, you know, thing that might be great in an ideal world.” So I guess that’s kind of my question is, do you see this, the next stage as, as kind of an intermediary period where we’ll maybe fund some technological development, some countries will do some decarbonization some more, some less, but not really, under, you know, an incentive structure that’s going to properly give, you know, incentives to do those activities at an efficient level or at a good, you know, at a socially beneficial level. And then we move eventually, to, you know, where we hope that there will be a reconsolidation of the international order such that we could try to manage a more robust form of global cooperation, or is it just, you know, is that the idea, the long term idea, or we just need to do as best we can with what we can right now? And just we’ll see how the future shakes out?
Paul Stephan 52:47
Well, I think ultimately, all we can do is the best we can but let me throw out a few conceptual ideas that push back a little bit on what you’ve said, although I largely agree with you. But this is the point I would make, that if we conceive of the problem as a pure public goods problem. And we acknowledge that we’re operating under a very flawed market for- the government piece of the puzzle is very flawed, you know, we’re doomed, right? I mean, that if the only solution ultimately is by government provision, yet we are living in a world of government failure. Boy, that’s tough. So maybe we need to think about this in another way. And, you know, one of the interesting, this is where at least metaphorically, I think the story of the knowledge economy might come into play. I mean, for many years, people like Marshall, people like Solove thought that technological innovation was a public good, and that ultimately, you had to look to government to provide it or at least create an environment that didn’t get in the way. And I think Paul Roamers, you know, Nobel Prize winning Insight was actually you can incompletely monetize, but technological innovation, but you can give technological innovation, enough of a quality of an asset as to make investment rational, even if you don’t capture all of the benefits of that investment, that there is always with knowledge, some leakage, but also some ways to, you know, learn from doing in a way that you can be for a long time the technological leader, and if we apply that model to combating excess carbon in the atmosphere, well, yeah, somebody has to pay for carbon extraction, but you know, if you are the leader in developing technologies, you can imagine a world where you can, you know, sell those technologies, you know, either by outright or by lease and you can also by investing in developing those technologies learn how to do other things for which you’ll get rewarded. I can’t say that’s guaranteed. And so this is, to some extent an expression of hope rather than a confident prediction. But I do think that if we think of creating a world, where incentives are more likely to work, to induce people to invest in carbon extraction and carbon reduction, you know, we can get there sooner than relying on a system that’s afflicted by government failure. And I think Paris is a roadmap towards that kind of world, although it’s by no means inevitable.
Michael Livermore 55:53
Yeah. Great. So yeah, yes. I mean, it’s very interesting. And you have to take the point, at some level that if the institute, if global institutions just aren’t up to the task, we have to have to find somewhere else to go, right. That’s just that- if you just find a river that you can’t cross, you have to find another place to forge, so to speak. Okay, just, you know, thinking about some of these institutions, and maybe the, you know, the next, you know, 10-15-20 years, one of the potential issues that you raise or the kind of forecasts that you make are, that the EU itself and the WTO, are very much imperiled, that these are institutions- they’re at risk that, you know, maybe, you know, France could leave the EU, that would obviously be the disaster for the entity. So one question I have is just a little bit like, maybe these institutions, how long? What’s the natural lifecycle of these? I guess? That’s the question. So maybe when they were- as the European Union institutions were being created and consolidated, as the WTO was being created, there was an idea that these would be very, very, very long lived institutions; I think you can actually correct, you know much more about this than I do. But my impression is that folks at the time saw these, as you know, bedrock institutions that were going to structure International Relations for a very long time. And what we’re learning maybe is that they were temporary, they were part of a system that existed for some time, they served a function, and maybe they’re, you know, there’s just other institutions that are going to, you know, that are going to kind of come into being that will better serve the world that we live in now. And I guess the question is, like, how should we feel about that, should we be- should we mourn the WTO? Should we mourn the European Union? If that’s the way things are going? Or should we just accept that they served a useful function for a particular moment in global history? And now there’s going to be other institutions or other ways of interacting, at least that I’m hopeful will serve some of the same functions?
Paul Stephan 58:04
Yeah. So you know, here I am a chump and terian, if that’s the word that’s to say, creative destruction. And I don’t see why it shouldn’t apply to international institutions as much as it applies to most human social enterprises. Uh, let me make what may be a far fetched analogy, which is to the US constitutional system, you know, we made our constitution formally extremely hard to amend. But of course, we don’t see rigidity. Indeed, we have an ongoing rewriting of our Constitution every time the supreme court is in session. And I think those two things are related. And so with international organizations, the formal barrier to change is because they’re treaty-based and because treaties, multilateral treaties typically require unanimity. You know, there are a lot of veto points that make formal change of those institutions, whether it’s the WTO or the EU, really hard. But as we’ve seen from you know, the US approach to constitutional revision, there are other ways of adaptation. And we can hope that those institutions can survive adapted. So, you know, if you think, for example, that the WTO system needs to revert to something closer to the pre-1995 general agreement system, which provided a lot of the same services but without quite the legal rigidity. I mean, we can do that without, you know, closing down the WTO headquarters in Geneva. We just what the United States has already done with the so called appellate body, the ultimate Court of Appeals and the WTO. I mean, we working within the system, we’ve destroyed that and many people deplore that. But maybe that’s really the right way to go. Another thing that’s happened to the WTO that I write about, you know that the United States has embraced a position that the first part of which I think is pretty solid, which is national security is a Trump. And be national security is whatever we say it was, which was actually embraced by the Trump administration, but has not been disavowed by the Biden administration. Now, from a formal perspective, that argument destroys the whole value of the system, what good is rules of any country can give itself a get out of free card by saying national security is whatever we say it is, on the other hand, that can lead arguably, to a different equilibrium, but not necessarily anarchy. I mean, there are disincentives to invoking national security, you know, you’re losing opportunities to cooperate with other states, you’re losing the opportunity to call out other states. So the fact that this pulled the plug option exists doesn’t necessarily mean that it will dominate the system. That’s a- the WTO system is an example of the EU. How well will it adapt? I mean, it’s facing real challenges and a change in government. France, for example, is I think, the most likely another election in four years and the front Nasional has gained every time it’s been in contention. On the other hand, the EU might adapt itself to the point where it’s no longer the bugbear that makes it worthwhile for the front Nasional to call for withdrawal from the EU, you know. So there are ways of adaptation other than amending the treaty itself. And our hope is that the participants in these particular clubs can find pathways to respond to the challenges that enhance their survivability. I mean, that’s certainly what I would like. My fundamental argument is that doubling down on the importance of your status as an international organization and the importance of international laws, a formal matter, that doubling down I feel is not often the right pathway to survival.
Michael Livermore 1:02:37
Well, these are incredibly weighty matters. And the book is- it’s very illuminating. You know, obviously, listeners should should give it a read if you’re interested in these in these questions, which we all should be. Paul, thanks so much for having written the book. And thanks so much for chatting with me today.
Paul Stephan 1:02:57
Thank you, Michael. This has been terrific. I’m in your debt.
Michael Livermore 1:03:00
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