The pact with the devil by Joseph E. Stiglitz
The Nobel prize-winner for Economics, Joseph Stiglitz has sent me a letter and given two interviews. One is on globalisation and is published below. The other is on video and is about work and poverty.
maybe we need a RESET; before that we can try to put a grand of sand in the machine. This is what I'm trying to do as an economist.
For much of the world, globalization as it has been managed seems like a pact with the devil. A few people in the country become wealthier; GDP statistics, for what they are worth, look better, but ways of life and basic values are threatened … This is not how it has to be.
We can make globalization work, not only for the rich and powerful, but for everyone, for those that live in the poorest contries too. The task is difficult and requires time. We waited too much: the time to get working has come.
1. In your book you suggest a non-Washington consensus approach to globalization. How can it be applied if the "powerful" institutions (FMI, Treasure etc) are against this approach?
First, developing countries are working to achieve independence from the IMF—and trying to make sure that they do not again become subjected to its dictates. Almost all have paid back was owed, earlier than required, simply to get the IMF off their backs.
Secondly, Argentine has shown that strong willed governments can stand up to the IMF. It simply refused to be cowed. It said that it wanted to have an agreement with the IMF, but it recognized that a bad agreement was worse than no agreement. Not only did it succeed in negotiating a better deal with its creditors than it would have done, had it listened to the IMF, it managed to grow, and grow rapidly, for the first time in years; and for the first time in years, it managed to balance its budget—bitter irony for the IMF who had subjected Argentina to all kinds of misguided policies, all in an attempt to get rid of its deficit.
Finally, there is a drive to reform the IMF itself, a drive which is bearing some fruit. At its meeting in September in Singapore, the IMF admitted the flaws in its governance (though it itself has severely criticized governance in developing countries), and gave more voting power to four of the most underrepresented of the developing countries. But some of the most important flaws remain—the U.S. remains the only country with the veto power, the way its head is chosen does not accord with the kinds of democratic procedures that we take for granted in our own democracies, and it is still not conform to principles of transparency that are accepted in the United States, Sweden, and other democracies.
2. Do you foresee a role for a consumer-network via internet? (e.g. boicott strategy of polluting firms etc)
Global civil society has already managed to show its effectiveness, for instance in getting debt relief (in 2000, the Jubilee 2000 movement) and in the Lands Mine treaty. The internet is an important tool for organizing across the world—and so I do for see a potential role for a consumer-network via internet, to help organize and mobilize consumers on subjects of their concern. Consumers are one group in our society whose voices are not heard, or at least not heard as much as they should. For instance, in government, there are several ministries devoted to looking after producer interests, but in few countries is there a ministry to look after consumer interests.
3. Can capitalism self-correct its behavior? After all, your asymmetric information approach discarded the mainstream economics (which justifies the Wash. consensus), but it is still dominant in the economic profession.
The theories that I (and others) helped develop explained why unfettered markets often not only do not lead to social justice, but do not even produce efficient outcomes. Interestingly, there has been no intellectual challenge to the refutation of Adam Smith’s invisible hand: individuals and firms, in the pursuit of their self-interest, are not necessarily, or in general, led as if by an invisible hand, to economic efficiency. The only question that has been raised concerns the ability of government to remedy the deficiencies of the market.
Within academia, a significant fraction of economists are involved with developing and expanding on the ideas of imperfect information (and imperfect markets) that I explored. For instance, Edmund Phelps, this year’s Nobel Prize winner, belongs to this “school” of thought. But in political discourse, simplistic “market fundamentalism” continues to exert enormous influence.
4. When US refuse to apply the Kyoto protocol, one may say there is a Government financial aid in action?
In my new book Making Globalization Work, I devote a chapter to the question of global warming. As with so many other aspects of globalization, it is the poor that are most vulnerable, the most likely to suffer. For instance, a third of Bangladesh will be underwater, and the country will suffer from increasing flooding—an already impoverished country will become even poorer. It is not a question whether the American economy can afford to take actions—indeed, it is increasingly clear that the question facing the world is whether we can afford not to take action. But by not forcing American firms to take account of their global pollution, American firms are given a financial advantage over firms from the rest of the world. This is unfair, and I show in my book how the WTO—which is suppose to create a level playing field—can be used to force America to withdraw what are in effect unfair subsidies to its polluting producers.
5. Which kind of jobs for our kids: flexible and precarious?
Increasingly, life time employment will be a thing of the past. People will have to move from job to job over their life time, and one of the challenges of our educational system will be to prepare our young people for these transitions; and one of the challenges of our social system will be to enable people to make these transitions with as easily as possible. There will more precariousness than in the past, more risk, but we can reduce the social consequences. For instance, in America, individuals depend on their employers for health insurance; when they lose their job, they lose health insurance, and, if they should have an illness during these periods between jobs, it can have lifetime consequences. This should be intolerable. Globalization has been used as an excuse for weakening social protections; rather, the increased precariousness of employment is a reason we should be strengthening social protections. (Of course, we need to work to make sure that they are well designed, and sometimes, in the past, they have not been. But this is not a justification for doing away with social protections.)