Nobel Laureate (Joseph Stiglitz) Encourages Global Justice Movement

by Tim Shorrock

Inter Press Service, October 15, 2001

www.globalpolicy.org/

Joseph Stiglitz, whose critiques of free market fundamentalism cost him a senior job at the World Bank in 1999 but won him the Nobel Prize for economics last week, has succinct advice for the global justice movement: Keep it up .

''The recognition that the trade agreements of the past have been unfair is one of the important lessons of the anti-globalization movement,'' he says. ''I think it's something that will stick with us. And if we go forward with another round of trade talks, it will shape our discussions.''

Regardless of whether a new round of comprehensive trade negotiations is launched next month at the World Trade Organization ministerial meeting in Qatar, he says, the United States and other rich countries should follow Europe's 'everything but arms' agreement by opening their markets to the least developed countries (LDCs) ''and say, for the poorest countries, we aren't going to wait for a round of trade. To show our good faith, we will commit ourselves to the poorest countries, opening up our markets immediately.''

''It's not a question of negotiation. The amount that it would hurt the developed countries is so small,'' he adds. ''It would provide an opportunity for them (the LDCs) to produce something with a market.''

As for the International Monetary Fund (IMF), which Stiglitz has rebuked for its myopic focus on ''old problems'' like inflation, he proposes a new direction that would return the institution to its post-World War II mission of addressing real-world problems, such as the recession that has deepened since the events of Sep. 11.

''It's time for the IMF to worry about the global economic slowdown and provide the liquidity that would allow for global expansion,'' Stiglitz says. He urges the IMF to target the substantial funds it controls towards ''global economic needs'' such as the ''fight against terrorism, the fight for a better global environment, the fight for a more equal world that would reduce the disparities between the haves and the have-nots.''

Stiglitz's advice and analysis will receive more attention now that he, along with U.S. economists George Akerlof and Michael Spence, has won the 2001 Nobel Prize for economics. The award, announced Oct. 10 in Sweden, was made for their research in the 1970s and 1980s showing that markets, when mixed with imperfect information, fail to allocate resources fairly. Governments, they concluded, have an obligation to address this problem by playing a stronger role in the market system.

''Joseph Stiglitz's many contributions have transformed the way economists think about the working of markets,'' the Nobel committee said in making the award. Stiglitz now is a professor of economics at Columbia University in New York.

During the Clinton administration, he served as chairman of the Council of Economic Advisers and was later appointed chief economist of the World Bank. There, he earned the wrath of then Treasury Secretary Larry Summers, the administration's chief proponent of the IMF, by publicly criticizing the fund for bailing out rich investors and driving Asia into a depression during the financial crisis of 1997 and 1998. The Bank fired him, reportedly on Summers's orders, in 2000.

Stiglitz explains the relationship between his theories and his analysis of the Asia crisis thus: The crisis was sparked when banks refused to roll over loans in 1997 to South Korea and Indonesia. ''That was a financial market imperfection caused by information,'' he says. ''So the credit markets were not working well. The economics of information provided an explanation for why that was the case.''

Asked what he would say to Summers and IMF and World Bank officials who disliked his critique of the so-called ''Washington consensus'' on market liberalization, Stiglitz chuckles at ''the irony'' of the situation.

''In the 1970s and 1980s, the period for which I got the prize, there was an increasing recognition of the problems of the market fundamentalist model,'' he says. ''The Washington consensus, which was based on market fundamentalist ideas, lived on as an institutional position and became solidified . just when academia was saying these ideas do not provide a good description of the economy.''

Stiglitz says the George W. Bush administration has recognized that the IMF bailout policies did not work and were, in effect, ''corporate welfare'' for investors funded ''by taxpayers not in the United States but in Russia, Brazil and other countries, who ended up paying the bills (for) the people doing the bad lending.''

But recent actions by the Bush administration, he adds, underscore that ''special interests do have a lot of influence'' in Washington. Specifically, he criticizes the administration's decision earlier this year to investigate whether imports have injured the U.S. domestic steel industry, an action that is likely to lead to import quotas on foreign steel.

''You can't help but raise questions when someone says 'I believe in a market economy' and then announces he wants to set up a global steel cartel,'' he says.

Stiglitz also is sharply critical of the United States and Europe for subsidizing agriculture and refusing to liberalize trade in certain industries, such as ocean shipping.

During the next trade round, he says, ''what I would like to see is redressing some of the imbalances of the past and going forward with far more sensitivity to the needs and concerns of the developing countries.''

Agriculture is one area where developing countries hold a comparative advantage ''but they can't compete into markets where there are these huge subsidies in the United States and Europe.''

In the area of services, he notes that wealthy countries like the United States have only agreed to open financial services. ''Which country is the major exporter of financial services? United States. What services were not opened up? Construction services, maritime services, services of unskilled labor that are of concern to the developing world. Those remain closed.''

This is why the issues raised by the anti-globalization movement are so important, Stiglitz says. He points to the pharmaceutical industry, which became the target of developing countries and anti-globalization critics for selling life saving drugs at prices that ordinary people and the poor could not afford. Agreements proposed by the U.S. Trade Representative would have supported the companies' pricing policies, he adds.

''The global outrage was so strong that they (the companies) made an agreement to make them available,'' he told IPS. ''It was a global outrage, a civil society movement, that stopped that.''

He says he first became aware of the imperfections of markets while working as an economist in Kenya in the 1960s.

''The period that I spent in Kenya really provided a lot of inspiration for the work that I did over the subsequent years,'' he says. ''You cannot live or spend time in a country like that without thinking a great deal about unemployment, about how markets don't work. And it turned out that many of the ideas that I developed in Kenya, when modified, applied as well to developed countries.''

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