[asia-apec 1619] Stiglitz (former IMF head) on globalization

[Aaron James]

Star Tribune
(Minneapolis, MN)

                                            October 11, 2000, Wednesday,
LENGTH: 1072 words

HEADLINE: Economist says bad management of trade creates hardships

BYLINE: Dave Hage; Staff Writer

BODY:
   After riots in Seattle and protests in Prague, the debate over
globalization has settled into a tiresome standoff between insiders and
outsiders.

     The outsiders are environmentalists, labor leaders, students,
anarchists. They stand at the barricades, chucking bricks at McDonald's and
heresy at the
International Monetary Fund. The insiders are elite economists and
financial technocrats. They look down from their offices and defend the
orthodoxy, insisting that
markets deliver efficiency and that trade creates wealth.

     Then along comes Joseph Stiglitz _ a dangerous man, an insider who
defected.

     Stiglitz, an owlish intellectual who reminds audiences of Richard
Dreyfuss, probably won't win the Nobel Prize in economics when it is
announced this week. But
he has earned every other distinction in the field _ a Ph.D. from MIT; the
top prize for young economists from the American Economic Association;
faculty positions
at Yale, Princeton and Stanford. In 1995 he became chairman of President
Clinton's Council of Economic Advisers and in 1997 chief economist for the
World
Bank.

     Then, in a series of increasingly public critiques, Stiglitz delivered
a stinging attack on the world trading system, a dissent that culminated
with his resignation from
the World Bank last year.

     Stiglitz came to Minnesota last week to speak at the annual Nobel
Conference sponsored by Gustavus Adolphus College in St. Peter to coincide
with the
announcement of the Nobel prizes.

     Stiglitz argues that free trade and open markets could be forces for
good _ reducing poverty in the Third World, sharing technology across
borders, moving
investment from rich nations to poor. But he says that trade has been
"badly managed" by the rich countries and the International Monetary Fund
(IMF), causing
unnecessary instability and hardship in the developing world.

     Stiglitz takes the debate to a higher level _ not just because he
dissects the orthodoxy with its own tools, but because he uses the
anecdotes of an insider to
confirm the suspicions of the outsiders.

     A few years ago, for example, Ethiopia came to the IMF seeking a loan
to stabilize its troubled currency. Stiglitz had visited the east African
nation and thought its
progressive new leaders were taking the country in the right direction. But
economists at the IMF balked at providing the loan. They didn't like
Ethiopia's
bookkeeping _ it counted foreign aid as well as tax revenues in reporting a
balanced government budget. Stiglitz asked: So what? Foreign aid is
unreliable, IMF
economists replied. Stiglitz went home and had one of his World Bank
researchers run a study; it turns out that foreign aid is actually a more
stable revenue source
than tax receipts for poor countries. But when he took these findings to
his counterparts at the IMF, they refused to reconsider. "They wouldn't
look at the facts," he
said in an interview. "It was like talking to the wall."

     About a year later, when the World Bank was preparing its widely read
annual report on world economic conditions, the scholar in charge solicited
several
essays challenging the view that economic growth was reducing poverty. A
top U.S. Treasury official read the draft and insisted that the criticisms
be softened,
according to Stiglitz. The editor resigned in protest, saying that
politicians were rewriting staff research.

     Then there was the debate over trade with South Korea. The Clinton
administration was preparing for trade negotiations with its Asian ally and
wanted to urge
"capital market liberalization" _ that is, allowing Korean banks and
corporations to borrow more easily from foreign lenders. Research by
Stiglitz's staff at the
Council of Economic Advisers showed that this might actually destabilize a
small nation if its banks and regulators weren't ready for huge, fickle
flows of money _
which is exactly what happened two years later. But when Stiglitz prepared
a briefing paper on the matter, his rivals in the administration said the
president didn't
even need to study the question.

     If Stiglitz finds fault with the big institutions of world trade,
however, he would not tear them down. In fact, he thinks that free trade
will ultimately be a good thing.
And suddenly he sounds more like the leading scholars in international
economics.

     "Globalization does represent the best chance to lift the poor out of
poverty they have lived in for centuries," he told the audience at
Gustavus.

     Later, in an interview, he added: "In China or Indonesia, the
alternative to a job in a Nike factory might be unemployment and
destitution. What you want is not
for Nike to shut down, but for Nike to recognize that it doesn't cost much
to build a factory with air conditioning, regular work breaks and so on."

     What Stiglitz would like to see is better management of globalization,
management that spreads the wealth. In particular:

     - The rich nations of North America and Europe should eliminate all
tariffs and quotas on goods from developing countries. The poor nations
would prosper
faster if the rich nations would buy their sugar, peanuts, grains,
textiles, shoes, garments and other low-tech goods.

     - Congress should fund the debt-relief program proposed by President
Clinton so that poor countries, especially in Africa, don't have to spend
so much of their
current income repaying old debts to rich nations.

     - The IMF and the World Bank should have governing boards with greater
representation from developing nations. The agencies now are funded chiefly
by rich
nations and operated by Western or Western-trained technocrats. These
experts, Stiglitz says, often fail to understand the importance of such
basic development
tools as free primary schools and land redistribution.

     Though Stiglitz has gained the reputation of a firebrand since his
resignation from the World Bank, an hour's conversation shows him to be
modest, funny,
thoughtful, deeply concerned about social justice _ and ultimately
optimistic.

     "The marches (in Seattle and Prague) have had an effect," he said.
"Remember that the marches of the Civil Rights movement and the (European)
revolutions of
1848 had an effect too."

     Maybe Stiglitz will turn out to be neither an insider nor an outsider,
but a bridge between the two.

.

_ Dave Hage is a Star Tribune editorial writer.

--------------------------
Aaron James
101 - 1717 Comox Street
Vancouver, British Columbia V6G 1P5
phone (work): 604-255-7346
phone (home): 604-602-1626
fax: 604-255-0971
http://members.tripod.com/aaronjeromewestjames