Democratising globalisation: Joseph Stiglitz interviewed

Justin Vogler
24 September 2006

"What's the difference between Diet Coke and Pepsi Max?", Joseph Stiglitz asked as he gazed perplexedly at the drinks machine in the foyer of a London university where he was shortly to deliver a lecture. I racked my brains for the right answer. Here was a Nobel economics laureate and one of the world's foremost critics of globalisation - author of Globalization and its Discontents, the definitive whistleblower's account of how Washington's financial institutions mismanaged structural adjustment in Asia and Russia - asking me a trick question about brands of Coca-Cola. Or so I assumed.

"All this stuff's different over here", mumbled Stiglitz as he popped a coin in the slot and opted for Diet Coke. Oh well, clearly boycotting Coca-Cola wasn't part of the agenda he describes in his new study, Making Globalization Work. So what is the new book about?

"I've really gone back to some of the areas I've worked on over the last thirty-five years", Stiglitz explains. "I'd done work on intellectual property, the environment, debt, trade and natural resources. It was time to revisit these issues from the perspective of globalisation." As well as an appraisal of global affairs, the book outlines practical ways in which the functioning of the international political economy could be improved.

Joseph E Stiglitz is a Nobel prize-winner in economics and professor of economics at Columbia University. He has served as chairman of the Council of Economic Advisers to President Clinton, and chief economist and senior vice-president at the World Bank. Among his books are Globalization and its Discontents (WW Norton, 2002) and Making Globalization Work (Penguin, 2006)

A survey has attributed to Stiglitz, former chief economist at the World Bank and senior economics advisor to Bill Clinton, the distinction of having published more journal articles than any other economist in the last thirty years. But he combines professional expertise with a facility for communication: notwithstanding the complexity of the subject-matter, Making Globalization Work is easy to read, clear and accessible to the layperson. This is part of Stiglitz's vision of "democratising globalisation": explaining complex issues in direct language in order to engage a wider audience.

"One of my critiques of globalisation is that it is undemocratic", says the professor. "If you take that critique seriously then you have to try and bring more people into the debate. I created an NGO, the Initiative for Policy Dialogue, with that objective. This book is part of the same project."

Early in the book, Stiglitz contrasts developmental success in east Asia - whose governments, he said, kept a wary distance from the International Monetary Fund (IMF) - with economic instability and widening income inequality in Latin America, where the policies of the Washington consensus were followed to the letter. He lavishes praise on China's runaway growth and points out that the government "made sure that the benefits of growth were widely shared".

So how can you hold China up as a development model and at the same time call for the democratisation of globalisation?

"Democracy is neither a necessary nor a sufficient condition for successful development", replies Stiglitz carefully. "Though I would argue that it helps achieve sustainable development, a defence of democracy in my mind should not be instrumental." His argument for democracy is not that it is good for development; it is that it is good for people.

"My view is that successful development requires infrastructure, social and political stability and full employment", says Stiglitz. "The Washington consensus policies, like privatisations, might be good or bad but they are not the central issues. In Latin America they basically focused on the wrong policies."

But hadn't the logic in Latin America been to follow the west's rules unconditionally in order to attract western foreign investment?

"Well, interestingly, one consequence of Asia's greater independence has been that they've attracted more foreign investors", says Stiglitz. "Actually one of the problems in Latin America was that many saw foreign investment as a solution in itself. But look at South Korea; it developed very fast with almost no foreign investors. This notion that the panacea comes from outside is, I think, flawed." National capital, he concludes, is probably much more important than foreign investment.

Export-led development is a second area Stiglitz scrutinises critically. He refers caustically to the fall in Brazil's economic expansion after the switch to export industries in the 1990s as "export-led non-growth".

Justin Vogler works as a freelance journalist in Chile. He writes regularly in the Santiago Times.

Also by Justin Vogler in openDemocracy:

"Michelle Bachelet's triumph"
(January 2006)

"Small-country power: Chile and the Iraq war" (January 2006)

"Latin America: woman's hour" (March 2006)

"Ollanta Humala: a Peruvian gamble"
(April 2006)

"Mapuche: the other Chile" (June 2006)

"South America: towards union or disintegration" (July 2006)

The WTO and fair trade

What sets Making Globalization Work apart from most other globalisation roadmaps is the attention the author gives to enforcement mechanisms. Stiglitz says that to lock the US into a climate-change regime, carbon emissions must be treated as a market externality and offending countries subject to trade sanctions under existing World Trade Organisation (WTO) rules.

But hadn't trade sanctions proved to be ineffective? If they hadn't worked against Cuba or Saddam Hussein's Iraq, what chance would they have against the world's economic superpowers?

"Trade sanctions have worked in some instances", responds Stiglitz. "They were very effective against both South Africa and Rhodesia. Trade sanctions, or the threat of them, were an important part of the 1987 Montreal protocol on ozone depletion. Ideally there should be enough consensus on the core issue, for the threat of sanctions just to back up a regime on global warming."

Sanctions have never actually been applied under the Montreal convention. Nevertheless, Stiglitz does argue that if the United States is allowed to emit greenhouse gases when others are restricting them, it gives them an unfair trading advantage. Firms in Europe and Japan, he says, should be lobbying their governments to do something about the unfair competition.

He says that there is intense pressure within the US for Washington to engage with the rest of the world on global warming. "We could argue that if everyone in America was opposed to regulating greenhouse-gas emissions then trade sanctions might not work", he says. "But as that is not the case, this may be enough to push us over the edge."

However, isn't Stiglitz being unduly sanguine about the US's potential readiness to embrace multilateralism? Making Globalization Work actually expresses concern that Washington is already starting to abandon multilateral trade talks and seek out bilateral agreements with smaller countries like Mexico, Peru and Chile. If the WTO is loaded down with an array of north-south and environmental issues, won't the US just disengage?

"The WTO already exists, it provides a rule of law which allows for the use of trade sanctions in order to rebalance unfair trading practices", Stiglitz points out. "It is not loading the WTO down. The mechanism is already there, it's a crucial part of what we have already achieved."

He does say, however, that there are three large problems with the White House's penchant for bilateral trade deals. First, because "they are likely to be even more one-sided and the outcomes more unfair and more special-interest driven" than deals in the WTO. Second, "development should be about learning market principles; exclusive bilateral trade is a non-market principle." Third, and for Stiglitz more importantly, because they are destroying the whole global trading system that it has taken half a century to create. Bilateral deals are based on the principle of discrimination, and this completely undermines the trading rules the world has been painstakingly building, he says.

Also in openDemocracy on globalisation after the Washington consensus, a debate involving some of the most influential voices in the field, among them:

David Held, "Globalisation: the dangers and the answers"
(27 May 2004)

Martin Wolf, "The case for optimism"
(17 June 2004)

John Elkington, "Globalisation's reality check"
(7 September 2004)

Patrick Bond, "Top down or bottom up? "
(23 September 2004)

Plus, a singular take on the phenomenon of the "Nobel prize for economics":

Yves Gingras, "Nobel by association: beautiful mind, non-existent prize" (23 October 2002)

An economics lesson

It is often striking how orthodox Joseph Stiglitz's economic approach often is. Far from rejecting market mechanisms, his aim is to make markets work. Take his case against intellectual-property rights. He argues that patents hold knowledge hostage and therefore obstruct market forces. His preferred solution would be a prize system for innovators. This would encourage research and development and at the same time let knowledge flow freely. This in turn, would lead to more innovation and the generation of more knowledge. A further vital side-effect of such a system would be to enable poorer countries to produce and sell generic medicines, particularly HIV drugs, at cost.

The first chapter of Stiglitz's book is entitled "Another World is Possible". With this in mind, I asked him how economics should be taught in universities in order to encourage positive change.

"There are economic laws and you need to start by teaching them", says the professor. "Unfortunately lots of teachers just focus on simple models that assume perfect information and perfect competition. I always begin by making it clear that these are accessible models but that the underlying assumptions are clearly wrong. Students need to really think about the difference between the model and the real world."

Stiglitz goes on to underline the importance of the state. "In early courses, instead of focusing on business, which seems to be what everyone wants to teach, we should be focusing on public policy and what governments should be doing. Markets are good for some things, but other things need to be left to the state." Students also need to absorb two additional important points: the concept of trade-offs, identifying where economic analysis ends and political analysis begins, and the inevitability of disagreement over values.

These are basic lessons that Stiglitz says are essential for first-year economics students to master. However, his book contains ample evidence that many of today's most influential economic practitioners are still failing to take note. "Globalisation will change", he concludes. "The current system cannot continue. It will either change as a result of crisis or it will change because we approach problems in a systematic rational way. The hope that underpins my book is that we will opt for the second option."

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