Joseph E Stiglitz helped create a new branch of economics - the Economics of Information. This earned him the Nobel Prize for economics in 2001. He was also chief economist at the World Bank and a cabinet member of the Clinton administration. He is the author of two books, The Roaring Nineties, an assessment of the US economy in the 1990s, and Globalisation and its Discontents, which has been translated in 20 languages. In an interview to Down To Earth, he talks about globalisation, its discontents, the role of information and the lacunae in global governance structures
Last Updated: Saturday 04 July 2015 | 02:57:02 AM
What makes globalisation undesirable?
Globalisation can have positive benefits but if not managed well, it can also be very inequitable. It is exactly because it has not been managed well on several instances that many countries have not benefited, and have even suffered. Some may argue that the process is inevitable and should just be accepted. But if it is mismanaged badly, there could actually be a backlash against it.
What has gone wrong?
First of all, it is inequitable. The most obvious example would be the world trading arrangements, where the US and the EU put pressure on other countries to eliminate their subsidies while they actually increase their own subsidies in agriculture.
It is also not adequately pro-development; nor have many important problems that should have been addressed at the global scale been dealt with. For example, standard economic theory requires that risk be transferred from the less able to those more able to bear it, that is, from poor to rich countries. But when you look around the world, the poor countries have to bear the risk of interest rate and exchange rate fluctuations resulting in the kind of economic devastation witnessed during the Latin American crises of the 1980s and the last few years. Yet, no one at the International Monetary Fund talks about this.
How will that change if those who control the process continue to act in their own self-interest?
What is driving this is not the US' or Europe's interest. It is a special interest group within these countries - Wall Street or the pharmaceutical sector. If the question of whether people with AIDS should have access to medicines at affordable prices were to be put to the American people, then close to 100 per cent would vote in its favour. It is those with special interests who are driving the agenda, behind closed doors.
Two things can change this. One is to let American voters and voters in other countries know that what is going on is not in their interest but in the interest of only certain groups and that if it concerns them, then they are going to have to raise their voices. This has been happening through non-governmental organisations. They overran the pharmaceutical industry in the case of cheaper access to drugs - something even I could not do inside the White House.
The more fundamental issue is that of the imperfect democracies that we have. The role of campaign contributions in the US allows some special interests to have this influence. That is at the root of some of these problems. But changes are taking place.
There is also the imperfect distribution of information. Those who have information will always use it to advance their own interests, feeding the inequities that already exist
Asymmetries of information are inherent and they will never disappear. There are two aspects to this. For one, mechanisms that reduce those asymmetries of information can be put in place. For instance, requiring government to be more open through Freedom of Information Acts. That is the transparency debate but a lot of this is a political agenda as much as an economic one.
A related point is the creation of institutional structures that reduce the extent of conflicts of interest, such as restricting people from using public office to advance private interests. In the US, there are regulations that slow the process of 'revolving doors', that is, where one goes from the private sector into the government and back into the private sector. So, there is a need for institutional reforms that reduce the extent to which one can create asymmetries of information and exploit information for private advantage.
And yet the people who have to make these changes are the ones who currently control information. Until now, they have not shown the values needed to create a just society...
There is no easy answer to that question. For one, it can be done at the level of educational institutions - schools that can talk about ethics. Secondly, through lectures and writings one can bring out the inconsistencies in the way we think about domestic and international problems. It is interesting that in domestic political discourse most people always talk about fairness in their own countries. No one ever talks in terms of doing things in their self-interest but in the general interest. Yet, when it comes to international discourse, Americans talks about what is in America's interest and others nations about their own interests.
In a world of globalisation, we have to change this mindset. We have to move from a mindset that is 'us-them' to a one where we think about all of us as being citizens of the same world. If there is global warming, we will all pay the price. We have to think about social justice that does not stop at the borders. And I think there is this awareness of a shared planet amongst younger people.
One of the reasons for this mindset is that the nation-state still remains the ultimate dominant authority internationally.
Except that, with globalisation, we are trying to go beyond the nation-state. But we are trying to do it in a way that does not comport with principles of social justice that go beyond the nation-state. It is almost an incoherent approach.
And neither do we have the political structure for global decision-making. It is still done by nation-state actors. So, is there a need for more structured groupings along regional or thematic lines to fill the void between nation-state actors and global institutions?
Political globalisation has been outpaced by economic globalisation. We have a system of global governance without global governments. There is a greater need for collective action but the framework to take political action consistent with the principles of social justice envisaged nationally does not exist. And that has been one of the arguments for other groupings working beyond the national level but it is a very delicate issue.
In the area of trade, one always worries that regional trade agreements benefit the countries in the region at the expense of others. So, there is trade diversion rather than trade creation. Therefore regional agreements need to be crafted in a way that they increase the spheres of cooperation within a region without undermining multilateral cooperation. There is a role for more cooperation in the monetary area through an Asian Monetary Fund. There is also room for cooperation of like-minded countries, such as a South-South trade agreement between India, China, Brazil and South Africa. Agreements like these also help develop a sense of social solidarity amongst the people in those countries.
Have you saved any of your criticisms for yourself for the time that you were in office with those very institutions - the World Bank and the US government - that you now criticise for some of their policies?
There are things I feel that I should have pushed harder on. For instance, in the Clinton administration, we had argued that the accounting frameworks in the US, such as the treatment of stock options, were defective. We fought hard but never went public with it because that was the norm. Only after I had left it turned out that what we had said was right. I do not think I could have stopped that mistake but I would have liked to have pushed harder on it.
At the World Bank, I fought very hard on a lot of issues and fairly public on many of them. Many of the policies, such as the way we were advising Russia to reform to make the transition, were very bad. Eventually I helped change that but not fast enough.
We have seen 'the rebel within' during your outspoken stint with the World Bank. Will we now see 'the reformer within'? Are you going back to public life?
I feel I have a greater role to play in an advisory capacity. It is a lot of work doing the day-to-day running of these organisations.
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