Wednesday, August 30, 2006

Joseph Stiglitz - A prize for self-righteousness

The 2006 Geary lecture, sponsored by the Economic and Social research Institute -ESRI, Making Globalization Work was given in Dublin this afternoon by Professor Joseph Stiglitz, one of the world’s best-known economists and currently Professor of Finance and Economics at Columbia University. He was Chief Economist at the World Bank until January 2000 and before that he was Chairman of President Clinton’s Council of Economic Advisors. He won the Nobel Prize for Economics in 2001 and is the author of the best-selling books Globalization and Its Discontents and The Roaring Nineties.

In his lecture, Professor Stiglitz addressed some of the critical problems facing our rapidly integrating world. He put forward new ways of dealing with the crippling indebtedness of developing countries, a new system of global reserves to overcome international financial instability, and an economically incentivised framework for dealing with the energy pollutions which create global warming and which threaten us on a planetary scale. He argued for the reform of global institutions such as the UN, the IMF and the World Bank to make them truly capable of responding to the problems of our age and shows why treating developing countries more fairly is not only morally right, but, because it increases global public goods, is ultimately also to the advantage of the developed world.

The Geary lecture is held each year by the ESRI and honours Dr R. C. Geary (1896 –1983), the first Director of the Institute, the most eminent Irish statistician and economist of the twentieth century.

Stiglitz drew a big crowd to the Burlington Hotel and as would be expected of an American academic, he didn't miss the marketing angle. The lecture was well peppered with references to his book, which was for sale in the hotel.

Stiglitz is good at analysing issues and his longtime criticism of the structure of the IMF (International Monetary Fund) is getting attention this week with a proposal supported by the US, that China and India be given a stronger role. However, it did strike me that the likes of Taoiseach Bertie Ahern is typical of many political leaders, in that he is both for globalisation and against it.

We are good at bragging about our flexible industrial model of low taxes and low wages in one economy we operate, while in the other, the old world of farm subsidies, public service salaries rising by 38% since 2001 compared with the industrial wage by 19%; most private sector workers without occupational pensions compared with excellent ones for public servants and vested interests in the private services sector, holding sway.

EU for and against Globalisation

There was another pertinent example today in Europe of being for and against globalisation when it suits.

European Union Trade Commissioner Peter Mandelson today proposed duties on leather shoes from China and Vietnam, to be approved by the EU's 25 countries that are divided into protectionist and pro-consumer camps.

Mandelson has proposed five-year duties to replace temporary ones imposed in March, seeking to stem Chinese and Vietnamese exports at what it is claimed to be at below cost levels and accordingly damaging to European shoemakers.

The EU's trade deficit with China hit a record €100 billion in 2005 and China's exports of €72 billion in the first five months of 2006 made it the second biggest exporter to Europe, just under the US's €74 billion.

China supplied about half of the 2.5 billion pairs of shoes sold in Europe last year, which resulted in calls for protection by the Europe's 8,000 shoe manufacturers, mainly small manufacturers in southern Europe. An estimated four-fifths of the EU's leather shoes are made in Italy, Portugal and Spain. Imports of leather shoes from China jumped four-fold in the 2001-2005 period while imports from Vietnam doubled.

The five-year duties proposed by Mandelson, of 16.5 percent on Chinese and 10 percent on Vietnamese leather shoes, require approval in the next month by a majority of the EU's 25 countries. In a non-binding vote last month, the majority of countries rejected new duties.

It's Not all the Fault of Politicians

Electorates don't vote for pain as Germany's Chancellor Angela Merkel discovered last September. Politicians will continue to try and ride two horses simultaneously to save their hides.

Globalisation like much else in the world, could work better.

The Doha Trade Round should be saved but the self-interest of protected farmers in rich countries needs to be challenged by brave people. However, muddling through will continue to be the default option and with Northern European countries and the shoemakers in Southern Europe at loggerheads, the practical man through experience can be satisfied with half a loaf. As the famous British economist onetime remarked, in the long run, we are all dead.

New York Times Review

Stephen Kotkin in the New York Times writes: If a prize in politics were awarded for self-righteousness, Joseph E. Stiglitz, despite stiff competition, might be near the top of the list. In 2001, he shared the Nobel in economic science for seminal work in the economics of uncertainty, particularly for what happens when parties to a transaction possess unequal information, as they invariably do. Economists measure impact by citations, but many of his papers are so fundamental that the results are no longer even cited. They’re part of the ecosystem. From these brilliant heights, Dr. Stiglitz, a professor at Columbia University, has been fulminating about other people’s blind spots.

Dr. Stiglitz’s new book, “Making Globalization Work” (Norton, $26.95), is billed as a sequel to his “Globalization and Its Discontents” (2002). It reads like an unacknowledged reply to a searing review in The Economist of that previous best seller. Gone is the innuendo about colleagues in Washington doing the dirty work of Wall Street in their capacity as public servants charged with lifting up the poor. New are The Economist’s requested chapters on trade and growth, market forces and the environment, the multinational monopoly — in short, on globalization, the advertised subject.

Two notions still animate the author. The first is that neoliberal economics — derided as “market fundamentalism” or the “Washington consensus” — vandalized the developing world. This supposed reign of neoliberal economic terror (privatization, open capital markets) has become a bogeyman of political liberalism (social justice, environmentalism), in whose ranks Dr. Stiglitz enjoys cult status globally. The second is that smart people in Washington and New York with the correct ideas can help set the world right. This supposition — even when cast in terms of promoting democracy rather than proffering special expertise — is an occupational hazard, and it enthralls many conservatives, too.

Dr. Stiglitz’s vision for more equitable globalization — with caveats about the toughness of the task — entails freer trade (no more loopholes for rich countries or corporate lobbies), curtailed intellectual property rights (“monopolies”) and green accounting (factoring resource depletion and ecological damage into G.D.P.). It also means more transparency in international finance (to curb corruption), debt forgiveness (foolhardy creditors must take responsibility, too) and democracy (less secretive procedures opened to nongovernmental organizations and others).
“It seemed terribly unfair,” he writes, “that in a world of richness and plenty, so many should live in such poverty.”

Unfair it is.

Designing a new global trade regime is a snap for Dr. Stiglitz. But how might it be put into place? He is dead right that the current configuration of globalization is political. But then, a different incarnation could be brought about and sustained only by politics — and not periodic protest, however effective at times. Dr. Stiglitz identifies some “special” interests opposed to change, but he offers less sense of the powerful stakeholders who will level the field for all.
Often, he exhorts. “Rich countries,” he writes, “should simply open up their markets to poorer ones, without reciprocity.” As for global enforcement of rules, “what is needed is an international tribunal.” Would its judges be appointed or elected? Would there be some disincentives, too, for global class-action suits? Details omitted.

There is another catch. Developing countries, after getting their “fair share,” must “use the money well,” he writes. So they’ll need nonkleptocratic governments, uncensored media, enforced property rights, the rule of law. How to acquire them? He wants “developed country governments to provide role models,” and to inhibit the collusion in malfeasance abroad.

Intent on championing regulation over an “unfettered” market, he turns to postwar Japan and South Korea as examples of how governments can pilot an economic boom, though this view has been undermined on empirical grounds. He commends China for go-slow liberalization, without noting that the late-70’s dismantling of peasant communes was a liberalizing big bang or that critics inside China today accuse the central government of abandoning economic liberalization, under the guise of gradualism, to gorge on the spoils of office. The rigor and nuance of his economics work are not as evident in his handling of recent world history.

FAITHFUL to post-Soviet legend, Dr. Stiglitz conflates I.M.F. advice and Russian rhetoric about shock therapy with what actually took place in the 1990’s. Some prices, but far from all, were instantaneously liberalized. Much property was privatized, though often by management theft before any government program; privatization of land had to wait more than a decade. Dr. Stiglitz spotlights Ukraine’s 3,300 percent inflation, neglecting to add that Ukraine had even more fitful liberalization and limited privatization, just as he advocates. Arguing that liberalization is right, but that it must be done slowly, he fails to note that for most states, Russia and Ukraine included, rapid neoliberal reform is beyond their capacity. But never mind. The talking point that neoliberalism wrecked Russia is too valuable to yield to facts.

Attacking the idea of free-for-all markets in a superfluous debate with conservative purists only overshadows Dr. Stiglitz’s practical suggestions, like adding labor and environmental ministers to trade negotiations. Boasting that his many critics now see the light, thanks to him, is not a technique of persuasion. From a thinker of such stature, readers might appreciate more of the nimble acuity he displays in praising while devising flexible ways to supersede the Kyoto Protocol to win over the key polluter, America.

In his most intriguing chapter, Dr. Stiglitz explains how the United States benefits from other countries holding vast quantities of dollars, while those countries incur substantial costs, from depressed growth to instability — the very condition that such foreign reserves are meant to forestall. He observes that in Asia — which drives globalization more than Washington does — an alternative reserve system may be emerging. Dr. Stiglitz imparts his spin to this issuing of money substitutes, calling them “global greenbacks,” which could be used to finance global public goods like health vaccines. “This single initiative,” he suddenly concludes deep into the book, “could do more to make globalization work than any other.”

And instead of waiting for the United States to act in the interests of global humanity, he says, a coalition of Asian countries could move to this new reserve system even if America objected. Here is the new global economy already upon us.