‘Poor nations are the losers’
Nobel Prize winner Joseph Stiglitz tells Ninad D Sheth that globalisation has a direct linkage with Indian farmers commiting suicide
Professor Joseph Stiglitz is an authority on the ramifications of globalisation and its inherent contradictions. A former World Bank chief economist, he is an insider in this debate and has been sharply critical about the manner globalisation is being pushed all over the world. Prof Stiglitz won the Noble Prize in Economics in 2000 for his path-breaking work on the theory of ‘asymmetric information’. Recently in India, he spoke on globalisation and its myths, the IMF doublespeak and neo-con American pressures, and the stakes for poor countries in free markets of the ‘brave new world’.
Yes. It is far from a win win. The poor countries have a lot to loose on all fronts. Indeed, they have lost a lot under the garb of this win win.
Externally, it puts them at a disadvantageous position in both trade and investment. Internally, it creates a connected elite that is numerically insignificant but is in the global orbit cornering the resources. To be honest, win win is the biggest myth of globalisation.
India is trapped in a paradox of globalisation where there is a possibility of opening too much without equally beneficial access to the West. Does this possibility worry you?
Yes. This is a real possibility. The trade platform is complex and as GATT and subsequent WTO sessions have demonstrated, trade can only be fair if the nations involved fight for their right. There is an uneven balance of power out there. On the issues of agriculture, investment and environment, India may come under tremendous pressure from both the US and the EU. The key would be two-folds, the attraction of Indian markets for the West and India’s own ability to forge an alliance with other countries to push issues. In the latest round the India-China-Brazil chain helped the setting of the agenda. The arrogance of the past is very much evident in the western stance; this has given way to a realisation that this is a new equation. However, the US retains a capability in diplomacy and economics to cut side deals and push its own agenda.What about the impact on environment of global markets supply chains? You seem to say that it could be a doomsday environment…
This is one of the least studied impacts of globalisation. The environmental impact by its very nature will be drastic. The ability to strip countries bare for centralised profit is starker then ever. Globalisation ensures that commodity prices remain low for a very long period of time. Farmers’ suicides in many poor countries are linked not only to local conditions but also to the supply chain generated by globalisation.
Professor, you were in many ways an insider at the World Bank. When did the turning point come? When did you realise that something was amiss in the fund-bank prescriptions?
There was a slow but sure realisation. In Ethiopia in the late 1980s, I saw that all the IMF was doing with regard to tightening of the structure to lower the budget deficit, or with financial markets and currency stability, was frankly absurd. That on the ground it was leading to massive real deprivation. I pointed it out to the IMF but they were just not receptive. The free market consensus was gospel. There was absolutely no response from the Fund. The bank was supportive initially but the Fund saw no reason to deviate from the chosen path.
The East Asia crisis that followed truly made you choose a different path….
Yes, no doubt. The IMF had a wrong call after another in East Asia. I realised soon enough that the ‘Washington consensus’ was not having any patience for individual prescriptions.
You profess that the free market has an ‘asymmetry of information’. This loads the market in favour of a few players who have the information. Do you agree that recent developments in information technology and its wide availability have cut through these asymmetries?
That is a good question. While information technology has without doubt made strides, there are certain sorts of asymmetries that information technology can overcome very quickly. However, IT has not reduced all the market asymmetries. For example, IT is useful for price information about homogeneous products. This can certainly correct price differentials in the market. The market has many more sources of information such as measuring productivity. And utilising information technology alone cannot do these.But 360-degree feedback and other software does allow for better understanding of labour productivity as well.
Yes, but the problem is transparency and ownership of the information and the leverage derived thereof. This information is not freely available and thus creates market imperfection.
India has $100 billion of reserves but seems to be at its wits end as to what to do with it.
Yes, it is a tough call. It raises difficult trade offs. You can’t employ these simply in bonds or gold for the yield is only between one and three percent. It is better to pour it into domestic infrastructure creation. However, if you create domestic infrastructure only with foreign reserves it would lead to currency appreciation and in the long run hit job creation; that is a difficult trade-off. The way out is to have an 80-20 mix between the reserve and domestic capital spending on infrastructure. The domestic part can come through taxes for example and that will not lead to currency appreciation or loss of jobs. So my call on the $100 billion is to have 80-20 reserves and domestic ratio through tax collection and that will ensure that there is no currency appreciation.
Is there no other way?
Some countries choose to borrow from the markets but given the high fiscal deficit that is not an option for India. If exports are to be protected and job creation is a priority, I see no other way except a mix to raise that money.
You are a great champion of subsidies. For example, in fertilisers here subsidies miss their target those who do not need it corner it the most.
I do not deny that subsidies can be appropriated by the politically vocal. There are ways and means—both conventional and creative—to so design subsidies that they reach the desired ends. We did this with the Clinton administration. There are ways one has to ensure that structural parameters are worked out and fine-tuned.
Since you left, has the IMF ‘mended’ its ways at all?
Yes, they have been receptive. There is a realisation that in East Asia the fiscal measures were too strong. That the bailout problems were mishandled. The IMF has even come out with a paper recently that says that capital market privatisation is not necessarily good for growth. However, in its basic tenor such as emphasis on inflation over unemployment, emphasis on privatisation, and the singular approach to complex problems—it has not changed as much as I would like. On transparency there is no change at all. For example, the executive directors of the IMF still vote in secret.
Will IMF become more stringent in the George Bush unilateral era?
It’s not as simple as that. While the No. 2 person at the IMF is always US-imposed, many people around the world are saying why shouldn’t international institutes be really international, as opposed to American in character? I think that while the IMF will certainly face some neo-conservative pressures it may also face the tide form the other side.
The poorer countries have been aggressive in trade but not in finance…
Yes, they seem to think they need the money. Which is true. But these are not grants; the developing world has an excellent record in returning loans. I think that there is a growing realisation that economic issues are complex and each solution is different. The IMF too will need to pay heed.
Apart from Malaysia, which other country has done well in bucking the IMF’s call?
China. It almost totally ignores the IMF. During the crisis and following it, China did exactly the opposite of what IMF’s position would have been. They lowered the interest rates, they provided billions of dollars in fiscal stimulus, they did not liberalise their capital markets and what have you got? Only 7 percent growth instead of 8 percent!
And Korea?
Korea too. It did not shut down the banks and opted for restructuring. They didn’t opt for forced restructuring either. And they did not close their chip plants and now the chip plants are back in favour and they are again competing globally and making money.
