Web Assignment 13: Joe Stiglitz's International Anti-Neoliberalism: Chaubey Students

Of all those arguing that the world economy was being badly managed in the interests of the rich in the 1990s and early 2000s, the most articulate was Joseph Stiglitz.

Surf over to http://delong.typepad.com/pe101/virtual_discussions/ and then to http://delong.typepad.com/PE101/2007/08/web-assignme-13.html. Write a comment of at least 200 words on what you think of some aspect of Stiglitz's position on how the world should be governed. Contribute to the discussion that is ongoing at http://delong.typepad.com/PE101/2007/08/web-assignment-13.html--that is, react and respond to not just Stiglitz but, to the extent it is appropriate, the earlier posters and commenters on the webpage.

Due by 5 PM on November 27

Comments

[Vera Bersudskaya]

I have understood a lot from this week’s readings. Stiglitz does a very good job explaining complex issues pertaining to globalization and the World Bank and the IMF clearly and concisely. To me, his most important insight lies in his insistence upon details. According to Stiglitz, nuances are crucial to getting development right. This entails that the particular history, politics, culture are of immense importance in determining the way a developing country should proceed. In creating institutions for a market economy (which are indispensable components for sustainable growth in the future), one needs to pay special attention to the particulars, knowing that “one size fits all policies almost never work.” The details are vital to the design of pertinent institutions, which will work in a given country, and “because the details are so important, there are often unintended consequences of well-intentioned policies.”
I think that this emphasis on the detail helps us understand many developmental failures and many mistakes made by the World Bank and the IMF, especially. However, this insight does not make the job easier, if anything, it makes it harder; because designing specific policies that will work only in specific places will be much more difficult that writing up an umbrella strategy for all of Africa. The attention to detail will drive to and force the “much needed dialogue” within these organizations. Having many people at the table to discuss possible options and outcomes will necessarily result in more pertinent, insightful policy recommendations. In such setting, people will be able to suggest that in some cases inflation is not that bad, or that there are many possible property rights regulations (not just the one the US has). This, in turn, will lead to a more nuanced and specific policy that will be more effective in the targeted area. I think this is a great recommendation; the question is whether it is realistic in the context of existing international organizations. Determination to accomplish these changes is also desperately needed.

[Hye Jin Lee]

His solution is to for the developed and developing nations to cooperate and find balance and to deal with democratic deficit for well-being of all nations, not only for economic well-being but also for overall happiness in individuals. Out of all the solutions that he had provided, I felt the most compassion towards the opinion that the process needs to take place for the well-being of all individuals, not just economically but in overall happiness. Stiglitz highlights the tendency of focus towards economy and brings to the fact that economic satisfaction is not the end of human happiness.

His argument as to how there are more losers than winners in the system of globalization is similar to many thinkers we have studied such as Schumpeter who said that the feudal authority system has stayed with transition to capitalism with imperialism only benefiting a few at the top and Stiglitz’s argument partly points out the responsibility of the power above that influences the globalization process like a ripple effect internationally.

In his preface, he mentions an interesting survey of seventy-three countries over the world. The survey found that the unemployment rate has risen in every region of South Asia, United States, and European Union from 1990 to 2002. This shows the increase in inequality since while globalization is increasing the GDP of a nation, it is not helping the people within. This point has a very high impact because it is contrary to what many think of globalization. Globalization has led to increase in poor people in rich countries.

I think somewhat different than what Vera said about how it is more difficult to make specific policies for specific regions, compared to an umbrella strategy. Sometimes it is easier to focus on one region because in order to make an umbrella strategy that will accommodate as many regions as possible, there are more regions that need to be taken into consideration. Region-specific policies might be more effective and simplistic. Compared to the work that needs to be put into making detail-oriented policies, the increase in effectiveness will be tremendous and at the end, the policies will do more good than umbrella strategies.

[Jennifer Miller]

I agree with Vera that Stiglitz is calling for a greater focus on context specific plans for development and trade policy, but I think his solution demands a lot more than just paying attention to details. An aspect of his position that I find interesting is his push for a drastic ideological shift away from the persistence of the neo-liberal Washington Consensus model in global development, which he describes as a failure. What is required of all nations, specifically the U.S., is a weaning from the institutionalized stronghold of this ideology that has perpetuated a legacy of unfair advantage, into a new ideology motivated more by global citizenship and goodwill rather than greed. Similar to what Hye mentioned, the most important point in regards to this new ideology is that economic growth needs to be redefined, so that it becomes more of a social and political development project, rather than just a mechanism to increase a nations GDP. As Stiglitz writes, “it is not just income that matters, but standard of living.” Politics and a social justice agenda become utmost important in his vision. He describes politics as historically operating in a separate sphere than economic development, and he believes it needs to become integrated into the process, fusing with market and social justice principles and ultimately guiding the process.
I find it interesting that although he calls for more state intervention, regulation and governance he does not want Socialism. He believes “Markets, governments and individuals are the pillars of successful development strategy.” But his vision also adds a new emphasis, the fourth pillar of community driven “collective action” that utilizes market and state forces but is not dictated by them. I see this as very similar to Polanyi’s vision of an embedded market.
Overall I think Stiglitz brilliantly captures our socioeconomic moment, yet he is writing a bit a ahead of his time. His solutions are both refreshingly practical and also incredibly optimistic given that competition for resources and cheap manufacturing, and developed nation's reliance on an unfair advantage, continue to guide globalization.

[Serena Yang]

Stiglitz articulately and intelligently outlines a framework upon which market capitalism and democracy can work for the benefit of not just the developed countries, but also the developing, who have been excluded from this global system. Throughout these three papers, Stiglitz places great importance on knowledge and the transfer of knowledge as requisites for development, so much of Stiglitz’s argument deals with asymmetric information as he calls for increased dialogue and puts greater emphasis on the importance of local information. As Jennifer points out, this kind of solution calls for greater state involvement and less neoliberal policies like that of the Washington Consensus. Stiglitz’s attitude toward the environment is another example of increased state involvement, as individual self-interest would instead see the environment further deteriorating. In this way, I think Stiglitz has much in common with Karl Polanyi, as he stresses the importance of other logics not just the market logic to make a functioning, equitable society. Indeed, Stiglitz’s arguments are mostly an attempt to reconcile the classical problem of liberalism, the tension between individual liberty and societal equality, and I think his advice is sound and important, as long as the goal is democracy and market capitalism.

So then I have to ask to what extent these developing countries do want to be included in this westernized brand of globalization, based on individual liberty and economic self-interest. As we see from Jessica Stern’s book on terrorism, there are many people who despite the instability and violence of their regimes, would still prefer to have nothing to do with western ideologies of government and economics. Therefore, Stiglitz’s recommendations would be less effective in overcoming these kinds of revulsion for western ideals.

[Zack Simon]

For me, none of Stiglitz’s prescriptions for bettering the increasing global economic gap are ‘new.’ Without any real economics background to speak of myself, his ‘ideas’ don’t seem so radical in comparison to anything we have been exposed to so far this semester. Stiglitz critiques that globalization has failed the world’s poor, but Stiglitz never offers a concise definition of what exactly this globalization is in light of some presumably malevolent agency he writes on. He has much to say on the prospects of ‘market failure,’ but government failure, corruption, and dictatorship he leaves alone.

He recognizes global inequities and offers freer trade and more open markets as a solution to international diplomacy. But how exactly does he plan to carry this out properly? He is probably right that the configuration of globalization is political, but any alternative he might offer inevitably ‘involves’ politics to bring about these institutions and to sustain them surely. He offers the idea of rich nations lending aid to poorer ones without reciprocity, to be enforced by a global tribunal. (I could swear that this sounds like the United Nations.) Developed countries will provide role models in their own governmental order to the developing countries. (How is this radically different from what already exists?)

Again, the notion of ‘metis’ comes into play as I think Vera has implied when Stiglitz writes against the ‘one size-fits-all’ policies generally implemented. I believe in this notion because it seems sound and common-sensical.

I agree with what Jennifer Miller points out, that Stiglitz recognizes that it’s not just income that matters but the standard of living that matters too – that Stiglitz says that the historical social and economic spheres need to be integrated. But I don’t see this as such a new concept either. I also agree with Jennifer that Stiglitz’s fourth pillar of successful development strategy recalls Polanyi’s theory of the “embedded market.”

As Serena recognizes, Stiglitz’s notion of successful development strategy is “mostly an attempt to reconcile the classical problem of liberalism, the tension between individual liberty and societal equality.” That’s a well-put summary in my mind. And I have no problem with this goal. It’s just the way that Stiglitz presents his entire book without presenting any concrete solution that gets to me. It’s that, or it’s the fact that we have been assigned writings just like this for weeks now – each of which are only minor deviations from one another. There is probably a point to this, I realize.

[Adriana Gomez]

So, I was at work the other day when one of the regular patrons comes in (I work at the recreational sports facility on campus). We were in a discussion about the terrorist attacks of September eleventh when he says, “You know, America is doing something wrong. I know people who knew Germans who survived World War II. These Germans said, ‘You know, I remember we were starving when the Americans dropped parachutes with bananas. We didn’t know what they were. We didn’t even know to peel them. We ate them whole, and for that, I will never forget the Americans regardless of sides.’ Now, the thing that America is doing wrong now is starving these people abroad.” – C. Browning

Indeed, this is a concern that Stiglitz would also probably find disturbing and he addresses it through a portion of his book. Stiglitz argues that America and other countries amongst the G7 nations opening their trading frontiers may not be the best way to help the third world countries prosper economically. The lack of resources, as noted by Stiglitz, that keep third world countries from easily exporting their goods and the lack of “skilled professionals” that are not able to handle trade negotiations make it difficult to trade or grow economically for a lot of these nations. The trade with the more advanced nations would, as a matter of fact, stall the economies of those developing nations. The policy that Stiglitz proposes about the “global greenbacks” that could aid these developing nations a lot better than foreign reserves can is a proposal that I think would, at the very least, partially arouse pro- United States sentiments such as the one mentioned by Mr. Browning above. In return for exchanging goods, the United States is stalling other economies without regard for the standard of living of this county that could grow into a potential ally. The mutual well-being of these countries rests on the other because, though some countries are very wealthy vis-à-vis other countries, there is yet a better trading partner and ally in each country that a developed nation helps, and this is just to mention the self-interested side of the developed world. As J. Miller points out in the previous posting, the standard of living, and not the amount of income, becomes important in Stiglitz’s view.

Overall, I agree with Stiglitz that this system of exchange would be of much greater use to developing nations. The “global greenbacks” that Stiglitz mentions are a gradual change, possibly some with which James C. Scott would agree with (as I assume from his book SEEING LIKE A STATE, which warns against attempted huge jumps in the development of a country). The gradual evolving of a state is what probably most developing nation calls for, and things such as vaccines or other basic resources would be the first starts to aid these countries.

[Nick Nejad]

I want to talk about something that I think is often missed in economics. In my opinion, there is a big difference between value and between the GDP economists look at. As is often the case in social sciences, people have a tendency to not look at the secondary effects, or tertiary effects, or so on. One example I thought of was with Stiglitz’s argument for protecting infant industries with tariffs. Let’s say for example a developing country was importing a consumer good for a price of X. Now, they decide to put a 20% tariff on it, and the company passes this on entirely to the consumer, making the new price 1.2 X. And let’s say at this price, a local company can compete with the multinational by producing this good for 1.15X and selling it at the 1.2X market price. Well Stiglitz would hail this arrangement- it taxes the consumer, but that money is going to the government coffers, so that is a net neutral. Meanwhile, it also created a new industry and can employ more people, adding to GDP figures. A Win? I would say no, because in reality all the government did was encourage inefficient use of resources. The labor and the capital in this business are not helping out society at all; the foreign multinational was already willing and able to supply everyone the good at a price of X. But, you’ve added transaction costs, and you’ve diverted away people and money from contributing to something new.

Of course, creating this local business has the added advantage of bringing knowledge and expertise with it. And this is why I think Reich’s point about increasing the skills of the people should be the most important goal. But the goal should be increasing education in developing countries, not encouraging wasteful behavior. And it is not a matter of protecting the poor and the unskilled- that will also just encourage wasteful behavior. The goal is to prevent people from growing up and becoming unskilled.

The one idea I did happen to like a lot from Stiglitz was the idea of an innovation fund for medical intellectual property. The problems with the current system are clear: pharmaceutical companies discover new drugs but keep the price elevated and have sole rights on the drug for twenty years. In this system, drugs are not sold to developing countries because pharmaceutical companies want to maintain their elevated pricing. It is a system that gives up a lot of value (needed drugs for the poor) in order to preserve traditional economic numbers. But an innovation fund can gives a lump-sum payment to the discoverer of a new drug and then let free competition take place for its production. In this system, innovation is still rewarded. In addition, it is in my opinion a just progressive tax. The innovation fund will be funded out of taxes, which will inevitably mostly come from the rich. It will go towards helping everyone in a matter that is usually beyond our control: diseases. Not only that, the incentive will then exist to sell these drugs cheaply to the developing world, adding value to the world society.

I think because this concept of real value is vague, many economists tend to ignore it for just market price methods. But I think this is a grave mistake, because it encourages a philosophy which sometimes misses the point. I think a real worthy role for government would be to intermediate in the capitalist system and make sure that the value added to society is maximized. This can take numerous forms. A progressive tax which takes away from conspicuous consumption is one example. This innovation fund would be another. A third example would be to prevent businesses from exploiting the lack of knowledge of its consumers. I think if politicians stopped to think about these things from a value added framework, it would change a lot of the policy debate in government.

[Jessica Chu]

Like most people said before me, Stiglitz writes about his disillusionment with globalization and how capitalist policies have intentionally put developing countries at a disadvantage. He openly accuses industrialized nations like the US and the European Union of refusing to liberalize import rules on sectors that Third World countries could excel in. On a side note, this intentional exclusion reminds me of Jessica Stern’s analysis of terrorists and their bitterness at capitalist society. If we had been unable to understand how capitalism could leave countries in the dust, Stiglitz should be able to clear it up. Back to the text assigned, Stiglitz calls for a reform on the way to deal with international policy. Instead of an umbrella, he proposes each situation should be treated as a different situation and should be approached as such.
Although this may end up making a happier, fairer world, it doesn’t seem realistic. I agree with Vera that it would be too time consuming and would increase the amount of red tape that is already abundant enough. Progress can’t take place if it’s stuck in bureaucratic red tape. Although the world might work smoother if there were enough resources to treat every region differently, it seems unrealistic. Instead of sticking with an umbrella strategy or going to the other extreme of treating every region as a new situation, we could fall somewhere in between. Maybe smaller umbrellas so more attention can be paid to those regions by the people holding their umbrella, instead of giving each state its own parasol, if the metaphor will stretch that far.

[Kinzie Kramer]

In the Chapter “Lifting the Resource Curse” Stiglitz outlines “An Action Agenda for the International Community,” which includes six main points: The Extractive Industries Transparency Initiative, Reducing Arms Sales, Certification, Targeting Financial Assistance, Setting Norms, Limiting Environmental Damage, and Enforcement. I must agree with Zack, that none of these prescriptions were ‘new’ to me, however, they are still important recommendations that should be utilized to make globalization work and I agree with them. But what I want to point out is that the Agenda is for the International Community. It is not simply an agenda for specific countries, or the UN or IMF or World Bank, but rather for the international civil society. I think that this transformation in favor of the governance of an international civil society rather than simply each country’s government is the trend for controllable the world and that in order for globalization to work it will have to remain the trend.

For example, take one of Stiglitz’s main points- certification schemes. One example that he discusses is certifying diamonds in Sierra Leone: The United Nations Security Council imposed a ban on the import of diamonds from Sierra Leone that were not accompanied by a certificate and now “uncertified Sierra Leone diamonds are now know as ‘conflict diamonds;’ this public recognition of the role of resources in financing a conflict, and the acknowledgement that it must be curtailed, is a move in the right direction” (156). Notice that the move in the right direction is not dependent on government action. Certainly the government must establish a certification scheme, but past that the responsibility of curtailing the illegal obtainment of diamonds is up to the international civil society. The international civil society is expected to not buy uncertified diamonds, to uphold humanitarian values and put their money towards those values. Stiglitz basically seems to be saying the world should be run via a combination of multiple actors, altogether interacting in this international civil society that supercedes states.

[Brendan Gluck]

Stiglitz’s work with the World Bank and under the Clinton Administration has provided him with profound insight into the intricacies and inner-workings of the international system. Stiglitz points out that the characteristics that we assume make up our current democratic society, like representation, toleration, and open-mindedness, are the very characteristics that are lacking in our society, leading to the failure to implement advantageous policies. Instead, the lack of dialogue, diverse opinions, and communication between nations has led us into a path of impartiality towards the well-being of our fellow human beings and the environment. In his articles, Stiglitz makes it apparent that although globalization has led to unprecedented growth and levels of wealth, there are many changes that need to be made in order to ensure that the benefits of globalization are more equally distributed and that the negative effects are curtailed. One issue that Stiglitz repeatedly addresses in his articles is the dire need to create measures to protect our environment. While this issue has become very prevalent in current politics, Stiglitz highlights the importance of simply discussing the pros and cons in an open setting. Although this seems obvious, I think our current political system could learn a lot from this suggestion. The American people are currently more in the dark, in the sense that we are oblivious as to the actions of our government, as ever before and therefore, an open debate about such a hot topic would not only procure a possible solution to the problem but would also instill us with confidence in our government.

Another topic that interests me in Stiglitz’s article is his suggestion that international policy be formulated by a case-by-case basis. China has proven that there are multiple ways to develop effectively and it is important to understand that each nation is unique in their make up. Adapting to each nation’s needs and specific situation will prevent catastrophic effects from occurring as a result of ill-advised policies. Although I agree with Jessica Chiu in her belief that this will add some time to the development of said policy, I think it is key in providing the right fitting policy. In the long run, the successful growth will more than offset the time lost. Rather than international organizations being forced to develop policies for each nation individually, they should give the nations a general road map for how they think growth and modernization can be achieved. This way, it becomes the task of the respective nation to adapt this general road map to their specific case by using their ‘metis,’ (as China has done so effectively) which will greatly decrease the bureaucratic red-tape experienced by international organizations.