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November 16, 2007

Comments

William Chen

Joseph Stiglitz points out the huge disparity between industrialized countries and developing countries. Although globalization has allowed countries such as the United States to experience great economic growth, it has left other countries in the dust. Furthermore, Stiglitz suggests that the growth of our country is not as good as it seems because we are destroying our environment along the way. Like the above posters mentioned, Stiglitz points out the importance of environmental preservation and believes in the need for the government to implement policies to alleviate that issue. The main argument that Stiglitz puts forth is that the Washington Consensus does not work for every country. Although it has worked relatively well for the U.S., it assumes that other countries can operate under a market economy that has perfect competition and information. But realistically, no country does. Moreover, those countries do not have the same fundamentals that the U.S. has to ensure the success of the Washington Consensus. Those developing countries lack the organizations that would ensure a free market economy. So I agree with a few of my classmates that the best solution is to not use a one-for-all strategy, but rather, to look at each country differently and to solve their problems individually.

Thomas York

What I found most interesting in Joseph E. Stiglitz's writing were his policy recommendations for China. In his speech, he makes comments that espouse his domestic policy recommendations. Rather then simply look at output growth and decide that China's policies have been successful, he provides a model for a fair system of growth that encourages increases in the standard of living and fair economic distribution.

From “Toward a New Model of Development,” he writes: “But the major barrier to increasing consumption is not a lack of credit, but the lack of an effective social safety net, a strong public health system, an effective social security system,and a good publicly provided education. Precautionary savings depresses consumption.”

Rather than the continued focus on increasing exports, Stiglitz recommends encouraging in-country consumption growth through policies that would increase the living standards of all Chinese. Social safety nets and public health systems both would help hundreds of millions in China.

Stiglitz even provides something the Kyoto protocol did not – an effective solution for stemming carbon emissions in developing countries like China: ... "Making firms pay the full marginal social cost of their activities - the cost, say, of carbon emissions - would enhance incentives for pollution reducing innovation ... A carbon tax would have, in addition, one further important advantage. It could break the global impasse on what to do about global warming. The scientific evidence about the risks of this impending calamity has been mounting."

Kyoto's “economic leakages” -> incentivizing 1st tier nations to lower their consumption and in effect lowering prices for developing countries and incentivizing them to consume more -> entailed a serious problem. This system would encourage a global incentive-based system that doesn't simply redistribute pollution.

Stiglitz's writing on the American Intellectual Property system seemed most interesting to me. As an ex-High School debater, I often heard the political consensus response an intellectual property system is necessary to support long run growth. It simply didn't occur to me that, especially for developing nations like China, a stringent intellectual property system like the USA has simply makes no sense. These false monopolies, especially in medicine, do actually let thousands needlessly die while stifling a good that cannot be taken from someone else: knowledge.

Kenichiro Nakahara

This week’s reading was quite fascinating to me because it felt like Joseph Stiglitz is the first author in a while who I can agree with from the PEIS 101 readings. (Although I feel this way because his work is relatively recent and relates to issue that has gone on during my life…) Even so, I would like to focus on Stiglitz’s critique on “neoliberalism” and his model of China.

On the topic of neoliberalism, Stiglitz, along with MANY authors (when I looked up “neoliberalism” on Amazon.com) had critical views towards neoliberalism. What rung my bell when I was looking down the list of books was about, “A Brief History of Neoliberalism” by David Harvey which I read in a previous class. Harvey, along with Stiglitz had a critical view towards the contradictions we see today between “democracy” and the economic gap created by “neoliberalism”. This can be seen in real life today in the case of the United States. United States is considered a “democracy” with freedom and liberty but is also a monster economy that is called “neoliberal”. Democracy is supposed to create economic wealth among all but in reality, only the wealthy in the United States are gaining and the economic gap between the poor are getting bigger everyday.

Stiglitz continues attacking neoliberalism (and the United States) on the fact that it forces particular models upon developing countries. He mentions that “a larger overall organization” is needed in order to govern so this sort of “economic imperialism” would not occur between those who are developed and developing. Stiglitz is quite impressed by China’s case and the fact that it has made economic development using its distinctive characteristics of cheap labor and number of labor instead of trying and failing by imitating models like the United States or EU. Julia’s posting is similar to this and it is quite clear that there are systems that work for certain countries and there are ones that would simply ruin the country by factors such as politics and religion. (As seen in the examples of trying to bring democracy to the Middle East)

Many members along with Stiglitz feel that the World Bank, IMF, or the WTO are the “governors” of international trade and economy and have issued in tact. However, I would have to disagree with this point. In reality, the World Bank is known for simply ignoring social or cultural aspects of the country and just by looking at numbers, they decide their economic rescue strategy. This can create the “dependency” issue and the country would never able to be able to grow on its own. Examples can be seen in once successful Latin American countries who are struggling today because the economy had been depending on countries from Europe in previous centuries. Another example could be in Africa, where the enormous financial supports by the World Bank have gone to the hands of corrupt governments and creating endless political mess… Stiglitz fails to give a blueprint of how to solve these issues but I feel that he is trying to say organizations such as the World Bank must recognize the characteristics of different countries and also consider factors such as cultural and political in order to take on a strategy of international economic growth.

Anthony Yates

Joseph Stiglitz speaks to me much as a seasoned veteran of a thousand battles; his first-hand experience with the troubles of the IMF allows him to adopt the blunt, authoritative town with which he conveys his message. This message, with regard to the development of economic policy, I believe, clearly identifies two key components which are:

1) Necessity of a unique economic solution for each individual country
2) How to create this unique solution

First and foremost, as Vera has pointed out, is his resonant refrain that “one size fits all” policies do not work. The entire body of “Towards a New Model for Development” is dedicated to custom tailoring the beginnings of a solution for China’s individual circumstances. It seeks to understand why previous economic models were effective, in what way the country has evolved since their implementation, and how they were lacking so that these issues might be addressed. It discusses a number of paths down which China might proceed, offering as examples United States’ policies (about which he is particularly critical, in one instance recommending that perhaps they should not even be used “as a template”) as well as those of other industrialized nations who attempt to achieve similar economic success and the general well-being of state for all the citizenry which Stiglitz advocates. And just as the particular conditions in China demand a solution which will work for them, the recipe for China’s success applied to a developing African nation will probably not yield such positive result; more likely, it will have disastrous consequences.

The quest, then, for this unique solution begins and ends in dialogue. One of Stiglitz’s chief complaints during his tenure at the IMF was that the organization did not just fail to encourage debate and discussion regarding many discussions, but actively discouraged it, maintaining a veil of secrecy in important decisions. The result was often ineffective or even debilitating policies. Thus it is for its continuous engagement in dialogue that he praises the Clinton administration, and he attributes many policy successes to the reconciliation of the diverse views existing among the members. The approach to economic policy he advocates for developing countries is the same. A successful policy must minimize asymmetries in information, and only achieves this by incorporating local knowledge (similar, or perhaps equivalent, to James C. Scott’s mētis, government ignorance of which bears much of the responsibility for its policy failures) and third-party, outside institutions (like World Bank) who have “interpretations of what has succeeded and what has failed, based partly on an enormous number of experiments.” A dialogue integrating the mētis of the local people and the “wealth of knowledge” of outside parties is a beginning to the formulation of any policy. But because of the significance of even the slightest details in the policy, either in its creation or in its implementation, it must also end in dialogue, as the policy is constantly adapted and tweaked to fit the ever-changing situation of the nation internally and on the world stage.

In advocating this policy of dialogue, one which is unthreateningly open and supports not a hard-line view, but rather a flexible way of thinking, Stiglitz is very hard to oppose. Because of this, I think it is particularly effective. Stiglitz writes that “open dialogue is essential for democracy,” in his speech to the Carter Center. But it is more than that; it is an implicitly democratic process. In developing countries, it involves participation of independent third-parties and international institutions, but requires by its very definition participation by the members of a nation. If it does not reflect their opinions, feelings, or beliefs, it is not a truly open dialogue. Dialogue is thus a small step in the larger process of democratization, and yet because it is so hard to reject (cf. Stiglitz’s anecdote of fellow economist Gary Becker), can become part of the policy of a country which would otherwise turn aside more explicitly democratic ideas.

Vaclav Burger

In reading Joseph Stiglitz I saw many good points just as my peers had and saw the importance of his attention to detail. This is supposed to be crucial to the development of global issues like the IMF. A part of this plan is the swing away from neoliberal development. What Stiglitz conveys as a more drastic substitute has to be the US and European Union moving toward more unfair ideologies. I am reminded at times of the imperialism of the past and how greed seems to potentially play a role in the US and its decisions on Iraq. I believe that one of Stiglitz most powerful notions talks about the development of society, instead of just monetary wealth of a nation. I can’t quite say if political development has been in the shadows of economic development as opposed to being more equal. Should the political developments be affected by the economy, or should these be integrated in a more complex fashion. I see how Stiglitz sees the world to be more unified, which sees global powers swaying their policies to help excel industrializing in smaller nations. I think he wants to see more divergence of the world economies, so the global market is affected better by joint action as opposed to being ruled by few superpowers. With regards to the application of Stiglitz position today, I have a hard time believing in such a collective effort even though it sounds quite nice. Further, I feel Stiglitz could have looked at the future his ideas cast and be somewhat critical to make his argument stronger because such policies would take time to be accepted and put into practice.

Shane Barclay

Yes, it’s true that Stiglitz does not offer many “new” ideas, but I think that his overall outlook is something that ought to be seriously considered. By “overall outlook” I mean the means by which he comes up with his ideas, outlined in his piece on dialogue. If the model of his dialogue-led thought process were followed more prevalently then we would start seeing some more ends like those of the European Union.

Joseph Stiglitz would be a proponent of the PEIS major because of how it encourages dialogue between different schools of thought. PEIS encourages one to look through many lenses to formulate more thorough ideas. Stiglitz realizes the same problem that the creators of PEIS realized: economics and politics are infinitely intertwined but there are few economists who are well-versed in political science and vice-versa. Stiglitz rightfully puts the EU on a pedestal because they succeeded in harmonizing the economy and political landscape of Europe.

This way of making decisions—taking into account all aspects of an idea by way of open dialogue between people in differing positions—is one that should be emulated. China is in the unique position where this decision making process could shape their rapidly approaching future in a similar way that it affected Europe a half-century ago. Too much focus on the economy or too much focus on the politics could be detrimental to a country with so much potential power.

Danielle Mahan

For the most part, I did not especially enjoy Stiglitz’s writings. However, I have to praise, as many of my classmates do, his emphasis on shifting some of our focus away from economic values and toward political and social values. He repeatedly highlights the importance of increasing democracy, dialogue, participation, decreasing inequality within and among nations, and protection of the environment.
Beyond this, I find him boring, uncreative, cynical and making insubstantial suggestions. Both his long and short term goals seem meaningless or unrealizable. Everyone knows that international financial institutions have to increase transparency and be accountable to its member nations and its citizenry. But why accountable to the U.N., a body whose purpose and composition are very different from those of financial institutions? His speech marking the 50th anniversary of the European Community is especially boring (and a bit sycophant) – who doesn’t value democracy, social justice and solidarity, human dignity, the environment, and a propensity to reform?
His main argument – no one prescription works for all developing countries – is weak because even when Making Globalization Work was published this was already a much diffused and widely accepted principle. He criticizes the principles of the Washington Consensus; however, it is important because it does try to address essential economic values. I think it is important to establish some set of values as an umbrella for all specialized development schemes (more along the lines of Rodrik’s argument). Along the same lines, I find his rejection of conditionality of funds lent by the World Bank and the IMF irresponsible and a little scary. Maybe the conditions need to be changed, but without them, leaders of developed countries have too much discretion.
We really need solutions to the problems Stiglitz described that are just, responsible, and consistent. However, his suggestions fail to not only meet these criteria but are also to provide any incentive for advanced countries.

Christy Fox

I agree with Jennifer that Stiglitz is ahead of his time, but not by much. His work might be more useful in 10 years, but it is still powerful now. In an age where globalization is seen as a positive movement for absolute prosperity, Stiglitz illustrates how the current method of managing the economy on a global level can actually widen the gap between rich and poor.
Stiglitz blames institutions, like the IMF and World Bank, for applying prescriptions like the Washington Consensus, to every country despite the preexisting social, economic and cultural differences within the countries. But how can everyone else catch up?
Stiglitz asserts that the world needs a new way to look at the economy. It should not be a tool to enrich countries or individuals, but an inclusive international society with global governance authority. This seems like an ideal prescription to the problem of the increasing income and employment gaps in the world. It seems like international societies are emerging, but are underdeveloped. They lack definitive power over countries, which Stiglitz seems to suggest that they should have. As of now, international societies are just lobbying groups and applying pressure to governments is their most powerful tool. For this reason, Stiglitz might be better place in a time when these institutions have more influence in power over global governance.

Cindy Yu-Hsin Chou

I’d like to respond to some thoughts regarding the case of China.

In “Towards a New Model for Development,” Stiglitz recognizes the rapid pace at which China is changing and stresses the need to move from an export-led growth economy to one with an independent innovation system. I am not sure I agree with this.

Stiglitz stresses the need to encourage in-country consumption growth. While I may agree with this, I am not sure how plausible this is.

Stiglitz proposes a carbon tax through which the revenue can be applied towards social benefits and maximizing the greater good, while reducing carbon emissions like the Kyoto Protocol didn’t (if only it were that easy…). Again, I find contradictions in this proposal.

Thomas York writes that “Rather than simply look at output growth and decide that China's policies have been successful, [Stiglitz] provides a model for a fair system of growth that encourages increases in the standard of living and fair economic distribution.”

I have my doubts.

While I applaud Stiglitz for his attempts at bettering the whole of society, his solutions are too myopic, too focused on economic theory and the idealized world, and not enough on the influences of culture and society. Yes, China is on its 11th 5-year plan, and yes, consumption is increasing, but there are several faults I find in Stiglitz’ argument. First, China’s export-led growth economy has allowed it to develop much of the technological knowledge as well as other forms – organizational behavior, management, language, theory. At present, though it is increasingly becoming the base manufacturer for many electronics and computers, much of the highest technology is still not made in China, but in Japan or the United States or Russia. Furthermore, from China’s view, its present role in world trade as an exporter allows it to not only benefit from new knowledge, but also to hang on to those driving investment and innovation in China—often foreigners—and reap in the benefits. In other words, moving from an export-based economy to a self-innovator would drive out foreign investment and focus on local talent (which is not yet fully developed), therefore not benefitting China at the moment, but the United States.

Another issue I have is in Stiglitz’ stressed need to increase domestic consumption. Saving is not just due to the five reasons Stiglitz mentioned, but one thing he does not take into account is the issue of culture. As a Chinese, I have observed within my culture the engrained need for conservative investment and definitely savings. While Americans are up to their arms in debt, this is not as common in Asian countries. Yes, this is a generalization, and while I do not have the statistics to back up my theory, I feel that Stiglitz’s proposal to encourage consumption is not as easy as simple marketing and production to get Chinese people to spend.

A third issue I have with Stiglitz’ argument is in the carbon tax. I’m not sure how the effective carbon tax if the goal is to use the revenue from the tax towards the greater good, as the tax would increase costs, which may lead companies to have a smaller scale of production and less job opportunities. This could lead to high unemployment and decrease consumption as well as savings, thus countering his proposed need to increase domestic consumption.

Stiglitz, then, attempt to appear knowledgeable and gain legitimacy by examining individual countries and stressing the need to not force a “one-size-fits-all” solution, but to me, he exemplifies the classic American mindset: attempting to think about the best interests of another country, but not truly understanding all the factors (particularly the social and cultural factors), and ultimately coming to a conclusion that will benefit itself the most.

Chun Chung Chan

Development is complex, and there is no one-size-fit-all policy to all the developing countries. World Bank, IMF are set up to try to help the difficulties that face by the developing countries , but as Stiglitz points out, failures are sometimes hard to escape. Stiglitz says a comprehensive plan that pay attention to details can help the success rate, however there is still other problem. Neoliberal economist believe in privatization, market liberalization, less state intervention. But such policy is not welcomed by all of the countries, and even many countries have disproved Neoliberal policy is the only way to achieve prosperity. Japan, being the second largest contributor to the World Bank, does not agree with the United States’s jurisdiction over the aid pattern and aid restriction: namely the Washington Consensus. Japanese economists know that Japan did not follow the neoliberal policy to make the post-war Japan a successful story. There was tremendous government intervention, state-led economic activities, and it worked. Stiglitz also comes to the same epiphany when he realizes a standardized globalization will not work. Spreading capitalism or market economy is not the only solution to a globalized era.

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