Nobel sentiment : Joseph Stiglitz and the Washington Consensus

Commonweal, Dec 7, 2001 by Robert A. Senser

"In East Asia [especially during the early 1990s]," Stiglitz says, "it was reckless lending by international banks and other financial institutions, combined with reckless borrowing by domestic financial institutions--combined with fickle investors--that may have precipitated the crisis. But the costs, in terms of soaring unemployment and plummeting wages, were borne by workers. Workers were asked to listen to sermons about austerity and 'bearing pain' just a short while after hearing, from the same preachers, sermons about how globalization and opening up capital markets would bring them unprecedented growth."

More and more analysts see eye to eye with Stiglitz on the perils of unrestricted international capital markets. The most vocal economist among them, Jagdish Bhagwati, also a professor of economics at Columbia, identifies Wall Street by name as a guilty party and beneficiary. Even the Economist, in its September 28 survey of globalization, concedes that one of the clearest lessons of the past few years is that "foreign capital is a mixed blessing," especially in the case of short-term lending and borrowing by banks, which "are systematically protected from the consequences of their reckless behavior." But unlike the Economist, Stiglitz presses the question of responsibility for such policies.

"Finance ministers and central bank governors have the seats at the table [of intergovernmental financial institutions]," he said in a June 2000 interview with The Progressive magazine. "Finance ministers and central bank governors are linked to financial communities in their countries, so they push policies that reflect the viewpoints and interests of the financial community and barely hear the voices of those who are the first victims of dictated policies."

Stiglitz singles out the U.S. Treasury Department for blame, since it shapes the U.S. position on international economic policy, which then often becomes the policy of the IMF and other intergovernmental financial institutions. At a conference convened by the AFL-CIO and the Washington College of Law last February, he said: "We would never be content to delegate domestic economic policy to the Treasury. In today's world, it is equally misguided to delegate international economic policy to the Treasury, or even to the Treasury and State. A broader range of voices, including those of labor, must be heard." That has yet to occur.

More than most economists, Stiglitz grasps that giving nongovernmental groups a voice in global economic decisions can help identify problems and find workable solutions. Organized business is often accepted in this role; organized labor is not. At a high-level meeting held in October in Shanghai, for example, the Asia-Pacific Economic Cooperation Forum, an international organization of government and private leaders from the United States and twenty other Pacific Rim countries, allowed participation by business but not by labor. Stiglitz believes that although business belongs at such meetings, it should not monopolize the private-sector role.