Policies behind poverty

October 29, 2004

Joseph Stiglitz's criticism of free-market zeal has ruffled all sorts of feathers, but Stephen Phillips warms to the laureate.

Globalisation rebel and Nobel laureate Joseph E. Stiglitz has a schedule that might make a touring rock star wince. In a week-long blur earlier this month, the 61-year-old Columbia University professor of economics and finance and former World Bank chief economist, gave speeches in London, Paris and Barcelona, visited Madrid for an audience with Spain's prime minister and addressed World Trade Organisation officials in Geneva, before stopping off at the Caribbean island of St Kitts on his way home to New York to discuss aid to developing nations with Commonwealth finance ministers.

And he didn't slacken the pace the following week. He embarked on a speaking tour of Ohio and Pennsylvania, trumpeting Democratic presidential candidate John Kerry's economic policies before university audiences and business leaders in key battleground states the challenger must carry if he is to win the November 2 election.

Globetrotting goes with the territory for an international development expert, and Stiglitz spends roughly one-third of his time on the road - in between juggling his workload at Columbia, where he is teaching globalisation, development and macroeconomics this term. But he doesn't begrudge hitting the campaign trail in the run-up to one of the most highly charged US elections ever.

"There's a lot more at stake than in elections historically," Stiglitz explains. "Bush is much more extreme than previous Republicans, even his own father."

"There are many concerns - lack of sensitivity to human and civil rights and democratic processes," he says. He is particularly uneasy at the "breakdown of separation between church and state" that many believe is the result of the Administration's embrace of the religious right.

Stiglitz is not a lone voice in US academia. In August, he was one of ten Nobel economics laureate, who signed an open letter endorsing Kerry and charging the Bush Administration with charting a "reckless and extreme course that endangers the long-term economic health of our nation".

In July, 4,000 science researchers - including 48 Nobel prizewinners - signed a statement accusing the White House of spinning science to fit its agenda. "People always comment on President Bush's lack of curiosity, but it goes beyond that," says Stiglitz, who gained tenure at Princeton University at the age of . "It's a question of being anti-intellectual.

This is a guy with no credentials denying ten years of work on global warming. It's Orwellian - this Administration is willing to reinterpret any evidence."

August's missive wasn't the first time Stiglitz had put his name to criticism of the White House. In March 2003, he was one of 350 economists who petitioned President Bush, warning that the deficit he'd run up endangered social welfare programmes.

"He wants to undermine the tradition of the progressive tax structure, you can see it in every detail of policy. The tax cut was not intended to stimulate the economy, it was about giving back to the rich," Stiglitz says.

Such willingness to call things as he sees them was Stiglitz's undoing at the World Bank, where in 2000 he was reproved for his criticism of its sister organisation, the International Monetary Fund, and told to pipe down or step down. Stiglitz walked, publishing in his 2002 bestseller, Globalisation and its Discontents , a searing critique of the IMF's push to open up markets and spread free trade and privatisation.

In the book, Stiglitz states that the IMF's fixation with market liberalisation, anti-inflationary fiscal austerity and debt collection have sabotaged international development goals. He believes the IMF has betrayed its mission to bail out troubled countries and stabilise the international financial system. Motivated by the interests of Wall Street and an unseemly desire to recover Western bank loans, the IMF's policies have inflicted further misery on the world's poorest, widened inequality, subverted democracy and precipitated financial crises. He cites World Bank research that found that the ranks of those living below the poverty line swelled by almost 100 million during the 1990s while industrialised nations prospered.

The IMF, like the World Bank and the US Treasury, is in the grip of free-market zealots, Stiglitz contends. They are implicated in the market fluctuations that triggered the Asian economic meltdown of 1997-98, stopping the "tiger" economies in their tracks, and in Russia's fall into unfettered capitalism, which sparked an increase in poverty from 2 per cent in the old Soviet Union to 50 per cent in the 1990s and led to plunging life expectancy. "Structural adjustment loans" have often forced developing nations to defy the democratic will and social needs of their people to comply with IMF economic parameters, he adds, citing civil insurrection in Argentina in 2001. Wealthy nations have been unwilling to take the free trade medicine they dole out to developing countries.

Such combative pronouncements suggest Stiglitz might be a prickly curmudgeon, but he is the soul of good humour to interview. He is famous for sporting untied shoelaces or padding around in his socks, with shirt tails liberating themselves from his trousers.

Stiglitz was first promoted to public office by Bill Clinton, and was the President's top economic adviser from 1995 until he joined the World Bank in 1997. Stiglitz says the biggest revelation from his brush with the corridors of power was the role of special interests and political pressures in shaping (and distorting) public policy.

Perhaps he should have known better. The 1970s research for which he won the Nobel, with George Akerlof, now at Berkeley University, and Stanford University's Michael Spence, pioneered the field of information economics.

It showed that because people don't have equal access to information, free markets don't promote optimal efficiency.

Stiglitz's scepticism of untrammelled markets may be traced to his upbringing in Gary, Indiana, a classic depressed US rust-belt city on the outskirts of Chicago. Another famous son is Paul Samuelson, Massachusetts Institute of Technology Nobel economics laureate. Though Stiglitz's parents were middle class, he witnessed how market vagaries intermittently cast local industrial workers on the dole. Such observations led to an interest in cyclical unemployment, which he studied as a graduate at MIT.

But Stiglitz is no radical socialist. He was drafted into the Clinton Administration as an avatar of the so-called "third way", an attempt to plot a middle path between laissez-faire economics and big government.

And, despite being a hero to many, he is not calling for the abolition of the IMF and World Bank as some anti-globalisation campaigners are, but rather for their reform so they live up to their founding charters to be global regulators.

But he is pushing for a rethink of international development policy. The end of the Cold War furnished an opportunity "to redefine the global economic order", says Stiglitz, but instead the West allowed short-term self-interest to govern decision-making. "During the Cold War we had to make sure we didn't abuse our power, because if we did, developing nations could turn to the Soviet Union, but once the Soviet Union was no longer there, there was nothing to check us and we abused our power more and more," he says.

As a step towards remedying this, Stiglitz founded the think-tank Initiative for Policy Dialogue to canvass international academics, lawmakers and civil society representatives on issues such as trade, privatisation and financial reform and to hammer out alternative options for developing nations.

The project took him to Madagascar, Ethiopia and Nigeria over the summer, and has drawn big hitters from MIT, Harvard and other leading campuses.

Such patronage illustrates the buzz surrounding globalisation that drove Columbia to poach Stiglitz from Stanford University in 2002 for a reported $300,000 a year.

But Stiglitz chose a US domestic subject for his most recent tome, The Roaring Nineties , published last autumn. In the book, he rounds on the Clinton administration for deregulating the financial markets and telecommunications industry (to curry favour with business, he says), thus stoking an investment boom but laying the seeds for the bust that followed.

"It's an issue I feel passionately about - the balanced role of government in the market," he explains. But, for all their crass excess, Stiglitz seems almost nostalgic for the 1990s. While he scolds his former boss, he adds: "One of the reasons why George Bush is so dangerous is that he doesn't even understand the question in the first place when it comes to the role of government."

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