Friday, September 29, 2006

Joseph Stiglitz on making globalization work


From his Economic Times op-ed:

... I have complained so loudly and vociferously about the problems of globalisation that many have wrongly concluded that I belong to the anti-globalisation movement. But I believe that globalisation has enormous potential - as long as it is properly managed.

Some 70 years ago, during the Great Depression, John Maynard Keynes formulated his theory of unemployment, which described how government action could help restore full employment. While conservatives vilified him, Keynes actually did more to save the capitalist system than all the pro-market financiers put together. Had the conservatives been followed, the Great Depression would have been even worse and the demand for an alternative to capitalism would have grown stronger.

By the same token, unless we recognise and address the problems of globalisation, it will be difficult to sustain. Globalisation is not inevitable: there have been setbacks before, and there can be setbacks again.

From this interview in the Hindu [via Guru who also seems to be reading tea leaves bags these days]:

The prescription for making globalisation work is what is generally called "the Scandinavian model." That means high levels of investment in education, research, and technology plus a strong safety net. That of course also entails, as in the Scandinavian countries, a highly progressive income tax.

Far from making these countries less competitive, it has made them more so. Though it may seem a contradiction to conservative ideologues who think cutting taxes is the answer to everything, the fact is that people are more willing to take entrepreneurial risks if they can count on a safety net and if they have the training to be innovative.

In Sweden, the social democrats who fashioned this policy have just been turned out of office. But we should not read that as some kind of a rupture in the social consensus. The new, more conservative government will only be about fine-tuning the model.

Since Stiglitz mentions Sweden and the Scandinavian model, here's an interesting analysis of the recent Swedish elections. Among other things, the article shows how the neo-liberal parties in Sweden and Denmark came to love the Welfare State. [Link via Mark Thoma].

In the same interview, this is what Stiglitz says about what the east Asian economies did to benefit from a more globalized world:

The East Asians — first Japan and later countries like Singapore, Taiwan and South Korea and now China — understood that their gap with the advanced world was in knowledge and technology. So they encouraged direct foreign investment, insisting that technology transfer come along with it, and invested massively in education and infrastructure, largely through their own national savings, which are the highest in the world.

China, especially, has embraced globalisation on its own terms. It was slow to open up its markets for imports and even today does not allow the entry of speculative, short-term capital flows that so easily lead to boom and bust cycles in emerging economies.

But on top of this, China, like the others, has not relied on trickle-down wealth to lift up those at the bottom, but has sought to raising the poorest through government intervention. In the past decade and a half, hundreds of millions have been lifted out of absolute poverty there.

Now that a wealth gap is emerging because of sustained, rapid growth, the Communist Party has put the new policy of "harmony" at the top of its agenda, aiming to stop the gap from growing too large.

5 Comments:

  1. pradeepkumar said...

    See what George Monbiot (www.monbiot.com) has to say about Stiglitzs dream for reforms within the present form of Global bodies such as WTO:

    ".....hopeless reformism of men like George Soros and Joseph Stiglitz who, blithely ignoring the fact that the US can veto any attempt to challenge its veto, keep waving their wands in the expectation that a body designed to project US power can magically be transformed into a body which works for the poor.."

    "...Even Joe Stiglitz believes that the World Bank was the brainchild of the British economist John Maynard Keynes (Keynes was, in fact, its most prominent opponent).."

    Ref: http://www.monbiot.com/archives/2005/04/05/im-with-wolfowitz/

  2. kuffir said...

    'The prescription for making globalisation work is what is generally called "the Scandinavian model." That means high levels of investment in education, research, and technology plus a strong safety net. That of course also entails, as in the Scandinavian countries, a highly progressive income tax.'

    education, research, technology plus..a strong safety net. investment on those was inadequate, to say the least, for most of independent india's existence.. but we had an overdose of the latter part of the prescription - heavy overdose of progressive taxation. did it work?

    what might have worked seventy years ago in the west...never worked well in india. the fiasco that the nrega has turned out to be is a shining example..

    we need our own ideas..not stglitz's because hisd ideas might work in countries he hails from. but i'll accept one half, endorse it wholeheartedly, of his prescription - heavy investments in education..and health (which he doesn't mention).

  3. bhupinder singh said...

    The claim of China having "not relied on trickle-down wealth to lift up those at the bottom, but has sought to raising the poorest through government intervention." is at best contentious.

    Data from China is flimsy and unreliable, and increasing academic writing (for example, "One China, Many Paths") makes such claims questionable.

    Overall, the problem with Stiglitz is, as indicated in Monbiot's article is that he remains at the superstructure level and sees WB- IMF as two opposing bodies while they are really variants.

    Reading Stiglitz's book on Globalization one cannot but come out feeling that he is only articulating the views of one faction of the two bank's bureaucracies.

    His views are important because they are an insider's views, but I would take much of what he states with a pinch of salt.

  4. Abi said...

    Pradeep, Bhupinder: In his article as well as the interview, Stiglitz makes it clear that he is for globalization. According to him, just as Keynes' work helped save capitalism, his others' critiques are meant to 'save' globalization.

    To me the take-away from his article and interview is about social safety net. Laissez-faire capitalism (with or without globalization) could -- and does! -- lead to enormous social inequities, and I'm certain that welfare state is the way to go. It's this message that Stiglitz articulates, except that it's in the context of globalization.

    Along the way, he may have other axes to grind (by taking sides in the WB vs. IMF tangle); but we don't have to pay attention to them.

    Kuffir: Perhaps the 'Scandinavian' model is not right for us, probably because those countries are so much richer than ours. Still, I haven't seen any clear articulation of how and why exactly that model will not work here.

    The problems in NREGA, on the other hand, seem to be primarily about the poor way it is implemented. You aren't implying that it's bad even in principle, are you?

  5. kuffir said...

    abi,

    first, we had been trying a version of the scandinavian model in india since independence...at least the part which says that we need heavy doses of progressive taxation - i'll not dwell over how wrong it turned out to be. i'll only point out that it helped built a huge parallel economy that sucks up investments that should go into legitimate businesses and create growth and..jobs . progressive taxation has also engendered a parallel moral order which justifies practices that run totally counter to govt policy. and progressive taxation stifled growth. it weakened the state's moral authority because...forget rewards, the honest taxpayer wasn't even assured of social security if things went wrong for him.
    progressive taxation proved to be an overambitious objective for the young indian state .. it showed us very clearly how limited its strengths and reach were. a policy which encouraged people to hoard/hide money, almost like in medieval times when people would bury their most prized belongings and gold..to save them from rampaging invaders..it told people that the govt perceived wealth creation as an offense. and the people took this as sign that independence and democracy had brought in no fundamental changes - the state was still the enemy, and like in earlier times the best alternatives available for those who valued security were the old ones.. one's family - therefore hoard, and not save, as much money as you can during your working years..so that your children would have a secure future and you'd in turn be cared for in retirement (this also resulted in strengthening of old practices like dowry).your community/caste is the best guarantor of your rights because it was a time-tested mechanism to protect you in distress and to promote your social mobility so... ensure your community moves ahead with you through whatever means possible ( this 'legitimised' graft and nepotism, in a way). i could go on..but my essential point is that progressive taxation stifled growth on the one hand..and strengthened old, regressive values on the other.

    one other aspect of our version of the 'scandinavian model' was that the state, which also ensured that the 'pie' wouldn't grow, decided the direction, 'directors' of growth ...it'd be interesting to know whether the swedes and the rest of the scandinavians built a public sector which produced not just bread but 'culture and entertainment,' and provided'catering and hospitality services' among others.
    i don't think the public sector is/was as large in the 'swedish model'..nor the state itself, its bureaucratic machinery for instance, is/was as large. this in my view is a major difference between our model and theirs..

    i'll come back to you on why i keep harping on our 'old model' and the nrega..thanks.