Global warrior

Economist turned activist, Joseph Stiglitz speaks up for developing countries in their fight against the forces of globalisation.

by Steve Lodge, World Business
Last Updated: 23 Jul 2013

Among globalisation's many critics, Nobel prize-winning economist Joseph Stiglitz stands out as an expert insider turned whistleblower. World Bank chief economist until 2000, he was also an economic adviser to Bill Clinton's presidency in the 1990s and is tipped as a possible adviser to Hillary Clinton should she also become president. After resigning his World Bank post, Stiglitz wrote the international bestseller, Globalisation and Its Discontents. Described as an expose of Western trade hypocrisy and "market fundamentalism", the book attacked the IMF for worsening crises in Asia and elsewhere with economic shock therapies. Stiglitz's new book, Making Globalisation Work, develops his manifesto for improving a world economic system. Dubbed the "poster boy of the anti-poverty movement" by one interviewer and, less kindly, an "artist of the impossible" by the Economist, he describes himself as an "activist academic". Currently professor of finance and economics at Columbia University, he has also founded a think-tank - the Initiative for Policy Dialogue - to help developing countries explore policy alternatives.

WB: Why do you think globalisation isn't working?

Joseph Stiglitz: There is the fact that there are so many crises, particularly in the developing world. This isn't about just one or two countries, but tens of nations winding up with debt beyond their ability to pay. We would expect more convergence: poor countries should be catching up. There are some - India and China, for example - but there's another very large tranche of countries where we don't see convergence. Even in advanced countries, there are problems with people at the bottom.

How does this fit with the idea that globalisation would make everyone better off?

Globalisation was sold as something that would make everybody better off, but it hasn't worked as well as expected. However, its failures are consistent with economic theory. Economists have long understood that trade liberalisation and fuller global economic integration would mean lower wages for unskilled workers in advanced industrialised countries. Globalisation isn't the tide that floats all boats: for unskilled workers worldwide to end up in a similar position means a levelling down for workers in rich countries. While a country as a whole might be better off from globalisation, very large groups or even the majority can still be worse off. Economic theory says that the gains will be sufficiently large to compensate for the losers - it does not say they will necessarily compensate them.

How should countries protect their workforces?

Industrialised countries that have restructured their economies and spent on education and retraining have fewer losers. More of these policies are needed to move people from the unskilled to the skilled category. There also need to be stronger safety nets and more progressive income taxes to make sure gainers share the gains with the losers. But in the US and some other countries, things have been moving in the opposite direction: safety nets have been weakened and taxation has become even less progressive. Rather than offsetting the downward pressures, policies have reinforced them. In the US, these forces of inequality have become particularly intense: unskilled wages have dropped substantially in real terms and even households in the middle are being hit. Globalisation is only one of the forces driving down wages - technology may be even more important, but it's very difficult to do anything about that.

Aren't problems inevitable as people adjust?

Many people think that globalisation is irreversible, but it isn't. After the first world war, the level of global economic integration, measured by trade as a percentage of GDP, went down. There is no doubt we can go back. If globalisation leads to lower standards of living, there will be demands to stop it. Policy responses are absolutely critical if globalisation is to be accepted in industrialised countries, so that every country and major group in society benefits.

Which of the developing countries have taken best advantage of globalisation?

India and China in particular have benefited enormously from globalisation - and that's almost half the world. Both have the resources to really take advantage and have invested in education and, in the case of China, in infrastructure. Some small countries have also been doing extremely well: South Korea is now the world's 12th largest economy even though it's not that large a country; Taiwan and Thailand have thrived too. Careful government intervention has been important in the successful development of much of East Asia. But the developing world as a whole has faced a major problem: a lot of the rules and institutions of international trade have discriminated against it.

What's wrong with world trade?

International trade has been approached from a position of power politics, and trade agreements have been asymmetric: opening up developing markets to goods without advanced industrialised countries offering the same reductions in trade barriers. Even when the industrialised world brings down trade barriers, developing countries are not always in a position to take advantage: they may lack the infrastructure and it may take years for what they produce to meet required standards. Even so, a step forward would be for every country to open its markets to any economy that is poorer. There's also a compelling case based on self-interest: developing countries' growth will enhance our growth, and their greater stability will contribute to our stability and security. Unfortunately, special interests have also played a disproportionate role in world trade. An example is the $3bn-$4bn cotton subsidies that go to rich American cotton farmers, which hurt 10 million of the poorest people in sub-Saharan Africa. The fact that a few thousand mainly corporate farmers can also block a global trade agreement (the recent Doha round) says something is wrong with the way globalisation is managed.

What about the failure of the Doha trade talks?

I don't think most people in the West have realised how their democracy has been hijacked by special interests. Corporate executives need to realise that the whole global trading system has been put in jeopardy for the well-being of a few thousand farmers. Corporations should use their influence to say that this is not in their interests nor the broader business interest.

What's your view of big corporations and multinationals?

Corporates have played an important role in bringing the benefits of globalisation to developing countries. As well as jobs and economic growth, they've been key in transferring technology, channelling capital and training people. They've also brought inexpensive high-quality goods to developed countries, lowering the cost of living and contributing to low inflation. But they've also been involved in environmental degradation, extracting resources, and bribery and corruption. A few firms such as BP have recognised the importance of global warming, arguing that it is something the whole globe has to address. But there are also the likes of Exxon, which has attempted to muddy the ecological waters by supporting 'think-tanks' that cast doubt on the evidence for global warming. Microsoft has engaged in very strong monopolistic policies and been a strong supporter of an unbalanced intellectual property (IP) regime, which has had an adverse effect on developing countries. Its monopoly power has also stifled innovation.

What about the pharmaceutical industry?

The developing world has been paying the price, but getting very little benefit from the IP regime because much of the drug industry has been doing next to no research on tropical diseases. At the same time, drug companies have resisted the patenting of traditional knowledge and indulged in 'bio-piracy' of that knowledge and of native plants. Talk about the importance of incentives for research does not extend to incentives for the preservation of biodiversity in developing countries. Too often the business community closes ranks on the worst issues and this is the case with IP. Nobody is going to worry about a country not having access to Mickey Mouse cartoons - it's certainly not a matter of life and death. The appropriate IP regime for life-saving drugs is very different from that for the entertainment industry. And yet the entertainment industry has joined with the drug industry in saying the stronger IP regime the better, arguing for no compromise or exceptions.

Are you cynical about corporate social responsibility?

It's a mixed picture. Some companies have serious CSR programmes; they recognise it can give them a sense of purpose and makes employees feel better about working for them. It's good business. But there are corporates where a large percentage of their programme is just a good website. If you took some mining companies' websites at face value, you would think they were the avant-garde of environmental preservation; but when you hear reports from people, it's a very different story. Sometimes you also see a company engaging in socially responsible practices in some areas and seemingly irresponsible actions in others. BP has been taking the lead in the Extractive Industries Transparency Initiative (EITI) - a very important way of reducing corruption by making public what it pays developing countries. Unlike many other companies, BP has been willing to put corporate profits at risk. But it has also been accused of allowing pipes to corrode in Alaska, causing oil spills and enormous damage to the environment.

Can CSR survive ruthlessly competitive global markets?

A voluntary regime isn't the solution: companies that are really committed to business responsibility are usually willing to be subject to legal regulations. They realise that without such regulations, they face a race to the bottom, with an unfair advantage going to the guy who's willing to bribe or destroy the environment. Big public companies scrutinised by shareholders say they are put at a disadvantage in developing countries by privately held companies with no accountability. One of my proposals is that advanced industrial countries should ensure that financial transfers to developing countries will be tax-deductible only if the payment is transparent. This will allow developing countries to ask why the money is going to a particular individual; what 'services' they have provided and whether it really is a £50 million service or a £50,000 service. Transparency is an important instrument for exposing corruption and tax deduction forces transparency. Reducing international banking secrecy is also an important instrument for detecting and reducing corruption.

Has globalisation fuelled terrorism?

Terrorism is an extraordinarily complex phenomenon, but what is clear is that high levels of unemployment among young males, a sense of despair and high levels of evident hypocrisy and inequity fuel a destructive response to problems. There is no doubt when you see the system not working and not delivering jobs that it clearly exacerbates problems, including terrorism.

Are there new forms of anti-globalisation protest to come? Could companies be targeted by terrorists?

It's hard to know what the limits are. Companies may be targeted to the extent that they become identified with policies or particular practices, such as monopolies or failures to make drugs available. The IP regime is probably the most important source of local protest around the world when the US engages in bilateral trade negotiations. And in Latin America, the combination of free-market rhetoric and hypocritical practice has provided an enormously fertile breeding ground for critics.

Might countries take a stand against globalisation?

Although some countries have been able to get away with not recognising patents, developing country governments are afraid that if they take a stand their aid will be cut off. One of the reasons globalisation has gone awry is there has been less political competition in the global landscape since the end of the Cold War, when hearts and minds had to be worried about. With China growing in strength, we are entering a new world of competition. Even so, China is part of the global trading system and it won't violate the IP rules because of worries about sanctions.

Are you optimistic for the future of globalisation?

What makes me optimistic are the changes in understanding and actions - the extent of debt relief, support for a fairer trading system and an awareness of global warming, which was just a fringe issue 15 years ago. That there's been so much progress is positive, but the forces for instability are moving rapidly and the question is how to avoid the underlying problems.

JOSEPH STIGLITZ

... on world trade

International trade has been approached from a position of power politics. A step forward would be for every country to open its markets to any economy that is poorer

... on competition

One of the reasons globalisation has gone awry is that there's been less political competition in the global landscape since the end of the Cold War

... on Microsoft

Microsoft has engaged in very strong monopolistic policies and been a strong supporter of an unbalanced IP regime. Its monopoly power has also stifled innovation

... on IP lobbying

Too often the business community closes ranks. We shouldn't worry about countries not having access to Mickey Mouse - it's certainly not a matter of life and death ... on CSR

Some companies have serious CSR programmes; they see it as good business and it makes employees feel better about working for those firms

... on anti-globalisation protest

Companies may be targeted to the extent they become identified with particular practices, such as global monopolies. It's very hard to know what the limits of protest will be

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