David Moberg
Silencing Joseph Stiglitz
The World Bank cuts its ties to the economist who became an unlikely hero to world trade protesters.
After World Bank chief economist Joseph Stiglitz quit his job last November in order to speak more openly about his disagreements with policies of the bank and the International Monetary Fund, the bank still retained the distinguished economist as a special advisor to president James D. Wolfensohn.
But Stiglitz’s criticism finally proved too much for the powerful global financial institutions, especially after they endured raucous protests last month at their spring meetings. Last week, even as he was traveling to drought-stricken Ethiopia on a bank mission and his replacement had not yet taken office, the World Bank announced that he would no longer serve as special advisor.
Defenders of the IMF and World Bank could denigrate the credentials of some protesters, but it has been hard to attack the widely published former Stanford professor who also served as chairman of President Clinton’s Council of Economic Advisors. His candor made him an unlikely intellectual guru to the world trade protest movement. But while his criticism enhanced the credibility of the protesters, it also prompted new pressure — some of it from the U.S. Treasury Department — to quiet him, he told Salon, even as the global financial institutions were promising critics they would be more open and transparent.
During his tenure at the World Bank, Stiglitz irritated many powerful colleagues by publicly criticizing IMF moves and calling for more open debate about global economic policies. Until recently the World Bank and IMF had presented a united front to the world as they tried to solve global economic problems. Often the IMF has helped troubled countries with loans from World Bank funds that are tied to agreements by those countries to take the IMF cure: cutting government budgets and subsidies; privatizing public operations; raising interest rates; opening national economies to foreign imports, corporations and capital; and increasing exports of raw materials or goods made with labor made even cheaper by these policies.
These policy packages made up the “Washington consensus” imposed by the IMF with World Bank support for more than two decades — despite an unimpressive track record on nearly every count except reducing inflation and budget deficits.
When Stiglitz announced last year that he was leaving the bank and returning to academic life, there were rumors that he was pushed out because he was too outspoken. “Pushed out would not be the way I’d put it,” he said, “But it was made very clear … the way I put it was that whenever you have institutional responsibilities, you have less freedom to express yourself, especially clearly and forcefully. Part of the culture within the institution and within finance ministries is that the two institutions should not criticize each other.”
The protests, which Stiglitz thought were “quite successful,” challenged that pact of silence. News media coverage of the protests “focused on the broader message: that what is at issue is a question of values, of democratic processes, and how partly because of the absence of democratic process, decisions were made that jeopardized the livelihoods and even the lives of many of the world’s poor.”
Unfortunately, he said, the bank and IMF did not have a “totally positive” response and became defensive and even less open, as Stiglitz’s removal confirms. “There was certainly no engagement on the broad fundamental question about democratic process and whether there was a balance of representation in the decision-making process — of financial interests vs. workers,” Stiglitz said.
“What’s remarkable, I see no indication of a grasp of that even as an issue. A reaction one heard within the organization was very much that ‘They’re impugning our motives.’” Both organizations are accustomed to impugning motives of governments and analyzing how incentives and interests drive other people and institutions, but they “feel very uncomfortable when that light is shined on them,” Stiglitz said.
In the eyes of most protesters, the World Bank and IMF are indivisible, but Stiglitz says they began to diverge after 1992. That partly developed, he says, because the bank maintained staffs in developing countries and listened to varied voices, “as opposed to the person who stays in a five-star hotel for a few weeks, looking at some data,” a reference to the IMF. The IMF was mainly accountable to finance ministers and central banks, both in turn closely linked to major private financial institutions.
“Financial markets tend to be very secretive,” Stiglitz said. “Central banks aren’t democratically accountable in most countries. The IMF agenda has been to make them more independent and less democratically accountable. You can debate the economic virtue of that policy, but it affects the culture, and I would argue that for most countries it hasn’t [improved] variables that matter, like growth and stability.”
The biggest mistake the IMF made in recent years was its handling of the 1997 Asian crisis and the subsequent crises in countries like Russia. First, the IMF had pressured the rapidly developing Asian countries like Thailand and Korea to eliminate most controls over the flow of capital into and out of the country. Speculative money flowed in, often distorting the economy (into overbuilt real estate, for example), then suddenly rushed out on rumors of economic problems, plunging countries into crisis.
The original policy prescription was a mistake born purely out of ideology, Stiglitz said. “There never was economic evidence in favor of capital market liberalization,” he said. “There still isn’t. It increases risk and doesn’t increase growth. You’d think [defenders of liberalization] would say to me by now, ‘You haven’t read these 10 studies,’ but they haven’t, because there’s not even one. There isn’t the intellectual basis that you would have thought required for a major change in international rules. It was all based on ideology.”
Then, when the crisis hit, the IMF insisted on balancing budgets, cutting subsidies and all the other “Washington consensus” policies, even though most of these countries had high savings rates, thriving economies and relatively balanced budgets before the crisis. These policies simply plunged the economies deeper into depression, bankrupting businesses and throwing millions of workers out of jobs.
Stiglitz compared it to President Herbert Hoover’s insistence on balancing the budget as the Depression swept across the country. “Clearly people make errors in the face of pressure, but some of those errors are hard to understand because they seem so obvious. For example, if you close 16 banks and announce that other banks may be closing, then you shouldn’t seem surprised when there’s a run on the banks, or if you have an economy going into depression, with people losing jobs and wages falling, and then food and fuel subsidies to the poor are cut, you shouldn’t be surprised there’s a riot.” But the IMF did both in Indonesia.
Some costly IMF mistakes seem just silly and perverse. In Ethiopia, Stiglitz said, the IMF would not allow the government to count foreign aid as revenue in calculating whether the budget was balanced. That meant poor Ethiopia effectively had to run a big budget surplus, which further depressed the economy.
The IMF reasoned that aid was too unreliable to include, but Stiglitz said, “We at the World Bank showed it was more stable than tax revenue. If you followed the IMF analysis, you wouldn’t include any revenue in the budget. The appropriate response is flexibility of expenditures: If you get money to build a new school, you build it.” While such IMF obtuseness irritated Stiglitz, it fueled intense anger and hostility toward the IMF and World Bank among Ethiopians who couldn’t build the schools they needed.
Other costly mistakes reflect different interests between developing countries and the international financial institutions — the old adage that where someone stands on an issue depends on where he sits. For example, many IMF policies during the Asia crisis may not have seemed like mistakes to representatives of finance ministers, who are in turn closely tied to bankers.
“From their point of view the first priority was not maintaining the Thai gross domestic product at the highest level, as it would be if I were the chief economist of Thailand,” Stiglitz said. “They put more priority on creditors getting repaid.” Real and implicit contracts with workers were broken with impunity, but despite the centrality of bankruptcy in modern capitalism, the IMF considered every debt contract to foreign lenders inviolable.
Stiglitz applauds the demonstrators’ calls for greater citizen and worker involvement in global economic decisions. The emphasis on participation, he notes, is not merely abstract. For example, the Nobel Prize-winning economist Amartya Sen demonstrated that famines do not occur in democratic countries because poor people have a way of forcing governments to share scarce resources.
The new attention to previously obscure institutions like the IMF and World Bank is all to the good, Stiglitz believes. He sees a growing political consensus on restraining the IMF from long-range development lending — a view of many protesters that even ultra-conservative Sen. Phil Gramm, R-Texas, endorsed last Friday. He is also pleased at what he sees as growing support for increasing direct aid to poor countries, which is needed to supplement lending.
But such aid will only work well if the two institutions abandon the “structural adjustment” policies that they have typically imposed as conditions for loans, and Stiglitz is less confident that they are willing to make such a change. “Many developing countries need assistance because they’re poor,” Stiglitz said. “‘Structural adjust’ suggests they’re out of kilter, that they need a nose job. My point is they’re poor and need more money to be less poor. If the IMF gets out of lending to developing countries, then the bank will be freer to move ahead in this direction.”
Stiglitz is encouraged that world attention is now focused on the previously obscure decisions of the bank and IMF. “If there were more opportunity for discussion, there would be more scrutiny, and people would say, ‘We don’t believe in those policies,’ or ask ‘Whose interest is served by these policies, who is bearing the risk, what is happening to the poor?’” Stiglitz said. “We’re getting more discussion today, but very little inside the institutions.”
But Stiglitz’s termination as a bank advisor last week not only muted that internal discussion, but also sent a warning signal to other dissidents who seek more open debate on the future of the global economy.
Divorce, labor style
The breakup of the AFL-CIO may turn out to be a good thing, especially for workers.
With the Service Employees and Teamsters unions leaving the AFL-CIO at its convention in Chicago on Monday, taking away nearly a quarter of the federation’s members and dues, the months-long debate over strategy for the labor movement finally turned into a full-fledged fracture. Two other unions are boycotting the 50th anniversary of the labor federation’s founding merger, and there’s a good chance for at least two more defections from the federation in the coming months.
As one of their major constituencies unravels, Democratic politicians are worried — and with good reason. But even if it’s obviously not good news for Democrats, the split might turn out to be a manageable problem, maybe even delivering some benefits in the long run.
Continue Reading CloseBattleground: Iowa
They sparked Kerry's comeback in the primary season. Will Hawkeye State voters now put him in the White House?
Lloyd Pratt, owner of a fledgling Web design business, feels no affinity to either political party. At age 38, he has never voted before. But this year? “Most definitely, oh yes,” he said, pausing from repair work on his home in a modest neighborhood of this Mississippi River town. “I totally disagree with the way Bush has managed our country.”
Pratt, wearing a black Harley-Davidson T-shirt, ticked off a litany of reasons for his decision to plunge into electoral politics. First, he objects to the war in Iraq, undertaken simply to avenge President Bush’s father, he believes. “Bush lied to the country and killed thousands, and nobody is talking of impeachment?” he said incredulously. “In my opinion, it’s murder. He should have gone after the person who attacked our country.” And by spending money on the war, Pratt said, the government has neglected needs at home, like healthcare. His wife, who runs her own small business, has had cancer, and neither can afford health insurance. Now they also worry about paying rising heating bills as winter approaches. The Bush tax cuts “didn’t do me a lick of good,” Pratt said, and Bush’s “trickle-down” economic policies have meant that “it’s impossible for us to operate our businesses. Nobody wants to spend money on new products.”
Continue Reading CloseOn, Wisconsin!
The election ground game in the Badger State is a grinding door-to-door battle for every vote.
In the presidential battleground state of Wisconsin, West Allis is a political free-fire zone where a guerrilla campaign is being waged house to house. In this old, inner-ring suburb of Milwaukee, George W. Bush beat Al Gore in 2000 by just 184 votes out of 29,050 cast — and some precincts were split precisely in half. West Allis is still starkly divided, and no issue is more divisive than the war in Iraq.
The suburb’s residents are largely aging, white, working- and middle-class families, many of whom have bumped through long layoffs and wrenching job changes as global economic forces and unsupportive public policies have roiled the highly skilled manufacturing industries of southeast Wisconsin. While their economic interests and worries may tilt them toward the Democrats, concern about taxes, social conservatism (especially opposition to abortion) and now anxieties about war or terrorism tilt many to the Republicans.
Continue Reading CloseIn Ohio, the war has already begun
Super Tuesday might not bring much drama in the Buckeye state, but labor and other groups are mobilized for a fierce fight to defeat President Bush in November.
One clue to the outcome of the November presidential election could be found last Thursday afternoon on the east side of downtown Cleveland, in the windowless cubicle of a modest blue and gray storefront just across from the Board of Elections building. There were eight union members sitting in front of computers and telephone auto-dialers, talking into their headsets as they urged fellow unionists to vote for John Kerry in Tuesday’s primary election. But the significance of this operation was not so much its boost for Kerry as what it reveals about a much broader campaign — extending beyond the labor movement — to block President George W. Bush from winning a second term no matter who the Democratic candidate might be.
Continue Reading CloseBig wins, hidden dangers
John Kerry dominated Michigan and Washington on Saturday. But will it be possible to please both big industrial unions and environmentalists?
A steady stream of Democrats flowed into the caucus sites in Greenville, Mich., on Saturday, and when the polls had closed, the voters in this economically anxious small town of north central Michigan shared the strong consensus of voters from all parts of the state: Massachusetts Sen. John Kerry would be the best candidate to take on President George W. Bush in the fall.
“There were lots of anti-Bush comments and anger all day,” said the Rev. Vince Lavieri, chairman of the party in Montcalm County, where Greenville is located. “But everybody seemed upbeat. They seemed to be thinking, now we’re getting this process going. We’re beginning to do something.” Defeating Bush was clearly that something.
Continue Reading ClosePage 1 of 4 in David Moberg