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March 14, 2004
Review: A lack of balance
JOSEPH Stiglitz, the author of The Roaring Nineties, is a professor of economics and finance at Columbia University. He won the Nobel Prize for Economics in 2001. As senior vice-president of the World Bank and chairman, Council of Economic Advisers under the Clinton administration, he got a chance to witness changes in the US and the global economy from two different perspectives.
Stiglitz, who has also authored Globalization and its Discontents, started studying economics in the sixties — the years of civil rights and peace movements that influenced his thinking. His scholarship has been enriched by practical experience at decision-making levels. His vision has been shaped by a “passion to change the world” and “to do something” about growing unemployment and poverty.
The Roaring Nineties unveils the failures of US policies at home and abroad, which were dominated by the financial managers. The writer is critical of the “new mantra that what is good for Goldman Sach and the Wall Street is good for America and good for the world”.
During the 1990s the national economic policies were shaped by market ideologues — policies whose social and economic costs were enormous. The government gave in to the pressures of special interests instead of serving the people in general. It was a decade of unparalleled American influence over the global economy. Uncle Sam became Doctor Sam. America offered a “guaranteed formula for prosperity” through economic diplomacy and the IMF. But it turned out to be a decade in which the world witnessed a new crisis every year. Market fundamentalism was pushed abroad under a set of reforms that undermined the democratic process. Confidence in globalization was eroded.
Critical of the Bush Administration, the Nobel Prize winner counsels Washington that “Stability to the global market will require a spirit of cooperation that is not built by brute force, by dictating inappropriate conditions in the midst of a crisis, by pushing unfair trade treaties or pursuing prioritized trade policies, all of which are part of the hegemonic legacy that US established in the 1990s but seem to have become worst in the next decade.”
He dispels the impression that war is good for the economy as demonstrated by the Second World War that helped in pulling the United States out of the Great Depression. Modern wars do not require total mobilization. The depressing effects of war, uncertainty including that of oil prices, and the crowding out of other expenditures offset any stimulation from any war expenditure.
Yet another outcome of market fundamentalism has been that “the myth of triumphant capitalism, American style” has been exposed by the bubble economy, (stock and IT technology) the uncovering of accounts and other scandals and a “sudden turn around in our (American) standing”.
The author is of the view that “economies in which virtues are present work better than those in which they are absent”. After the end of the Cold War, free enterprise won the day but in much of the world today, there is a debate that there is a crisis in capitalism. The market has brought enormous success and prosperity. But, it has not, as some claim, ended “re-distributive politics”.
Although Clinton won the election campaign on “people first”(and jobs, jobs and jobs) and deficit reduction moved to the front and centre in his agenda, the rest was put on the backburner. There was lack of balance between inflation and fiscal deficit on the one hand and growth and unemployment on the other.
Policies adopted at the behest of the financial community resulted in the recession of 2001, bringing into question the “idea of an independent non-political central bank”. The so-called wizards of the financial market were remarkably myopic.
The author also differs from conventional wisdom on deregulation and argues: in the past three decades, the world has seen close to a hundred economic crises and many of these were brought on by some form of rapid deregulation.
Bubbles were based on irrational exuberance, which led to over investment. Resources were wasted on a massive scale. Bad accounting, legal flaws and short-term and special interests prevailed over long term. Those who earned their money on speculation and on stock exchanges were the heroes and taxed lightly. Hundreds of billions of dollars of the so-called private investments went down the drain — little went to vital public needs in education, infrastructure and basic research.
What the US required was not deregulation but right regulation and a right balance between the government and the market. American investors trusted corporate auditors and Wall Street analysts but were betrayed. What the US required was regulation that restrains conflict of interests and abusive practices.
The US policies of free flow of capital created new opportunity for Wall Street but exposed developing states to enormous risks, without rewards. Clearly, something was amiss. Principles of social justice, equity and fairness were put aside.
Spelling out the three cornerstones of his vision of democratic idealism, the author stresses that the link between wealth and politics must be broken. Otherwise, politics that advances special interests over general interests, corporate interests over general average investors, would continue to prevail. Democracies are imperfect and need to be strengthened by an ongoing process. Democracy means more than periodical elections. It means meaningful participation in decision-making in which different views are heard and taken into account. Social justice is a cornerstone of his democratic idealism.
Written against the background of the current neoliberalism of the US, the book is a useful read for policy makers of developing countries like Pakistan. It lays bare the consequences of hegemonistic ambitions and a world dominated by a faltering global financial system.
The Roaring Nineties: Seeds of Destruction
By Joseph Stiglitz
Allen Lane/Penguin Books. Available with Paramount Books, 152/O, Block 2, PECH Society, Karachi-75400. Tel: 021-4310030
Email: paramount@cyber.net.pk
ISBN 0-713-99722-2
389pp. Rs995
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