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Joseph Stiglitz: ‘Politicians like Blair and Brown have given global poverty new prominence’

2006 February 20
by Paul Vallely

Joseph Stiglitz is an unlikely looking scourge of neo-liberal capitalism. He is a portly chap with a well-cut suit beneath which he sports red braces – a cartoonist’s image of an old-style Wall Street banker. Only his grizzled beard suggests something else. Indeed it makes him look like an Old Testament prophet, which in a way is exactly what he is.

Though they wrote nearly three thousand years ago the Hebrew prophets railed against pretty much the sort of thing which angers Joseph Stiglitz about our globalised world today – high taxes on what little the poor produce, trade rules rigged in favour of the rich, the exploitation of unfair and unsustainable debts, and laws which discriminate against the poor. These are Stiglitz’s themes still today – as is the hypocrisy of leaders who present themselves as righteous, who abide the letter of their promises rather than the spirit, who pretend to be fair but are biased against the poor.

But Joseph Stiglitz is not just some out-of-date leftie whom the tide has left behind. He is a former chief economist at the World Bank. He was the chief economic adviser to the Clinton administration. And he won the Nobel Prize for Economics in 2001 for some ground-breaking work which spelled out the effect what happens to the workings of the market when those involved have unequal access to information.

From this month he will be working in Britain, having just taken up a part-time appointment at the University of Manchester as chair of the new Brooks World Poverty Institute. “It’s a unique body,” he says, by way of a preamble. “It’s surprising there aren’t more given that global poverty is one of the major issues for the 21st century – even President Bush recognised that in his State of the Union address. Yet there’s remarkably little work in the interface between academia and policy focusing specifically on this issue.”

A strange confluence of events has brought poverty centre stage. “9/11 threw the issue of global poverty into stark relief – with the idea that poverty creates a fertile breeding ground for discontent,” he says. “It is because there is not enough money for financing schools in places like Pakistan that kids are sent to religious schools where they get indoctrinated.”

But among younger people, in both Europe and the US, there’s an increasing sense of a moral imperative to do something to make poverty history. “We see that among our students [at Columbia University in New York]. They feel very strongly that basically it’s a moral issue.”

The potential for 2005 to make massive changes, however, was not realised, he says. The G8, thanks to Live8 and a massive international campaign, pledged a doubling of aid – “so long as they pay up on what they have promised”.

And the a new deal on multilateral debt relief was a breakthrough, though he fears there will be no commitment from rich nations to follow through. “The World Bank normally relies on the money from repayments to finance its future lending.” But with debt repayments now cancelled, will the West stump up more cash for World Bank development lending? “Gordon Brown has committed to do that, but future governments over the next 20 to 30 years might not.”

But what is already clear is the utter failure of the current round of the world trade talks. “It’s very clear now that the promises made at Doha have been reneged upon. The way that the EU commissioner (Peter Mandelson) talks about the issue shows that.”

Trade talks have always delivered more for the rich than for the poor nations. The current Doha round was supposed to redress the imbalances of the previous rounds. “But it has been back to the old formula – with the US and EU offering little and demanding a whole lot in return.”

Worse than that, Stiglitz says, the EU and US have been manipulative and hypocritical. “More energy gone into trying to shift the blame to others than into getting a good agreement. The EU said ‘we want an elimination of cotton subsidies’ knowing full well that there was no cotton in the EU. Then the US, which gives $3-4bn a year in subsidies to just 25,000 rich US farmers, doing enormous damage to 10 million poor African farmers, said ‘we won’t cut our cotton subsidies, but we will open our markets to 97 per cent of products from developing countries’. To a great fanfare we made an offer that was worth zero. We’re allowing countries like Bangladesh to export to jet engines, aircraft and lots of other things they don’t produce. But things they do produce, like textiles and apparel, we’re going to keep out.”

The offer was an act of “huge cynicism and hypocrisy on the part of the United States”. The EU’s restrictions known as “rules of origin” are just as bad; they have “led to almost no growth in exports” from poor countries. “The only good news is that it’s going to be such a weak outcome that it won’t do too much damage to developing countries.”

There is one positive development on trade however. The Uruguay round of talks, which preceded Doha, produced something which is turning out to be useful to poor nations. It gave the World Trade Organisation the power to decree whether certain practices are legal or not. Over the past few years the WTO has ruled against the trade practices of both Europe and the United States.

“The US and EU put some fine print in the last agreement which developing countries thought were just technicalities – to the effect that non-trade-distorting subsidies are allowable. They thought it would give them the right to continue subsidies on things like cotton. But the WTO panel ruled, as anybody would, that they are trade-distorting.”

This procedure, Prof Stiglitz believes, could now be used to force the United States to act on the only other issue he sees as being of the same magnitude as world poverty. It is climate change.

A decade ago Stiglitz was a member of the Intergovernmental Panel on Climate Change. Today his concern about global warming has been turned into alarm by the mounting scientific evidence. “It is far worse than we thought. The melting of the ice-cap is particularly dramatic. We’re seeing physical manifestations at a pace that no-one anticipated. Ten years back the theory was clear, and the evidence of the increasing concentrations, and the fact that this was almost surely going to have this effect. But no-one thought it would manifest itself as quickly, and in such a dramatic way.”

The high level of carbon emissions by the United States is, he says, the elephant in the room on climate change. President Bush has his head in the sand and won’t do anything beyond trying to find technological fixes. “It really is a cause for concern.”

But climate change and global poverty are not two separate problems for Stiglitz.

Over the next decade India and China are set to open coal-fired power stations at the rate of one a week. “The perspective of the developing countries is that their levels of emissions per capita is much lower than that of the US and the EU. So their view is: ‘Why should our growth be inhibited? The US is responsible, with all the other advanced industrial countries, for all the accumulations that have already occurred. So we ought to have an entitlement up to that point and then we ought to be on a level playing field, per capita.’ And the US has the view that unless the developing countries limit their omissions the problem isn’t going to be solved, so why should it limit its emissions at all?

“We have reached an impasse. And the problem is too important for that.”

Stiglitz offers two solutions. The first is to create incentives for developing countries to get involved in global warming reductions. “The carbon trading system provides a framework for that by creating a market for emission reductions which recognises the value of the environmental service provided by the rainforest countries.

“But deforestation in Brazil and Indonesia alone over the next six years will undo something like 80 per cent of the reductions of the EU under Kyoto. So all the work the EU is doing is basically being undone by deforestation in these two countries – though of course the world would be worse off still if the EU said ‘we won’t bother then’, which is what the US is doing.”

Kyoto missed a trick here. It offered financial rewards to Third World countries for planting new forests, but not for maintaining existing ones. “So Papua New Guinea can get money if it chops down its forest and replants it but not if it just keeps its forest. That’s silly.

“The good news is that a group of rainforest coalition countries including Papua New Guinea, Costa Rica – with a group of us at Columbia University providing technical support – did get this one the agenda at [the UN Climate Change Conference in] Montreal. What’s exciting about that is that it’s an initiative that’s coming from the developing countries who are saying we will submit ourselves to the restrictions.”

His second idea will prove a lot more controversial. The United States could be forced to take action on climate change using world trade laws, Stiglitz says. The EU and others should apply to the World Trade Organisation for a ruling which declares that America’s refusal to participate in carbon curbs constitutes a de facto subsidy to US industry, which is illegal under world trade rules.

“I believe that to allow the US to use energy intensive carbon intensive production technology is, in effect, an unfair trade subsidy. The consequence of this idea is that EU and other countries have the right to restrict energy intensive industry products from the US unless they start imposing taxes on energy intensive production. So I think there is a way by which the EU can use the current global trading system to force the US to co-operate.”

Stiglitz is critical of the US government on a much broader front, not least over its policy in Iraq where the war he says, at a conservative estimate has cost the United States $2 trillion, up to 10 times more than had been previously thought.

“The mismanagement of the Bush administration since the end of the war has created a downward spiral. The failure to address the problems of the lack of infrastructure – which today is much weaker than it was before the war – has contributed to the lack of economic growth and lack of jobs. The lack of jobs [and the discontent that breeds] has provided a supply of people to the insurgency.

“It’s a vicious circle. It’s hard to rebuild infrastructure because of the insurgency. It’s hard to deal with the insurgency because of lack of jobs. And it’s hard to provide jobs because of lack of infrastructure.

“Those, like me, who warned they were walking into quagmire were more right than even we supposed. The lack of analysis and preparedness of the Bush administration – and of Tony Blair by association – was astounding, particularly since this was a war of choice. It’s an enormous indictment of Bush and Blair.”

A similar vicious circle is at work in Afghanistan, though there “substantially more money would help,” he says.

And he warns against now making the same mistake in Palestine, where both Israel and the West have threatened to cut off funding to the new Hamas government if it does not renounce its policy of refusing to recognise the state of Israel’s right to exist. “It would be a disaster to cut off the money. The first priority should be raising standards of living for the Palestinians. An improved economy and more jobs is the first condition for peace.” Wealth creates an impetus to stability. “Shut the money off and there’s a real risk things will get a lot worse.”

There is a curious mixture of the pessimist and the optimist about Joseph Stiglitz in all this. But it is born out of pragmatism rather than ideology. “Research shows that it is very difficult to buy good behaviour by imposing economic conditionality on poor countries. On the other hand selectivity does make a lot of sense – to give money to countries that are performing better. In particular it doesn’t make any sense to give money to countries that have high levels of corruption.” So he backs the decision of Paul Wolfowitz, the new head of the World Bank – whose appointment he vehemently opposed – to halt loans to Kenya.

Indeed he is far more positive about Wolfowitz – whose appointment he vehemently condemned – than might be supposed. “His pronouncements have been, by and large, on the right side on the debt and trade issues. The positions he ahs adopted have been somewhat different from the US positions. The way he stood up on the issue of trade has been very helpful and he’s been very positive on the Bank proving funds for middle income countries, which a lot of the right wing don’t approve of.”

Yes, things become a lot worse in Africa over the last 40 years, but they got a whole lot better in Asia which was once on a par with Africa. “So that highlights both the disappointment at Africa’s plight, but also the fact that this is not inevitable. And we have learned in recent years a lot about what works and what doesn’t, so we’re in a better position to do something.”

Ah, but will we? Again both pessimist and optimist have their say. “There has been a lot of bad faith, particularly in the trade negotiations. But I’m still optimistic because we’ve clearly moved into a new realm. Politicians like Tony Blair and Gordon Brown have raised global poverty to a very high level of prominence.”

Instead of the issue being the province of trade technocrats “now you have prime ministers and finance ministers saying that promoting development is an issue of national concern and it’s fundamental to the nature of our global economic system.” That, he says, is the basis for real progress.

The CV

* BORN: 9 February 1943

* FAMILY: Married with two sons and two daughters

* EDUCATION: Amhurst College; Massachusetts Institute of Technology; Cambridge University

* CAREER: 1970-74 Professor of Economics, Yale; 1974-76 Professor of Economics, Stanford; 1976-79 Drummond Professor of Political Economy, Oxford and All Souls College; 1979-88 Professor of Economics, Princeton; 1992-2001 Professor of Economics, Stanford; 1995-97 chairman, Council of Economic Advisers to US President; 1997-2000 chief economist, World Bank; 2001 Nobel Prize for economics; 2001- Professor of Economics, Columbia Business School, Columbia University

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