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<nettime> ex-WB chief econ stiglitz wins nobel, talks back, supports mov
nettime's_roving_reporter on Fri, 19 Oct 2001 21:38:28 +0200 (CEST)

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<nettime> ex-WB chief econ stiglitz wins nobel, talks back, supports movers

     [via t byfield <tbyfield {AT} panix.com>]

   Former World Bank Economist: How We "Assist"
   posted by nick on Wednesday October 17,  {AT} 03:43AM
   from the global-bribery dept.

   News Readers interested in the following story may also wish to read
   our earlier piece:World Bank Responds to Four Demands from
   Mobilization for Global Justice.
   = <http://slash.autonomedia.org/article.pl?sid=01/10/05/003246&mode=nested&threshold=>
   Joe Stiglitz: The Globalizer Who Came In From The Cold
   The World Bank's former Chief Economist's accusations are eye-popping
   - including how the IMF and US Treasury fixed the Russian elections
   by Greg Palast, The Observer, London, October 10, 2001
   "It has condemned people to death," the former apparatchik told me.
   This was like a scene out of Le Carre. The brilliant old agent comes
   in from the cold, crosses to our side, and in hours of debriefing,
   empties his memory of horrors committed in the name of a political
   ideology he now realizes has gone rotten.

   And here before me was a far bigger catch than some used Cold War spy.
   Joseph Stiglitz was Chief Economist of the World Bank. To a great
   extent, the new world economic order was his theory come to life.
   I "debriefed" Stigltiz over several days, at Cambridge University, in
   a London hotel and finally in Washington in April 2001 during the big
   confab of the World Bank and the International Monetary Fund. But
   instead of chairing the meetings of ministers and central bankers,
   Stiglitz was kept exiled safely behind the blue police cordons, the
   same as the nuns carrying a large wooden cross, the Bolivian union
   leaders, the parents of AIDS victims and the other
   'anti-globalization' protesters. The ultimate insider was now on the

   In 1999 the World Bank fired Stiglitz. He was not allowed quiet
   retirement; US Treasury Secretary Larry Summers, I'm told, demanded a
   public excommunication for Stiglitz' having expressed his first mild
   dissent from globalization World Bank style.

   Here in Washington we completed the last of several hours of exclusive
   interviews for The Observer and BBC TV's Newsnight about the real,
   often hidden, workings of the IMF, World Bank, and the bank's 51%
   owner, the US Treasury.
   And here, from sources unnamable (not Stiglitz), we obtained a cache
   of documents marked, "confidential," "restricted," and "not otherwise
   (to be) disclosed without World Bank authorization."

   Stiglitz helped translate one from bureaucratise, a "Country
   Assistance Strategy." There's an Assistance Strategy for every poorer
   nation, designed, says the World Bank, after careful in-country
   investigation. But according to insider Stiglitz, the Bank's staff
   'investigation' consists of close inspection of a nation's 5-star
   hotels. It concludes with the Bank staff meeting some begging, busted
   finance minister who is handed a 'restructuring agreement' pre-drafted
   for his 'voluntary' signature (I have a selection of these).

   Each nation's economy is individually analyzed, then, says Stiglitz,
   the Bank hands every minister the same exact four-step program.

   Step One is Privatization - which Stiglitz said could more accurately
   be called, 'Briberization.' Rather than object to the sell-offs of
   state industries, he said national leaders - using the World Bank's
   demands to silence local critics - happily flogged their electricity
   and water companies. "You could see their eyes widen" at the prospect
   of 10% commissions paid to Swiss bank accounts for simply shaving a
   few billion off the sale price of national assets.

   And the US government knew it, charges Stiglitz, at least in the case
   of the biggest 'briberization' of all, the 1995 Russian sell-off. "The
   US Treasury view was this was great as we wanted Yeltsin re-elected.
   We don't care if it's a corrupt election. We want the money to go to
   Yeltzin" via kick-backs for his campaign.

   Stiglitz is no conspiracy nutter ranting about Black Helicopters. The
   man was inside the game, a member of Bill Clinton's cabinet as
   Chairman of the President's council of economic advisors.

   Most ill-making for Stiglitz is that the US-backed oligarchs stripped
   Russia's industrial assets, with the effect that the corruption scheme
   cut national output nearly in half causing depression and starvation.
   After briberization, Step Two of the IMF/World Bank one-size-fits-all
   rescue-your-economy plan is 'Capital Market Liberalization.' In
   theory, capital market deregulation allows investment capital to flow
   in and out. Unfortunately, as in Indonesia and Brazil, the money
   simply flowed out and out. Stiglitz calls this the "Hot Money" cycle.
   Cash comes in for speculation in real estate and currency, then flees
   at the first whiff of trouble. A nation's reserves can drain in days,
   hours. And when that happens, to seduce speculators into returning a
   nation's own capital funds, the IMF demands these nations raise
   interest rates to 30%, 50% and 80%.

   "The result was predictable," said Stiglitz of the Hot Money tidal
   waves in Asia and Latin America. Higher interest rates demolished
   property values, savaged industrial production and drained national

   At this point, the IMF drags the gasping nation to Step Three:
   Market-Based Pricing, a fancy term for raising prices on food, water
   and cooking gas. This leads, predictably, to Step-Three-and-a-Half:
   what Stiglitz calls, 'The IMF riot.'

   The IMF riot is painfully predictable. When a nation is, "down and
   out, [the IMF] takes advantage and squeezes the last pound of blood
   out of them. They turn up the heat until, finally, the whole cauldron
   blows up," as when the IMF eliminated food and fuel subsidies for the
   poor in Indonesia in 1998. Indonesia exploded into riots, but there
   are other examples - the Bolivian riots over water prices last year
   and this February, the riots in Ecuador over the rise in cooking gas
   prices imposed by the World Bank. You'd almost get the impression
   that the riot is written into the plan.

   And it is. What Stiglitz did not know is that, while in the States,
   BBC and The Observer obtained several documents from inside the World
   Bank, stamped over with those pesky warnings, "confidential,"
   "restricted," "not to be disclosed." Let's get back to one: the
   "Interim Country Assistance Strategy" for Ecuador, in it the Bank
   several times states - with cold accuracy - that they expected their
   plans to spark, "social unrest," to use their bureaucratic term for a
   nation in flames.

   That's not surprising. The secret report notes that the plan to make
   the US dollar Ecuador's currency has pushed 51% of the population
   below the poverty line. The World Bank "Assistance" plan simply calls
   for facing down civil strife and suffering with, "political resolve" -
   and still higher prices.

   The IMF riots (and by riots I mean peaceful demonstrations dispersed
   by bullets, tanks and teargas) cause new panicked flights of capital
   and government bankruptcies. This economic arson has it's bright side
   - for foreign corporations, who can then pick off remaining assets,
   such as the odd mining concession or port, at fire sale prices.

   Stiglitz notes that the IMF and World Bank are not heartless adherents
   to market economics. At the same time the IMF stopped Indonesia
   'subsidizing' food purchases, "when the banks need a bail-out,
   intervention (in the market) is welcome." The IMF scrounged up tens of
   billions of dollars to save Indonesia's financiers and, by extension,
   the US and European banks from which they had borrowed.

   A pattern emerges. There are lots of losers in this system but one
   clear winner: the Western banks and US Treasury, making the big bucks
   off this crazy new international capital churn. Stiglitz told me about
   his unhappy meeting, early in his World Bank tenure, with Ethopia's
   new president in the nation's first democratic election. The World
   Bank and IMF had ordered Ethiopia to divert aid money to its reserve
   account at the US Treasury, which pays a pitiful 4% return, while the
   nation borrowed US dollars at 12% to feed its population. The new
   president begged Stiglitz to let him use the aid money to rebuild the
   nation. But no, the loot went straight off to the US Treasury's vault
   in Washington.

   Now we arrive at Step Four of what the IMF and World Bank call their
   "poverty reduction strategy": Free Trade. This is free trade by the
   rules of the World Trade Organization and World Bank, Stiglitz the
   insider likens free trade WTO-style to the Opium Wars. "That too was
   about opening markets," he said. As in the 19th century, Europeans and
   Americans today are kicking down the barriers to sales in Asia, Latin
   American and Africa, while barricading our own markets against Third
   World agriculture.

   In the Opium Wars, the West used military blockades to force open
   markets for their unbalanced trade. Today, the World Bank can order a
   financial blockade just as effective - and sometimes just as deadly.
   Stiglitz is particularly emotional over the WTO's intellectual
   property rights treaty (it goes by the acronym TRIPS, more on that in
   the next chapters). It is here, says the economist, that the new
   global order has "condemned people to death" by imposing impossible
   tariffs and tributes to pay to pharmaceutical companies for branded
   medicines. "They don't care," said the professor of the corporations
   and bank loans he worked with, "if people live or die."

   By the way, don't be confused by the mix in this discussion of the
   IMF, World Bank and WTO. They are interchangeable masks of a single
   governance system. They have locked themselves together by what are
   unpleasantly called, "triggers." Taking a World Bank loan for a school
   'triggers' a requirement to accept every 'conditionality' - they
   average 111 per nation - laid down by both the World Bank and IMF. In
   fact, said Stiglitz the IMF requires nations to accept trade policies
   more punitive than the official WTO rules.

   Stiglitz greatest concern is that World Bank plans, devised in secrecy
   and driven by an absolutist ideology, are never open for discourse or
   dissent. Despite the West's push for elections throughout the
   developing world, the so-called Poverty Reduction Programs "undermine

   And they don't work. Black Africa's productivity under the guiding
   hand of IMF structural "assistance" has gone to hell in a handbag. Did
   any nation avoid this fate? Yes, said Stiglitz, identifying Botswana.
   Their trick? "They told the IMF to go packing."

   So then I turned on Stiglitz. OK, Mr Smart-Guy Professor, how would
   you help developing nations? Stiglitz proposed radical land reform, an
   attack at the heart of "landlordism," on the usurious rents charged by
   the propertied oligarchies worldwide, typically 50% of a tenant's
   crops. So I had to ask the professor: as you were top economist at the
   World Bank, why didn't the Bank follow your advice?

   "If you challenge [land ownership], that would be a change in the
   power of the elites. That's not high on their agenda." Apparently not.
   Ultimately, what drove him to put his job on the line was the failure
   of the banks and US Treasury to change course when confronted with the
   crises - failures and suffering perpetrated by their four-step
   monetarist mambo. Every time their free market solutions failed, the
   IMF simply demanded more free market policies.

   "It's a little like the Middle Ages," the insider told me, "When the
   patient died they would say, 'well, he stopped the bloodletting too
   soon, he still had a little blood in him.'"
   I took away from my talks with the professor that the solution to
   world poverty and crisis is simple: remove the bloodsuckers.


   A version of this was first published as "The IMF's Four Steps to
   Damnation" in The Observer (London) in April and another version in
   The Big Issue - that's the magazine that the homeless flog on
   platforms in the London Underground. Big Issue offered equal space to
   the IMF, whose "deputy chief media officer" wrote:

   "... I find it impossible to respond given the depth and breadth of
   hearsay and misinformation in [Palast's] report."

   Of course it was difficult for the Deputy Chief to respond. The
   information (and documents) came from the unhappy lot inside his
   agency and the World Bank.

   Published on Tuesday, October 16, 2001 by the Inter Press Service
   Nobel Laureate Encourages Global Justice Movement
   by Tim Shorrock

   WASHINGTON - Joseph Stiglitz, whose critiques of free market
   fundamentalism cost him a senior job at the World Bank in 1999 but won
   him the Nobel Prize for economics last week, has succinct advice for
   the global justice movement: Keep it up .

   ''The recognition that the trade agreements of the past have been
   unfair is one of the important lessons of the anti-globalization
   movement,'' he says. ''I think it's something that will stick with us.
   And if we go forward with another round of trade talks, it will shape
   our discussions.''

   Regardless of whether a new round of comprehensive trade negotiations
   is launched next month at the World Trade Organization ministerial
   meeting in Qatar, he says, the United States and other rich countries
   should follow Europe's 'everything but arms' agreement by opening
   their markets to the least developed countries (LDCs) ''and say, for
   the poorest countries, we aren't going to wait for a round of trade.
   To show our good faith, we will commit ourselves to the poorest
   countries, opening up our markets immediately.''

   ''It's not a question of negotiation. The amount that it would hurt
   the developed countries is so small,'' he adds. ''It would provide an
   opportunity for them (the LDCs) to produce something with a market.''
   As for the International Monetary Fund (IMF), which Stiglitz has
   rebuked for its myopic focus on ''old problems'' like inflation, he
   proposes a new direction that would return the institution to its
   post-World War II mission of addressing real-world problems, such as
   the recession that has deepened since the events of Sep. 11.

   ''It's time for the IMF to worry about the global economic slowdown
   and provide the liquidity that would allow for global expansion,''
   Stiglitz says. He urges the IMF to target the substantial funds it
   controls towards ''global economic needs'' such as the ''fight against
   terrorism, the fight for a better global environment, the fight for a
   more equal world that would reduce the disparities between the haves
   and the have-nots.''

   Stiglitz's advice and analysis will receive more attention now that
   he, along with U.S. economists George Akerlof and Michael Spence, has
   won the 2001 Nobel Prize for economics. The award, announced Oct. 10
   in Sweden, was made for their research in the 1970s and 1980s showing
   that markets, when mixed with imperfect information, fail to allocate
   resources fairly. Governments, they concluded, have an obligation to
   address this problem by playing a stronger role in the market system.
   ''Joseph Stiglitz's many contributions have transformed the way
   economists think about the working of markets,'' the Nobel committee
   said in making the award. Stiglitz now is a professor of economics at
   Columbia University in New York.

   During the Clinton administration, he served as chairman of the
   Council of Economic Advisers and was later appointed chief economist
   of the World Bank. There, he earned the wrath of then Treasury
   Secretary Larry Summers, the administration's chief proponent of the
   IMF, by publicly criticizing the fund for bailing out rich investors
   and driving Asia into a depression during the financial crisis of 1997
   and 1998. The Bank fired him, reportedly on Summers's orders, in 2000.
   Stiglitz explains the relationship between his theories and his
   analysis of the Asia crisis thus: The crisis was sparked when banks
   refused to roll over loans in 1997 to South Korea and Indonesia.
   ''That was a financial market imperfection caused by information,'' he
   says. ''So the credit markets were not working well. The economics of
   information provided an explanation for why that was the case.''
   Asked what he would say to Summers and IMF and World Bank officials
   who disliked his critique of the so-called ''Washington consensus'' on
   market liberalization, Stiglitz chuckles at ''the irony'' of the 

   ''In the 1970s and 1980s, the period for which I got the prize,
   there was an increasing recognition of the problems of the market
   fundamentalist model,'' he says. ''The Washington consensus, which was
   based on market fundamentalist ideas, lived on as an institutional
   position and became solidified . just when academia was saying these
   ideas do not provide a good description of the economy.''
   Stiglitz says the George W. Bush administration has recognized that
   the IMF bailout policies did not work and were, in effect, ''corporate
   welfare'' for investors funded ''by taxpayers not in the United States
   but in Russia, Brazil and other countries, who ended up paying the
   bills (for) the people doing the bad lending.''
   But recent actions by the Bush administration, he adds, underscore
   that ''special interests do have a lot of influence'' in Washington.
   Specifically, he criticizes the administration's decision earlier this
   year to investigate whether imports have injured the U.S. domestic
   steel industry, an action that is likely to lead to import quotas on
   foreign steel.
   ''You can't help but raise questions when someone says 'I believe in a
   market economy' and then announces he wants to set up a global steel
   cartel,'' he says.
   Stiglitz also is sharply critical of the United States and Europe for
   subsidizing agriculture and refusing to liberalize trade in certain
   industries, such as ocean shipping.
   During the next trade round, he says, ''what I would like to see is
   redressing some of the imbalances of the past and going forward with
   far more sensitivity to the needs and concerns of the developing
   Agriculture is one area where developing countries hold a comparative
   advantage ''but they can't compete into markets where there are these
   huge subsidies in the United States and Europe.''
   In the area of services, he notes that wealthy countries like the
   United States have only agreed to open financial services. ''Which
   country is the major exporter of financial services? United States.
   What services were not opened up? Construction services, maritime
   services, services of unskilled labor that are of concern to the
   developing world. Those remain closed.''
   This is why the issues raised by the anti-globalization movement are
   so important, Stiglitz says. He points to the pharmaceutical industry,
   which became the target of developing countries and anti-globalization
   critics for selling life saving drugs at prices that ordinary people
   and the poor could not afford. Agreements proposed by the U.S. Trade
   Representative would have supported the companies' pricing policies,
   he adds.
   ''The global outrage was so strong that they (the companies) made an
   agreement to make them available,'' he told IPS. ''It was a global
   outrage, a civil society movement, that stopped that.''
   He says he first became aware of the imperfections of markets while
   working as an economist in Kenya in the 1960s.
   ''The period that I spent in Kenya really provided a lot of
   inspiration for the work that I did over the subsequent years,'' he
   says. ''You cannot live or spend time in a country like that without
   thinking a great deal about unemployment, about how markets don't
   work. And it turned out that many of the ideas that I developed in
   Kenya, when modified, applied as well to developed countries.''
   Copyright c 2001 IPS-Inter Press Service
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