For the lay person like myself—someone who has never taken a course in economics, Nobel laureate Joseph E. Stiglitz provides a great metanarrative of the past and future of global economic thought in light of the recent crisis: Wall Street’s Toxic Message (Vanity Fair). (BTW, this was my introduction to Stiglitz, so don’t feel bad if his name doesn’t ring a bell. Maybe I should feel bad ;-). Before getting to Stiglitz, I need to quote Texas in Africa — obama goes to ghana (where I originally got the Stiglitz link):
…a dispassionate analysis makes it virtually indisputable to claim that Western policies hurt African economies. [Obama’s] speech earlier this week came at the summit of the G-8, an organization whose trade policies have done far more to hurt African economies than to help them. Through the G-8, the WTO, and the Bretton Woods institutions, the United States and other Western countries engage in horribly unfair trade practices against most African states. My government’s subsidies to American farmers makes it virtually impossible for African farmers to compete in American markets; the insistence by World Bank that African states not subsidize domestic industry is a double standard of the worst kind… What’s more, African states often have no say in the economic policies they are forced to adapt …Economic neo-colonialism is alive and well…
…watching the U.S. refuse to use the same sorts of measures it forces on other countries during their economic crises on itself may push some of those elites towards other economic systems that will lead to human suffering. Obama would do a much greater service to the continent’s people by acknowledging how deeply unfair my country’s trade practices are and by committing to moving toward negotiations that treat African states not as children to be disciplined, but as mature countries with educated elites who know how to run an economy.
[I (Ben) think that politics in the US would probably make this a form of political suicide for Obama—business interests (legalized corruption), and politics in Africa (more traditional corruption) keeps African economists from being able to shape their own economies.]
[Back to Texas] Obama claimed in his speech earlier this week that he probably knows more about Africa than any previous president. That’s true, but it’s also not saying much. American policy makers have a long tradition of almost willful ignorance about what really happens on the continent and how the U.S. should – or should not – be involved there. I am not hopeful about this administration’s policies towards the continent; sending weapons to Somalia and suggesting that noticing the effects of neo-colonial and paternalistic policies amounts to excuse-making suggests that Obama is headed in the same direction as his predecessors.
Bill Easterly grades Obama’s speech; Chris Blattman grades and then collects other graders of Obama’s speech: Michael Kevane, Mark Goldberg (part II), Elizabeth Dickenson, Sean Jacobs, and Gregg Zachary
Now to Stiglitz Wall Street’s Toxic Message
…no crisis, especially one of this severity, recedes without leaving a legacy. And among this one’s legacies will be a worldwide battle over ideas—over what kind of economic system is likely to deliver the greatest benefit to the most people. Nowhere is that battle raging more hotly than in the Third World, among the 80 percent of the world’s population that lives in Asia, Latin America, and Africa, 1.4 billion of whom subsist on less than $1.25 a day…The fall of the Berlin Wall, in 1989, marked the end of Communism as a viable idea…
…In truth, historians will mark the 20 years since 1989 as the short period of American triumphalism. With the collapse of great banks and financial houses, and the ensuing economic turmoil and chaotic attempts at rescue, that period is over. So, too, is the debate over “market fundamentalism,” the notion that unfettered markets, all by themselves, can ensure economic prosperity and growth. Today only the deluded would argue that markets are self-correcting or that we can rely on the self-interested behavior of market participants to guarantee that everything works honestly and properly…
…The World Bank and the I.M.F. said they were doing all this for the benefit of the developing world…Not surprisingly, people in developing countries became less and less convinced that Western help was motivated by altruism. They suspected that the free-market rhetoric—“the Washington consensus,” as it is known in shorthand—was just a cover for the old commercial interests. Suspicions were reinforced by
the West’s own hypocrisy. Europe and America didn’t open up their own markets to the agricultural produce of the Third World, which was often all these poor countries had to offer. They forced developing countries to eliminate subsidies aimed at creating new industries, even as they provided massive subsidies to their own farmers.
Free-market ideology turned out to be an excuse for new forms of exploitation. “Privatization” meant that foreigners could buy mines and oil fields in developing countries at low prices. It meant they could reap large profits from monopolies and quasi-monopolies, such as in telecommunications. “Liberalization” meant that they could get high returns on their loans—and when loans went bad, the I.M.F. forced the socialization of the losses, meaning that the screws were put on entire populations to pay the banks back. It meant, too, that foreign firms could wipe out nascent industries, suppressing the development of entrepreneurial talent. While capital flowed freely, labor did not—except in the case of the most talented individuals, who found good jobs in a global marketplace.
…Among critics of American-style capitalism in the Third World, the way that America has responded to the current economic crisis has been the last straw…Why, people in the Third World ask, is the United States administering different medicine to itself?…
More Joseph E. Stiglitz on the economic crisis.
Capitalist Fools, January 2009
Reversal of Fortune, November 2008
The $3 Trillion War, April 2008 (with Linda J. Bilmes)
The Economic Consequences of Mr. Bush, December 2007