Joseph Stiglitz has some impressive titles: a professorship here, a fellowship there. There is even talk of a future Nobel Prize. This is what you would expect from a man who was the chief economist of the World Bank. And that is why what he is saying is so interesting. It is his experience as an insider that has made him more and more critical of the idea that any economic problem can be solved by the free market, privatisation and liberalisation. At first he was patronised by his colleagues. It was useful to have a doubter on board, for it showed how liberal they were. But when nothing changed Stiglitz began to shout louder and last November he 'resigned' but was kept on as a consultant, only to be ditched from that post earlier this year. But he refuses to shut up. Since he wasn't available for an interview by Socialist Review, we will have to cheat a little and borrow his words from his recent writings. But everything you are about to read is straight up.
Professor Stiglitz, perhaps you could introduce yourself to the readers of Socialist Review?
I was chief economist at the World Bank from 1996 until last November, during the gravest global economic crisis in half a century. I saw how the IMF, in tandem with the US Treasury Department, responded. And I was appalled.
But don't institutions like the IMF have the best interests of the poor at heart, professor?
It's not fair to say that IMF economists don't care about the citizens of developing nations. But the older men who staff the fund--and they are overwhelmingly older men--act as if they are shouldering Rudyard Kipling's white man's burden.
But professor, surely these organisations pick the best and the brightest to work for them?
The IMF staff...frequently consists of third rank students from first rate universities. (Trust me, I've taught at Oxford, MIT, Stanford, Yale and Princeton, and the IMF almost never succeeded in recruiting any of the best students.)
These are knowledgeable people, professor. Surely they do their homework?
When the IMF decides to assist a country, it dispatches a 'mission' of economists. These economists frequently lack extensive experience in the country--they are more likely to have first hand knowledge of its five star hotels. Country teams have been known to compose draft reports before visiting. I heard stories of one unfortunate incident when team members copied large parts of the text for one country's report and transferred them wholesale to another. They might have gotten away with it, except the 'search and replace' function on the word processor didn't work properly, leaving the original country's name in a few places. Oops.
When the Asian crisis broke the IMF insisted on the need for more market therapy. What happened then?
Output in some of the affected countries fell by 16 percent or more. Half the businesses in Indonesia were in virtual bankruptcy or close to it, and as a result the country could not even take advantage of the export opportunities the lower exchange rates provided. Unemployment soared, increasing as much as tenfold, and real wages plummeted--in countries with basically no safety nets. Not only was the IMF not restoring economic confidence in east Asia, it was undermining the region's social fabric.
What about the arguments that these policies risked stimulating ethnic and racial clashes?
As the crisis spread to Indonesia I became even more concerned. New research at the World Bank showed that recession in such an ethnically divided country could spark all kinds of social and political turmoil. So in late 1997, at a meeting of finance ministers and central bank governors in Kuala Lumpur, I issued a carefully prepared statement vetted by the World Bank. I suggested that the excessively contractionary monetary and fiscal programme could lead to political and social turmoil in Indonesia. Again the IMF stood its ground.
What role did the west play in the Russian crisis?
In the spring and summer of 1998 the crisis spread beyond east Asia to the most explosive country of all--Russia. The IMF and Treasury had laid the groundwork for the oligarchs' plundering. While the government lacked the money to pay pensioners, the oligarchs were sending money obtained by stripping assets and selling the country's precious national resources into Cypriot and Swiss bank accounts. The United States was implicated in these awful developments. The United States seemed to be aligning itself with the very forces impoverishing the Russian people. No wonder anti-Americanism spread like wildfire.
But the IMF says that the Far East is recovering due to its policies and other countries should follow.
Nonsense. Every recession eventually ends. All the IMF did was make east Asia's recessions deeper, longer and harder. Indeed Thailand, which followed the IMF's prescriptions the most closely, has performed worse than Malaysia and South Korea, which followed more independent courses.
You seem surprised that these organisations don't work democratically.
I shouldn't have been surprised. The IMF likes to go about its business without outsiders asking too many questions. In theory, the fund supports democratic institutions in the nations it assists. In practice, it undermines the democratic process by imposing policies. Officially, of course, the IMF doesn't 'impose' anything. It 'negotiates' the conditions for receiving aid. But all the power in the negotiations is on one side--the IMF's--and the fund rarely allows sufficient time for broad consensus building or even widespread consultations with either parliaments or civil society.
So is it simply a question of the wrong ideas?
Bad economics was only a symptom of the real problem: secrecy. Even internal critics, particularly those with direct democratic accountability, were kept in the dark.
These are damning criticisms. Thank you very much, Professor Stiglitz. We are sure that our readers will be fascinated by your comments.