Professor Joseph Stiglitz who was the Chief Economist of the World Bank since February 1997 retired from this position at the end of 1999. It is no secret that his early retirement followed severe differences of opinion between him and US finance minister Larry Summers after Stiglitz had criticised policies of the International Monetary Fund (IMF) and the US Treasury. Stiglitz is going back to Stanford University in the autumn 2000. One of his last public apprearances was in Bonn where he took part in the launching of the Global Development Network (see GDN). D+C editor Dieter Brauer had a chance to talk to him about his retirement and the failure of the WTO conference in Seattle.
D+C: Mr. Stiglitz, three years ago you attended a meeting in the DSE - in Villa Borsig - on the role of the state which came right after the publication of the World Bank Report on this subject. Did your opinions expressed in that report and the obvious differences existing with those of the IMF play a role in your decision to retire as Chief Economist after the short period of only three years?
Stiglitz: I had certain objectives in mind when I came to the World Bank. One of them was to change the thinking, both with respect to the objectives - broadenening them from just growth to this more broad-based democratic and equitable sustainable development. The second objective was to bring about a change in economics. The answers given in the Washington Consensus were either partial answers or actually wrong. For example, hyper-inflation is a problem, but there is very little benefit of pushing inflation down below ten per cent, and if the cost is higher unemployment and social distress, then the cost is not worth the benefit. I have been writing about institutional infrastructure, legal and financial systems for fifteen years, and I believe if you don't pay any attention to these issues the economies in transition would have a problem. All these ideas now have become very accepted.
The third objective was to change the process of the development dialogue. There was still the colonial mentality of the developed countries who were telling the rest of the countries what to do. This was just out of tune with where we ought to be. It was not the way people should treat each other and not the way you get effective development.
Personnally, I strongly believe in democratic processes and open debate, and I also have very strong views about the role of the economist which is not to tell governments what to do but to lay out the consequences of various courses of action and allow the country to make the decision. So the old view was a very paternalistic one. It assumed that countries are not capable of taking decisions, that we have to decide, between us, what is the right thing for them. In contrast I believe that an institution which is focussed on poverty and growth might have one view, and an institution focused on financial stability might have a different view. There is nothing wrong with having different views. There is nothing wrong with having different policies, but the country should be in a position of making the decision. I find that the paternalistic approach of the past is not treating countries with dignity and the respect they deserve.
D+C: I fully agree, though with one reservation: there are countries with very bad governance. They may take very bad decisions.
Stiglitz: As we move more towards democracy, we have to accept that democracies may make mistakes, but on average it's a better way of doing things if one allows them to participate in decision-making. All too often, everything is seen from the perspective of financial interests and not of workers or other interests. This is why it is very important to have an open debate.
Now in my own mind, most of the objectives with which I came to the Bank have been accomplished. Of course, there was a receptivity for these ideas, otherwise I could not have succeeded. It was saying the right things at the right time. The same message at another time might not have been heard. But there are still different views about what the objectives of development are. At one level, everything I say is accepted everywhere. At another level, there still remain strong pockets of people who disagree. But there is the recognition that the Washington Consensus has very strong limitations, and that it is very important to establish a global dialogue, democratic processes, and consensus building. The Global Development Network represents an institutionalisation that we hope will solidify this dialogue.
D+C: Where are the people who still disagree with your ideas?
Stiglitz: In the US Treasury and the IMF.
D+C: But you had the full confidence of World Bank President Wolfensohn?
Stiglitz: Yes. I think he strongly believes in everything that I have outlined. At the same time, it is quite obvious that the World Bank is an institution where there are shareholders, and the largest shareholder is the United States. The largest shareholder expresses his views. This actually touches on one of the issues I have been emphasising. While the United States is a shareholder, the US President does not directly decide what the US position should be on every position of the World Bank, it is delegated to Treasury. And the views of the Treasury may or may not coincide even with the US government. There are many issues, where individual members of the US government would not necessarily agree with Treasury if one had an open discussion. I know of cases where I have spoken out and the Treasury would be very upset whereas I got very strong support from the US State Department. And there are very strong people in the US Congress who talked to me, very senior people, who say they agree with me and are trying to put pressure on the US Treasury. So you should not see this as a monolithic view of even the US government. The same thing in the IMF. There are many people in the IMF who have communicated with me and said they are glad I am saying what I am saying.
D+C: The World Bank has opened itself up much more to NGOs in recent years.This Global Development Network now launched in Bonn is an example for the civil society coming in on decision-making and thinking up strategies and concepts. We have seen an example where this apparently had political impact. I am referring to the Seattle meeting of the WTO. In your view, did the conference in Seattle founder on the conflicts bertween America and Europe, or was it the impact of the civil society which said: you are on the wrong track?
Stiglitz: I think it foundered for all those reasons. At the most fundamental level one can say that one should have recognised that trade issues are very essential to society. Therefore, they really need to be discussed in a consensus process. There was the view that globalisation in trade is very good. That is true but there are some adverse effects. You have to address the concerns of the people who are going to be adversely affected. The trade negotiations have always been done in a non-transparent, closed way with special interests often dominating over general interests. It was the combination of the manner in which they have always operated, the recognition that the agenda in the past has always been driven by the developed countries and not by the rest of the world, and the failure to pay attention to the importance of consensus building all contributed to the problems. In my mind, the flip side of that is what we are trying to do with the Global Development Network. What we are saying is on this and any other issue, there needs to be discussion and a movement along of understanding the issues. There are global issues like trade where there needs to be an exchange globally. What's very exciting about this is that we now see the beginning of the creation of global civil society.
D+C: Referring to Seattle, our minister of economics has said that no agreement is better than a bad agreement. Do you agree with that?
Stiglitz: Almost by definition that is true. But the real issue is that far better would be a good agreement. The previous rounds of trade negotiations have been unbalanced. There were important things like agriculture that have adverse effects on developing countries. At the end of the Uruguay Round, the calculation of the World Bank showed that Sub-Saharan Africa was actually worse off than before. That's an example of a bad agreement when at the end the poorest region of the world was actually poorer.
D+C: Do we have the chance now to get a good agreement?
Stiglitz: Exactly. We have to recognise everybody is not better off by some of these agreements. Some regions are worse off, and the poorest people in those regions can often be worse off. I think that there are enormous benefits to this process of trade if it is done the right way. What Seattle did is to send a wake-up call. People will start thinking about this now in a very different way.
