The World is not a Balance Sheet
Interview with Joseph E. Stiglitz
[This article originally published in: die tageszeitung, April 16, 2002 is translated from the German on the World Wide Web, www.taz.de/pt/.nf/spText.Name,neoliberalismus.idx,0. Joseph Stiglitz is a former chief economist at the World Bank.]
taz: Next weekend there will be demonstrations against the IMF in Washington. Will you be there?
Joseph Stiglitz: I will be in Japan. In the past, I participated in discussions on reforming the IMF.
taz: What will the pressure of the streets accomplish?
Stiglitz: This pressure is very important. The protests at the 1999 WTO meeting in Seattle brought certain problems to the public consciousness for the first time. The media at that time were not prepared for these protests. Four months later at the next meeting of the IMF in Washington, the media already anticipated the protests. When the demos actually took place, Newsweek and Time Magazine wrote background articles on what the IMF does in developing countries.
taz: As a former chief economist at the World Bank, you had the chance of changing institutions from within. Why did you leave?
Stiglitz: No single person can change the existing institutions. The US is the only member country with a veto right. We felt this again two weeks ago. The IMF suggested discussion on an international right of bankruptcy. The US Commerce department said: In no way. Thus the IMF withdrew the proposal. A single country can block. This is an example for the lack of democracy in the IMF.
taz: Who can reform the IMF?
Stiglitz: The pressure must come from the outside. When I gave a speech at the IMF on debt cancellation for the Third World, I met with deaf ears. The worldwide civil society bundled in the "Jubilee year campaign" exerted political pressure and achieved the debt cancellation. Pressure must also come from the governments of influential countries, the US, Europe and Japan.
taz: When you speak of the IMF, it always seems as though a great many confused persons muddle their way through.
Stiglitz: The IMF is dominated by economists who all come from a certain school of thought. They see the world as only a great balance sheet. I would not describe this as economics but as ideology since it is not supported by either evidence or theory. However it serves the brokers, operators or speculators. The IMF forced countries worldwide to open their capital markets and set high interest-rates. The investors make money out of everything. However neither theory nor reality prove that liberalization of the capital markets in developing countries leads to economic growth. Rather they show that liberalization leads to instability.
taz: Still many countries are so poor that they need capital from abroad.
Stiglitz: That is a good example how ideology dominates the human intellect. East Asia for example doesn't need any more. 30 to 40 percent of its total income was saved before the liberalization in the 90s. Enough capital existed. All the money that came from the outside ran the risk of being spent poorly, for example for skyscrapers in Bangkok where no one wanted to rent an office afterwards because there were already too many offices. China is a counter-example. There liberalization is resisted. China has received more foreign investments than any other country. In no other country has poverty been reduced so intensely.
taz: However China is not a democracy.
Stiglitz: ... The IMF has never worried about democracy. Remember its model country, Chile under Pinochet!
taz: Authoritarian regimes have it easier sometimes in propelling their economies. They don't have to be anxious about unions or environmental protection.
Stiglitz: I believe this is reversed in China. Because China is a dictatorship, great public support has always been sought.
taz: What would you recommend to a country in Africa to gain money?
Stiglitz: What countries need are direct investments that create jobs, technology and services, investments in the productive sector, not "investments" that the IMF glossing over the facts calls "investments" which in reality are not. In many cases, nothing is invested. The capital only serves speculation, the hope that money will increase entirely by itself when for example the country falls into a crisis and must massively devalue its currency. In addition, developing countries must gain access to the markets in the US and Europe with their products. The success of the threshold countries is almost always based on exports.
taz: On the other hand, you support high wages. How can businesses keep pace when toys from China today only cost a tenth as much as local toys?
Stiglitz: The industrial countries have enough capital and enough functioning businesses. They have to shift their production to more productive sectors. A good economic policy would support this. For example, a good policy would ensure that smaller businesses receive credits and do not go bankrupt. By contrast, developing countries need massive assistance for example in switching over from pure agriculture to the production of televisions.
taz: In the meantime there are IMF credits with the condition of fighting poverty. Is this only rhetoric?
Stiglitz: This is mainly rhetoric. Still a reformed rhetoric influences conduct. In the past the IMF wasn't concerned about unemployment or wage levels when it entered a country. Now people begin considering the actual effects of the IMF programs. That is a first step.
taz: In your book, you claim that the World Bank functions better...
Stiglitz: Members of relief organizations and planning teams are in the World Bank, not only finance men. The World Bank operates in the health-, education- and environmental areas. When the collaborators enter a country, they stay a while, at least a few years. They leave the mammoth cities, look at the projects and gain impressions of the country and its people. In contrast, the IMF people only travel to the capital cities, stay two weeks in a five-star hotel and then believe they can declare to the government what their economic policy should be.
taz: Critics urge that the IMF withdraw completely from developing countries and rely on the assistance of the World Bank.
Stiglitz: The IMF should not confer any long-term credits. Critics from the right-wing to the left-wing agree about this. The IMF isn't a development aid worker and only inflicts chaos in the countries. There will be crises again and again in the developing countries and the IMF will be asked for short-term assistance. The IMF isn't really competent here although crisis management is now one of its functions.
taz: Thus better condition-free credits?
Stiglitz: Lending money as a kind of blank check is impossible for a financial institution. Conditions must be formulated so they actually help combat the crisis in the impacted country. Lump-sum conditions as presently occur are counter-productive. On top of everything, the IMF misuses the credits for political purposes.
taz: What do you mean?
Stiglitz: Officially hundreds of conditions must be fulfilled before a poor country receives a credit. With some countries, this is suddenly impossible. In 1998, Russia received a credit. $5 billion flowed into the country and the next day they were in Swiss bank accounts. The creditors whose demands the Russian government should satisfy with the money naturally brought their capital into security. They accepted high risks in Russia because they knew the IMF would not desert them. Imagine: a western creditor bank appealed to the IMF and asked how much money would help this Russia so the country could repay its credits.
taz: Why then did Russia receive these credits?
Stiglitz: Because the western countries wanted Boris Yeltzin to remain in power.