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November 02, 2007

Stiglitz on Globalization

Michael Blowhard writes:

Dear Blowhards --

Nobelist (and former Clinton advisor) Joseph Stiglitz is bracingly frank about the failings of globalization in this talk to a Google audience.

  • Despite a booming China and an on-the-make India, growth has been slower than expected in much of the rest of the world.
  • Globalization was expected to lead to greater worldwide stablity. What it has resulted in instead has been dozens of financial crises.
  • Globalization was supposed to encourage money to flow from the rich world to the poor one. In fact, money has been flowing in the opposite direction.
  • Globalization was expected to be an equalizer of incomes. As things have played out, though, inequality has increased dramatically not only between countries but within countries. The income of the U.S.'s lower classes, for instance, has actually decreased over the last 30 years.

Stiglitz is also more worldly than most professorial types are about the way that special interests warp arrangements to their own advantage.

Despite all these admissions, though, Stiglitz still thinks that globalization can be made to work. How? Well, somehow "we" have got to get our incentives straight, for our political classes as well as for our trade-agreement set. I haven't yet found the passage where he names the planet on which such a thing might possibly be made to happen. Forgive me for suspecting that what he really means is, "I believe. I see the shortcomings, yes. But I can't give up my belief."

Here's an AlterNet interview with Stiglitz. Stiglitz's books about globalization are buyable here and here.

Am I wrong in thinking that part of what "opening world trade up" often means in practice is "giving greater license to the shrewd, the connected, and the powerful to take unscrupulous advantage of the rest of us"? I say this as a most-places / most-times fan of free trade, by the way. It's just that ... Well, how can "free trade" be made to happen at the global level? Who, after all, are we going to find who'll be able to officiate the game in a disengaged, fair-minded way? A Martian? Or perhaps ... Joseph Stiglitz?

Don't miss FvBlowhard's recent analysis of lobbying and campaign-contribution money.



posted by Michael at November 2, 2007


"As things have played out, though, inequality has increased dramatically not only between countries but within countries."

Not, in fact true. Depends how you measure. There's Concept 1, where we measure inequality purely by the average of each country. This has increased. However, this gives us 54 numbers for Africa and only 2 for India and China. Not terribly useful. Then there's Concept 2, where we weight those same averages for population. By this, more accurate measure, inequality is definitely declining.
Then there's Concept 3. This is terribly difficult to measure (Branko Malianovich is the guy who tries though. Xavier Sala i Martin is the guy looking at Concept 2 and one of the most quoted of economists overte past decade.) but it's trying to measure global in equality. Not taking things by country, but the whole globe as one. The picture's a little murky but it is probable that inequality by this measure is declining: it's the creation of the huge (hundreds of millions of people) Indian and Chinese middle classes over the past two decades that's doing it.
Inequality within countries has definitely increased, no doubt about that. My view is that it's actually the price for reducing Concept 2 and 3 inequality (for whatever tiny value my view has). Who actually cares that he US or the UK has become a little more unequal if the other side of the coin is that hundreds of millions of people are now no longer starving peasants?

Posted by: Tim Worstall on November 3, 2007 7:11 AM

Well, at least Stiglitz and I are on the same page as far as "Auctionocracy"!

From his interview at AlterNet:

"[Interviewer:] The WTO was basically created by [multinational corporations], wasn't it?

JS: Not really. The idea that you would have a rule of law in international trade is a very old idea, and actually ...

[Interviewer:]-- not the notion perhaps, but it's always seemed to me that the system of secret tribunals, for instance, in which a corporation is basically able to take a government to court, was set up to serve the multinationals.

JS: Very much so. But I want to point out that this is not inherent in globalization. The idea that a rule of law would govern international trade relations is a very important idea that many idealists thought was good. Back in the '20s one of the factors that contributed to the Great Recession was a series of trade wars, and one of the ideas behind the establishment of the WTO was to try to prevent that from ever happening again.

But you're exactly right; the agenda got seized. In the book I talk about how in the last round, patents and intellectual property rights got shoved into the WTO. The result was that access to generic medicines was reduced, forcing poor countries to pay very high prices that they cannot afford....These are examples of what I call an unbalanced intellectual property regime. Interestingly, I was on the Council of Economic Advisers at the time, and in the office of science and technology policy, we thought these intellectual property provisions were not good for even the United States. They weren't good for science in America or for global science, and we opposed them. But in the end the drug companies and the entertainment industry prevailed.

Gee, government activity (in this case, trade agreements and intellectual property regimes) resulting in transferring rents to the groups who give lots of money in campaign donations and who spend lots of money lobbying. Thank god we live in a free-market economy!

Granted, it seems as if Stiglitz should grow up and read a little Public Choice theory, no?

Posted by: Friedrich von Blowhard on November 3, 2007 11:10 AM

Globalization segments the world by IQ, as Michael implies in his reference to 'the shrewd, the connected'. China is growing because Chinese people have an average IQ of 106. Africa is not growing because it, well, doesn't. What we are witnessing is the planetary Bell Curve. The white Caucasoids and Mongoloids will increasingly pull away from the less intelligent Negroids, Arab & South Indian Caucasoides etc, deepening global inequalities. Free trade is usually good, but lets not kid ourselves - it's best for those [nations or individuals] with high IQ's. On this the world pivots.

Mr Worstall - China can be viewed as a whole, the Han racial group is broadly similar, and clusters round IQ 106 on the Bell Curve. India should be segmented like Africa for the purposes of GDP and inequality calculations. Brahmins and Parsis, the most intelligent Indians, pretty much do everything that requires a brain and everything of importance in India, and are rewarded accordingly. Without those outliers we would witness the grim and full implications of India's 80 IQ.

I would be happy to hear Michael's opinions on the best course for global economic policy.

I think muddling through without any grand utopian agendas is the best course. No more 'Copenhagan Consensus'' bonos or Wolfowitz's parading all the kingdoms of the world before us. Lets get real. Steve Sailer pointed out that technology will be of great assistance in helping the third world, as new technology like the internet or cell phones don't require the complex infrastructure of the past (phone lines etc), which required a large high IQ Smart Fraction to function properly.

Posted by: land monster on November 3, 2007 9:05 PM

Tim Worstall writes, "Who actually cares that he US or the UK has become a little more unequal if the other side of the coin is that hundreds of millions of people are now no longer starving peasants?"

To my mind, this is precisely the problem with our elite trade policies. A couple of hundred million ordinary Americans care very much that they haven't seen a raise in their lifetime, even as the most privileged classes are making out like gang-busters.

It doesn't have to be this way. With redistribution there is enough growth in the pie to make everybody better off. But if we don't get serious about redustribution, and learning how to do it, it may spell the end of rising equality in places like China.

We live in a democracy. Cosmopolitans like Tom Worstall forget that at the peril of what they claim to care about more. They need to wake up and act like responsible adults. (No offense personally Tom. You're probably a great guy.)

Posted by: Luke Lea on November 4, 2007 12:21 AM

Agree with Luke. I would only support globalization if it were accompanied by heavy taxes on multinationals which would redistribute the wealth they gave from it down to ordinary Americans. But that will never happen, so I'll just oppose trade.

Posted by: SFG on November 4, 2007 8:14 AM

"... inequality has increased dramatically not only between countries but within countries."

This issue seems most important to artsy, intellectual types. I'll keep asking the obvious question. Why bitch so much about income inequality in the normal person, corporate universe? Income inequality is ridiculous in the artistic, intellectual universe. The artsy, intellectual universe is a winner-take-all affair.

Sure, the CEO of the firm I work for makes $5 million and more through incentives. But, the administrative and grunt personnel make $80,000 to $150,000. Compare this to the arts. I'll talk about music, since this is what I know best. In this winner-take-all world, a very few people make hundreds of millions. They pay their minions virtually nothing.

Back in the day when I would actually consider such jobs, I was routinely offered $100 to play as a sideman for a band pulling in a $10,000 gate.

I know musicians who worked for decades for bands that earned huge sums. Many of these musicians, who did not have a "name," now live in poverty in trailer parks, without medical or dental care. I don't hear anybody on the left screaming about this. In fact, the left where I live worships those great robber barons of the music industry. I never, for instance, hear anybody say that, perhaps, Bob Dylan has enough scratch and that its a scar on human spiritually that he keeps filling up his coffers.

I'm not impressed by this income disparity argument. What is poverty? In the U.S., virtually every person has adequate housing, a color TV, a serviceable car and a diet that produces obesity. Even in the Philippines, obesity is become widespread. One of the biggest shopping malls in the world resides in the Philippines.

Since this issue of income disparity seems so important to the artsy, intellectual crowd, I suggest that they take care of it in their own back yard first. Set an example for the rest of the world.

Posted by: Shouting Thomas on November 4, 2007 9:33 AM

Shouting Thomas:

I think the reason you should care about income inequality in America is that it is being produced not as a result of unrestrained market forces (in your example, too few bands pulling in $10,000 crowds and too many available sidemen) but because some groups have figured out how to aim the government tit into their own mouths. When people get rich because they have successfully integrated themselves into the governing structure of the country rather than because they're adding value to anybody, then we're starting to live in an aristocratic country, not a democratic one.

I, for one, have no particular desire to go back to the situation of my German and Italian forebears and labor as a serf for the aggrandisement of the politically well connected. Especially when the politically well-connected types are able to play the serfs of America off against the serfs of the Third World.

How about you?

Posted by: Friedrich von Blowhard on November 4, 2007 11:47 AM

Like Luke Lea said. (Well, maybe not the abstract redistribution stuff*.) C'mon, Tim, I don't believe for a minute that your understanding of human nature is so far out of whack that you can write things like "[who] actually cares that he US or the UK has become a little more unequal if the other side of the coin is that hundreds of millions of people are now no longer starving peasants?" in sober earnest. People looking around their cities and towns and poring over their family budget spreadsheets every week can get mighty exercised over that alleged wee bit more. An "I got yer 'relevant moral community' right here, buster" attitude appears from my perspective to be spreading and hardening. Unless you're willing to completely ditch democracy, you have to heed the folks who really do "actually care". Being human beings, a lot of them do.

*Some "redistribution" solutions I've come across tend to posit a middle-class that will meekly accommodate itself to being gutted because of an expanded system of tax breaks and greater dependence on government income-support. Don't know how well that's gonna fly.

Posted by: Moira Breen on November 4, 2007 1:00 PM


First, perhaps it would be good to take a look at your rather simplistic notion that obesity among the lower classes is in some way proof that real poverty does not actually exist. Some of Michael's postings on health and diet are a good place to start. Many at the bottom of the economic ladder, who eat what they can afford, are going to get too much of what makes one obese rather than the foods they need for better health, including less weight gain.

Next, the odd notion that those "artsy intellectual" types are any less interested in income disparity within their own professions as they are income disparity in the broader society. Although they ... we ... may recognize that there is little chance of solving the problem within one or two professions absent change in the overall system. It also strikes me as misguided to deem the likes of Bob Dylan as a Robber Baron when there are folks like Simon Cowell and his American Idol empire to throw brickbats at. Now, there is a Robber Baron!

Pure capitalism is very much a "winner take all" philosophy with monopoly as any industry's idealized goal. Absent mechanisms (taxes, regulations, anti-trust laws) to keep this from occurring the result is an unhealthy concentration of wealth. This is the direction we've been heading under global corporate capitalism and it does not bode well for a peaceful and joyous future.

Posted by: Chris White on November 4, 2007 5:08 PM

"Despite a booming China and an on-the-make India..."

That's quite an up-side.

Posted by: Robert Townshend on November 4, 2007 6:05 PM

"People looking around their cities and towns and poring over their family budget spreadsheets every week can get mighty exercised over that alleged wee bit more."

What you seem to be describing is a situation in which incomes are actually falling as a result of globalisation. That's not something that I've seen in the statistics, nor has anyone else. That the incomes of the rich are rising faster than those of the poor, leading to rising inequality, yes, this is happening. But an actual reduction in hte incomes and or living standards of the poor in the rich countries? It is to laugh.

BTW, it's worth noting that a goodly chunk of th increasing inequality in the US is driven by the very top incomes, the top 0.1%. This isn't being driven by imports keeping wages down: it's driven by those very few people capable of competing on the global stage being able to export their talents. Quite literally, the Tiger Woods' and Steven Spielbergs' of this world ($100 million and $220 million respectively last year I think). They're now getting a few cents each off billions of people a year instead of a few cents off hundreds of millions.

Finally, that Stiglitz thing about patents and IP: known as TRIPS and he's absolutely correct, it's a horrible idea. Economists like Deepak Lal (very much a classical liberal who disagres with Joe aout almost everything) would agree here.

Just a bad, bad, idea.

Posted by: Tim Worstall on November 5, 2007 6:03 AM


I am in direct competition with those Indian programmers. My parents watched their union factory jobs ship out to lower wage labor markets in Taiwan and Japan.

I've found a little niche in the programming biz... the combination of programming and creative skills (multimedia)... that keeps me one step ahead and employed. Language and creative skills are about all I have as an advantage. The Indians seem content for the moment to do the purely technological jobs. I don't expect that to always be the case.

The issues that are close to home for me and my family are racial and sexual quotas, and age discrimination. Three times in my working career, I've been hired as second in command in businesses that hired a quota beneficiary for the first in command position. Each time that quota beneficiary was a complete incompetent who failed and was either fired or quit. Age discrimination is rampant in the multimedia business. This is prosecuted by kids (primarily gay) who simply do not want a mature man with adult values in their shops.

I cannot imagine how we can stop being played off against third world workers. This has been going on for a long time, since the mid 60s for factory workers. Since I've been married to one third world woman, and my current girlfriend is a third world immigrant, I can say with authority that such people are very determined, intelligent competitors. They have a fierce work ethic.

Americans had better start bring their A game to work. That's about all I can imagine. I don't have any confidence in wholesale political change.

One ray of hope. Seven years ago, when I outsourced work to an Indian shop, they called me every day to ask if I was happy with them and their work. They kissed my ass and wiped my nose. Within the past two years, all that has changed. They want more money, service is declining and I have to call them and wait on line. They are getting spoiled.

Remember when Japan was a cheap labor market? Sure ain't any more, is it?

Posted by: Shouting Thomas on November 5, 2007 9:29 AM

On the practical problem of how to "do" redistribution without undermining the efficiency of our market economy, the answer is here:

It is not original with me, btw, and nothing to do with minimum wages, a progressive income tax, collective bargaining, or means-tested welfare payments. This is an old idea and it is surprising how few people know anything about it. Says something about the economics profession I suppose.

Posted by: Luke Lea on November 5, 2007 7:04 PM

For you opposers of globalization, I have a question:

Why trade anything with people outside of your own household? Everything should be done by an immediate family member, right? Otherwise, people outside your household are stealing from your household and making your family poorer, right?

Posted by: jult52 on November 8, 2007 8:57 AM

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