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Sender: netsource-l@think.service
Date: Tue, 18 Jan 2000 10:11:46 +0900
From: Caspar Davis
To: Multiple recipients of NETSOURCE-L < netsource-l@think.service >
Subject: Rethinking Neoliberalism?
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From: Global Policy Forum < gpf3@igc.org >
GPF List-Serv January 10-14 2000
Rethinking Neoliberalism?
Greetings from Global Policy Forum!
This week, Joseph Stiglitz was at it again. On Sunday, January 9, the departing World Bank Chief Economist gave a speech in Boston to the annual meeting of the American Economic Association, stepping up his criticism of the Bank, the Fund, the US Treasury Department, and the dominant neoliberal policy "consensus" in Washington. His remarks drew a standing ovation from a large audience, marking a deep change in the thinking of mainstream professional economists.
"Capital market liberalization has not only not brought people the prosperity they were promised," said Stiglitz, " but it has also brought these crises, with wages falling 20 or 30 percent and unemployment going up by a factor of two, three, four or 10."
The most surprising features of Stiglitz' speech was his repeated reference to "workers," a category that had all but disappeared in mainstream economics discourse. Further, he identified those he held responsible for the crisis and those who had been forced to bear the burden -- winners and losers in Washington-style economic globalization.
This too is rare in professional economics discourse, given to abstractions about "markets" and inclined to assume comfortably that resources flow to those who work hardest or who are most efficient, thus "optimizing" the welfare of all. The picture Stiglitz drew was far from rosy.
"In East Asia, it was reckless lending by international banks and other financial institutions, combined with reckless borrowing by domestic financial institutions...which may have precipitated the crisis," said Stiglitz. "But the costs, in terms of soaring unemployment and plummeting wages, were borne by the workers."
When Asian governments were forced to accept financial relief coordinated by the IMF, Washington imposed conditions that clearly targeted ordinary workers, Stiglitz affirmed. "A standard message was to increase labor market 'flexibility,' and the not-so-subtle subtext was to lower wages and lay off workers," he said.
Ironically, Stiglitz made his remarks in a panel discussing the World Bank's most recent World Development Report -- a report that focuses on poverty. Bank President James Wolfensohn, who insists that his institution's main task is reducing poverty, could not be very pleased with this latest salvo by his Executive Vice President, whose remarks suggest that the Bank *creates* poverty and favors investors over ordinary workers.
As the applause for Stiglitz made clear, economists in the United States have been re-thinking the dogmas of neoliberalism since the outbreak of the Asian crisis (1997) and its extension into Russia and Latin America. Some of the profession's leading thinkers, notably Paul Krugman of MIT, have launched an attack on neoliberalism, calling for a return to Keynesian economic management. Krugman's latest book, The Return to Depression Economics (Norton, 1999), depicts Washington's approach to the Asian crisis as a crude bid to impoverish the region in order to increase control by US-based financial and corporate interests. Coming from such an established figure, this analysis is quite astonishing.
But Krugman is scarcely alone. Robert Wade of Brown University has been saying the same thing, and even Jeffrey Sachs of Harvard, former high priest of neoliberalism, appears to have had a sudden conversion to more critical views. Jerome Levinson of American University, former Chief Counsel and Staff Director of the U.S. Senate Subcommittee on Multinational Corporations and United States Foreign Policy is another senior economist who has been expressing unhappiness with official policy and its apologists. In an article in early 1999 in the Fletcher Forum on World Affairs, Levinson had this to say:
"The uncritical faith in the superiority of the unregulated market in efficiently allocating capital is unmatched by empirical evidence ... The emerging market syndrome of the early 1990s, which resulted in the Tesobono fiasco and the Mexican financial rescur, is a tribute to the triumph of greed, ignorance, stupidity and arrogance over common sense."
Krugman's book is full of examples of how unregulated markets lead to irrational and politically-motivated results, reflecting power relations far more than resource optimization. One of the book's most gripping accounts tells how the hedge funds, including George Soros' Quantum Fund, mounted an attack on Hong Kong's currency and stock markets in mid-1998. The an attack ultimately failed, but only because Hong Kong authorities ignored the neoliberal mantras of the IMF and Wall Street, broke with their own traditions, and intervened forcefully instead.
But the economists' new understanding is not matched by policy changes in Washington. Indeed, the powers that have driven neoliberal policy are today stronger than ever. While Stiglitz was delivering his speech in Boston, negotiators in New York, Boston and MacLean, Virginia were winding up details on the biggest corporate merger deal in world history....
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