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Posted March 2, 2009
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Fine study of the failure of capitalist economics
Joseph Stiglitz was Chief Economist and Senior Vice President at the World Bank from February 1997 to December 1999. He was dismissed a few months before the end of his contract and replaced by Sir Nicholas Stern.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
This is a thought-provoking collection of nine of his most important speeches given between January 1998 and January 2000. They all undermine the conventional wisdom of the World Bank, the International Monetary Fund, the US Treasury Department and HM Treasury.
He exposes the failures of the Washington consensus, of shock therapy in the transition economies, of financial liberalisation, and of the IMF's handling of East Asia's financial crisis. He discusses his vision of development as social transformation; the role of knowledge in markets; the importance of openness, workers' participation in firms, the right to know and economic democracy; and the value of trade unions.
He observes that China accounted for two-thirds of all the growth in low-income countries between 1978 and 1995. In the 1990s, China's GDP almost doubled, while Russia's GDP almost halved and its inequality doubled. In the last few decades, East Asia's states have increased their GDPs and life expectancies, extended education and reduced poverty. In the late 1990s, reckless loans by US, European and Japanese banks caused Korea's crisis. Market entities, not the government, misdirected credit; the government's only failure lay in not regulating the banks.
Stiglitz notes, "If one didn't know better, it might seem as if the fundamental propositions of neoclassical economics were designed to undermine the rights and position of labour." Full employment is more important than welfare, since welfare can never provide the dignity that comes from work.
He points out that recent studies suggest that "increased labour market flexibility could actually exacerbate economic fluctuations." Indeed, "greater wage flexibility . may actually contribute to an enhanced likelihood of a recession."
He urges preventing crises by controlling capital flows. There is a large literature showing "capital and financial market liberalisation . unambiguously contributing to economic volatility and an increased probability of financial and currency crises and recessions."