A critique of the Stiglitz report
The limits of liberal orthodoxy
2009-09-03, Issue 446
This critique relates to the Report of the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System. This commission was set up by the current president of the United Nations General Assembly, Padre Miguel D’Escoto, and presented to that Assembly at its meeting of 24–26 June, 2009. Professor Stiglitz, the chair of the commission, had clearly imposed his own personal views. Therefore I consider correct entitling my critique ‘A critique of the Stiglitz Report’. The UN Assembly, therefore, experienced a setback, hardly noticed by the media. In reality, this was a victory for the countries of the South which, in abstaining from being represented at the required level, showed thereby, their refusal to ratify the unilateral decisions of the North, the only positions presented in the report.
An exhaustive examination of the proposals in the Stiglitz report is a painstaking exercise of doubtful interest. For, as a whole, these proposals are no different from those of conventional liberal orthodox economists, with the exception of dogmatic liberal extremists, now in the minority.
In this analysis, the present crisis is considered as a short-term one, provoked by excesses in credit expansion, even if it is accepted that it is accompanied by ‘structural problems’ derived from underlying undercurrents. It is therefore a V-shaped crisis from which rapid recovery is possible. Inevitable growth will be revitalised by financial expansion, as it was before the meltdown of 2008. The only precautions necessary are those which will avoid the by-products of this expansion.
In its global dimension, the system should recommence growth within the same ‘open’ liberal framework which has characterised it for three decades, and avoid ‘protectionist’ responses to the passing current difficulties. The underlying vision of the future of the global system is similar to that expressed in the CIA report (The world in 2010) of which I had given earlier a critical reading (ref Samir Amin, Beyond liberal globalization, Monthly Review, New York, December 2006). Both reports do not envisage any ‘upheavals’, merely a greater commercial role for China and other emerging countries. I considered that vision as highly unrealistic.
This evolution may be facilitated by – and facilitate in its turn – the progressive abandonment of exclusive reference to the dollar as international reserve currency. System reform should work towards this objective.
The Stiglitz report apparently gave itself some general objectives, such as ‘improving the global economy for the good of all the planet’s inhabitants’ without forgetting the pursuit ‘of distant ideals of sustainable growth’ etc.
But this is doubtless a case of lip service to stylistic requirements. No UN or government report could claim to be pursuing other objectives.
Nonetheless, the Stiglitz report proclaims its intention of going further than liberal extremists in two dimensions.
It endorses the necessity of ‘action to resolve underlying structural problems’ and it ‘recognises that sovereign markets are not in themselves self-correcting’.
A number of questions arise in relation to the ‘structural’ problems mentioned. What are they, and how are they conceived and analysed? What policies are proposed in response to the challenges they pose? But equally: What are the ‘structural problems’ that the report does not mention?
A second series of questions arises in relation to the corrections proposed to the vagaries of the market.
‘Ecological questions’ form the first group of ‘structural questions’ considered. It has now become impossible to ignore these, and no political power now does so. However, in this domain, as in the others, Stiglitz holds to the liberal orthodoxy and proposes the commodification of ecological rights. This view rules out any serious consideration of these questions and moreover mortgages the future of societies of the South. (ref Samir Amin, The ecology issue and would-be sustainable development, Pambazuka News, 2009)
In fact, the ‘structural problems’ considered in the report exclude two large families of questions which define the challenge with which the current system is confronted.
The first of these families concerns the organisation of production and of labour. There is not even one simple reference in the report to the ‘(final) crisis of Fordism’ for example which is, however, the origin of the crisis which has lasted for three decades, and without consideration of which the failure of the automobile industry – among others – remains unexplained. To ignore the structural crisis of Fordist accumulation is to make it impossible to understand how the latter created the conditions for an offensive against labour and why financialisation was, precisely, the means for it. But Stiglitz along with other orthodox liberal economists is not equipped to integrate such questions into their ‘market economics’.
The second family of questions which has been ignored relates to the status of management (of capital). The existence of oligopolist groups is considered only through insignificant sections of the report proposing a ‘revision of business governance’! However, in the face of the right-wing orthodox liberal (in fact, downright reactionary) positions taken by Stiglitz, a wide range of public opinion has already become aware of the need to raise the question of the legitimacy of private management of these groups. One example is that of the medical profession which, on the whole, has no difficulty in understanding the need for the management of the pharmaceutical industry to subserve social needs, or even to be nationalised to that effect.
Another series of ‘big’ questions clearly concerns the distance which, in the global system, separates ‘developed countries’ (the North) from ‘developing’ countries (the South). In a UN report of this kind located within the framework of the globalisation debate, this distinction cannot be ‘forgotten‘. But, as we shall see later, Stiglitz’ proposals do not go beyond the simplistic vision of Stages of Growth (Rostow) of liberal orthodoxy, which, in fact, ignores the question.
Liberal orthodoxy can have no really serious or effective proposals relating to the ‘regulation of markets’. Moreover in this domain, the Stiglitz report is of a piece with numerous works located within conventional economics.
Stiglitz’ proposals in this domain practically only deal with the ‘management of financial risk’. The fundamental question, which is whether growth ‘set in motion by finance’ is a viable form or whether, on the contrary, it is a response to a crisis of accumulation, is simply ignored. Stiglitz is, with the orthodox liberals of the Right, convinced that the system of growth of the two decades preceding the meltdown of 2008 was fundamentally ‘healthy’ and that, as a result, some improvements in the ‘management of financial risk’ are the sum total of what ‘must be done’. Liberal economists simply ignore those analyses, which relate financialisation of systems to declining hegemonies throughout history, superbly argued by Giovanni Arrighi (The long twentieth century, Verso 1994). I had qualified since 2002 the current pattern of financialisation as the ‘Achille's heel’ of globalisation, preparing ‘an imminent financial catastrophe’. And before all of us, Marx had pictured the illusion that money can create more money without passing through a process of production of real value as the summit of capitalist alienation, a phrase to which I also always referred in my analyses of globalisation.
Moreover, these risks are, in fact, managed by the oligopolies themselves and are, indeed, their means of intervention in the financial markets. Like the G7 governments, Stiglitz does not question this ‘right’. He thereby confers on the relevant groups themselves the responsibility of self-regulation.
Further reading of the report in no way causes one to question the impression of timidity – amounting almost to meaninglessness – of the proposals and also reveals Stiglitz’ staunch attachment to all the usual prejudices relating to the ‘superiority’ of the ‘Anglo Saxon’ model. For example, Stiglitz defends the principle of ‘accounting on the basis of market prices of assets’ (the United States model) and doubtless throws up without discussion the principle of ‘accounting on the basis of historical real prices’ in the European tradition. He appears to have no notion of the need, by contrast, to question the US principle, which facilitates speculation on a grand scale. And no doubt he despises his many liberal orthodox colleagues who do not share his opinion (which in fact is closer to the views of Wall Street brokers than of some other serious conventional economists).
It will be no surprise, therefore, that proposals of a return to a separation between commercial and investment banks are not seriously considered by Stiglitz. We should also, in fact, be aware that such a separation – which is fully justified by numerous liberal economists – would run a high risk of being inefficacious. Assuming the legal separation of the two kinds of banks, if these belong to the same oligopolistic groups, they will find the means to communicate between each other to nullify the effects of their separation.
Furthermore, we should not be surprised to note that the report does not know what to say or to propose on the subject of ‘rating agencies’.
The proposal that financial regulation should be conferred on the host country and not on the country of origin will be considered below, in the context of a consideration of North-South relations.
The Stiglitz report offers no prospect for autonomous decision-making for the countries of the South. The very idea of such autonomy is entirely foreign to his orthodox liberal concept of ‘globalisation’.
Undoubtedly, Stiglitz makes an apparent concession of the need for ‘differential treatment of developed and developing countries’ and invites the former to ‘open their markets to exports from the South’. In fact, the spirit in which this concession is formulated amounts to conceding ‘favourable treatment’ for a limited number of years, since it openly embraces the conclusion of the Doha round which anticipates no more than this. The report displays total, and no doubt disdainful ignorance of severe and justified critiques of the WTO, for which the reader is referred to the crushing analyses of Jacques Berthelot and Via Campesina, about agricultural and food production and markets. The report does not even hint at the counter proposals made by groups of countries in the South. In fact, the insistence on the North opening up to exports from the South, seen as the golden thread of development by liberal orthodoxy, eliminates straight away any examination of another way, based on giving priority to the enlargement of the internal market of the countries of the South (individually and collectively) and on the relative reduction of their exports to the North.
The serious question of the external debt of certain countries of the South is treated only in a proposal for a ‘moratorium when the debt is too heavy’. Examination of the circumstances and the working of globalisation that had lead to these ruinous debts is completely ignored. It is not enough to recognise that some of these debts bear an ‘immoral character’. What is needed is in fact a systematic audit of all these debts, allowing the reimbursement of the heavy disbursements paid by the countries of the South (it is well known that, due to the high rates of interest decided unilaterally by the creditors countries, the South have reimbursed the debt several times!). What is needed is also the development of an authentic legal regime ruling international debts.
Stiglitz remains what he was – an executive of the World Bank to which he had addressed only minor criticisms. This is why his proposals for ‘democratic governance’ of these institutions are limited to reinforcing the voting rights for a number of emerging countries of the South as well as their partnership in the administration of the agencies. In fact that proposal is not much more than an attempt to make the emerging countries accomplices of the leading northern counties remaining in a position of domination of these ‘agencies’ (in fact their agencies in the management of globalisation).
Some of the report’s proposals concerning the IMF may give the illusion that Stiglitz is going further. For example, the proposal ‘to achieve the issue of Special Drawing Rights approved by the IMF (in 1997!)’. But this ignores the fact that, by the rules which govern this issue, it is the richest countries (in particular, those of the North) which will be the major beneficiaries, while the sums which would facilitate the payments of the poor countries of the South remain insignificant.
Stiglitz does not question the fundamental principles that govern the conditionality associated with the IMF’s interventions, even though he points to the need to mitigate their ‘procyclic’ effects. The IMF remains what it is: The colonial monetary managing authority for the countries of the South, to which can now be added those of Eastern Europe. The IMF’s recent interventions in Hungary and Latvia are evidence of this reality.
There is no doubt that Stiglitz appears to recognise the legitimate right of the countries of the South to manage their capital accounts, or even to ‘control their financial flows’. The invitation to give priority to the legislation (liberal, naturally) of the host country rather than to that of the country of origin of banking institutions – referred to above – lines up with these concessions. But one could point out that on these points Stiglitz is merely inviting the IMF to return to its own principles, which were only abandoned, late in the 1990s, under the pressure of extreme liberal dogma. One could also observe that the resistance of China, which continues to reject global financial liberalisation, is perhaps also relevant to the author’s rare note of political realism.
Stiglitz remains attached to extreme liberal orthodox positions which refuse to question the principle of flexible changes and of rates of interest being ruled by ‘the market’, in fact decided unilaterally by the dominant financial oligopolies In these circumstances it is doubtful that his proposals for a reform of the global monetary and financial system, opening the way for the substitution of a ‘new’ international reserve instrument for the dominant use of a national currency (in this case the dollar) as international reserve currency are really new.
Stiglitz ignores the critical analyses produced by the Group of Shanghai (China, Russia and others) as well as by the BRIC countries which met in Ekaterinenburg. Yet these views go far beyond the proposals of Stiglitz and call for a diversification of the instruments for international reserve, including instruments issued by the BRIC countries themselves, without the ‘permission’ of the North. I am convinced that the deepening of the crisis will lead sooner or later to the creation of such instruments through unilateral independent policies formulated by the South.
The Chinese authorities have, in fact, initiated a movement in this direction in previous agreements with several partners in the South. And although at the moment these agreements concern only a minimal fraction of China’s trade (5 per cent), they nonetheless remain an example of what the South can do, without seeking to obtain a ‘global consensus’ (in other words, the approval of the North) to authorise it. The ALBA agreements and those of the Banco Sur are made in this spirit, although they have not yet led to any significant results.
Ultimately, Stiglitz’ proposal to set up an ‘Economic Security Council’ (the ‘World Council for Economic Coordination’) remains ambiguous. Is it a case of adding an additional obstacle to the legitimate rights of the countries of the South to decide for themselves the forms of their participation in globalisation, while imposing a ‘global consensus’? One has one’s suspicions. One can also suspect that if, by chance (by unfortunate chance for Stiglitz and his liberal colleagues), the countries of the South tried to put this institution to the service of their own concept of development, we would see the countries of the North marginalising its role, as they have done with the UN, UNCTAD, the Economic and Social Council and many other institutions once they evade their unilateral control.
Stiglitz’ proposals constitute a coherent whole which presents a rigorously orthodox liberal vision.
A reading of chapter 2 of the excellent article by Jean Marie Harribey and Dominique Plihon for Attac (Sortir de la Crise Globale, La Découverte 2009) allows us to measure the extent of the disaster represented by Stiglitz’ point of view, both on the social level and on that of the kind of international relations that it implies.
These authors write (p.35): ‘Financialisation is not an autonomous factor, it appears as the logical counterpart to falling wages and a reduction in sufficiently profitable investment opportunities. This is why rising social inequality (within each country and between zones within the global economy) is a constitutive trait of the functioning of contemporary capitalism’.
Now, Stiglitz’ goal is precisely to restart this system and to restore the functions described by Attac to financialisation. Stiglitz has admitted a more and more inequitable society, both at the national and at the global level, thereby nullifying his fine words about ‘poverty reduction’.
This is the choice of the whole United States establishment, of which Stiglitz is a loyal defender. For in effect, the model in question (‘social and international inequalities associated with financialisation’) is the only one that allows the United States to maintain its position of hegemony – in two ways. On the one hand, because it permits substitution for the lack of demand associated with the overexploitation of labour with stimulation through debt. And on the other, because it enables the United States’ external deficit to be financed through opening up financial globalisation. As the Attac authors put it, ‘financial regulation is a necessary but not a sufficient remedy … Financialisation feeds off falling wages and destabilisation of the global economy. Financial deflation requires both these outlets to be closed off … which implies a further redistribution of wealth and a reorganisation of the world economy’ (p.41).
In fact, neither the United States establishment, nor Stiglitz, accept the closing off of these outlets. For closing off the outlet would transfer the burden of the social crisis to the United States itself. This is why the crisis is, in my analysis, a double crisis, both of late capitalism of the oligopolies and also of the United States’ hegemony. And these two dimensions cannot be dissociated from one another. The choice defended by Stiglitz is, therefore, unacceptable and, in a more or less short temporal horizon, will be called in question by autonomous decisions made by the countries of the South, which are its major victims.
The reactionary model of a ‘top-down solution’ to the ‘financial’ crisis and of a double restoration of the brutal global domination of the oligopolies and of United States hegemony, recommended by Stiglitz is certainly not the only solution. It is probably even the least realistic one, even if it responds to the wishes of successive Washington administrations and, from necessity, the subordinate governments of Atlantic Europe.
There is another pattern of proposals for a ‘top-down solution’, recommended by other economists, equally conventional but nonetheless concerned with setting in train a substantial series of reforms of global capitalism. Whether one labels them ‘Keynesians’ or ‘Neo-Keynesians’ or otherwise, is of little consequence.
In that frame, growing social inequities are not accepted as ‘the necessary fatal price of progress’ but, on the contrary, analysed as the product of strategies of oligopolistic capital, organising conditions favourable to it (the fragmentation of labour, and the organisation of international competition between workers). These strategies are the origin of the long crisis of accumulation which they perpetuate. The present crisis is not, therefore, a short-term V-shaped one but a long-term L-shaped one. A grand plan based on the reduction of inequalities is therefore needed, to transform the L into a U.
The plan is bold and necessarily so. Nationalisation (as a point of departure for possible socialisation) is not ruled out (in particular for financial institutions). Stabilising the stock exchange around 50 per cent of the artificial and fantastic prices permitted by financialisation is not considered a disaster, but rather a healthy purge. Rolling back the commodification of social services (education, health, housing, public transport, social security and pensions) is therefore considered both necessary and positive. Massive and sustained growth in public-sector intervention, even growth in recorded public deficits (which is what earns the plan its ‘Keynesian’ label) is not considered any more catastrophic. In the medium term such measures constitute the condition for the recovery. This recovery therefore relates to economic production, and marginalises the impact of financial markets.
This plan is a global one, but devised from the perspective of negotiated globalisation, permitting different countries and regions of the planet (including Europe) to favour their internal and regional markets. In this way, strategies of systematic support for peasant economies become possible and constitute a good response to the food crisis. Ecological challenges can also be taken seriously and policies to that effect not cancelled by the oligopolies. This global plan has a political component, which begins with the reinforcement of international institutions. It develops from a vision of ‘globalisation without hegemony’.
It would have been good to see the United Nations taking the initiative with proposals based on this perspective. That, after all, is the role this institution is supposed to play.
The big mistake is to seek a ‘global consensus’. For in the present state of affairs, an authentic consensus is impossible and the pursuit of this illusion comes down to lining up with the reactionary G-7, which sets itself up, as illustrated by day-to-day rhetoric, as ‘the international community’. In fact, a good part of the Stiglitz proposals had already been adopted by the G-7 and apparently even endorsed by the G-20. Not that the countries of the South which came together for the occasion, nor others which were not present, showed much enthusiasm. They swallowed the pill without great conviction.
The fact that the situation is as it is indicates that the chaos of the global system is not being resolved. On the contrary, the world is heading for even greater chaos. The best alternative response is to seize the opportunity to reclaim the South’s autonomy, without, for the moment, seeking to convince the North with a false ‘consensus’.
AN ALTERNATIVE PROPOSAL
The ‘draft outcome document of the Conference’ prepared by the United Nations General Assembly which met on 24–26 June 2009 confirms our severe critique of the ‘Stiglitz report’.
I do not know what the role of the editor chosen by the Triad Powers, i.e. the USA, Europe and Japan, (the Dutchman, Frank Majoor) may have been, and I do not exclude the possibility that he further diluted the Stiglitz report from its already insignificant state. What has resulted is a text without impact, which lays out a series of pious wishes without any concern to define the necessary conditions for their implementation.
Seeking a ‘global consensus’ at any price (paragraph 6) is the basis of the failure described above. For the Triad Powers continue to pursue a single objective: To ensure that the distressed countries of the South ratify their unilateral decisions, which conform to the purest liberal orthodoxy and nothing more. The only response possible to this dictat must be to abandon the pursuit of this false consensus. The countries of the South must obtain for themselves the means to act unilaterally, in their turn, at the national and, as far as possible, at the regional level, as with the Group of 77 and China. Creating a ‘Bandung 2’ outside of any false consensus should be the campaign strategy of their people, nations and states.
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* Samir Amin has been the director of IDEP (the United Nations African Institute for Planning), the director of the Third World Forum in Dakar, Senegal, and a co-founder of the World Forum for Alternatives.
* Aid to Africa: Redeemer or Coloniser? is available to order from the Pambazuka Press website.
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