U.S. exporting recession to the world, says Stiglitz

U.S. exporting recession to the world, says Stiglitz

Special Correspondent

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Every successful economy is a market economy

There is need to design a new global system

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— Photo: V.V. Krishnan

Nobel laureate Joseph Stiglitz at the 10th D.T. Lakdawala memorial lecture on ‘Crises Today and the Future of Capitalism,’ in New Delhi on Saturday.

NEW DELHI: Nobel laureate Joseph Stiglitz on Saturday urged India and China to use the G-20 forum to press for a change in the global financial architecture that has been so disastrous for the world.

Describing the developed world’s decision to consult the G-20 as a positive outcome of the global meltdown, he was of the view that the two countries should also speak for the 152 countries which were not invited to the meeting.

Delivering the 10th D. T. Lakdawala memorial lecture on ‘Crises Today and the Future of Capitalism,’ the noted economist said the problem – essentially a U.S. export – had to be tackled globally. India and China, he added, had not suffered much from the meltdown because they did not liberalise their capital and financial markets despite U.S. nudging the two countries in this direction “just so that you could experience what we did!”

Arguing that every successful economy is a market economy, Professor Stiglitz pointed out that the problem lay in the way it evolved in the U.S. which privatised profits and socialised losses. “That is not capitalism,” he said, advocating a balance between the market and the government. Referring to the fear that too much regulation would stifle innovation, his counter was that a good regulatory system would actually encourage innovation.

Globalisation, according to the economist, had failed primarily because it was based on a flawed economic ideology.

Making out a case for a global regulatory authority, he said there was a need to design a new global system to develop immunity or at least limit the consequences of failure. Failure was contagious in the present brand of globalisation as a result of which the U.S. was exporting its recession to the rest of the world.

While there was recognition of the importance of a coordinated global fiscal and monetary response, he said the required reforms went deeper, and included creating a new global reserve system and a new global financial regulatory authority. And he underlined that globalisation had to ensure the maximum good for the maximum numbers and not just the privileged few who got richer under the existing regime.

Holding forth for nearly two hours, the former chief economist of the World Bank carried the audience along right through; punctuating his lecture – organised by Institute of Social Sciences – with digs galore at the U.S., particularly the Bush administration and its response to the crisis. The International Monetary Fund, too, came in for criticism for going around the world lobbying for deregulation like the United States.

About bailout packages, he likened it to giving mass blood transfusion to a patient who was haemorrhaging internally. Worse, he added, there was still no change in the mindset. As for American banks’ refrain on self-regulation, Professor Stiglitz said: “Self-regulation is an oxymoron. Banks said they knew how to manage risk and needed no regulation. What they knew was how to create risk. There is so much of blame to go around that they can all lay claim to it.”

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