Globalization Has Increased the Wealth Gap

By Terrence McNally, AlterNet. Posted January 15, 2007.

Globalization was meant to be the great equalizer. Goods would flow easily across borders. Standards of living in poor countries would be raised. Governments would become more stable. Instead it has brought citizen protests, greater economic disparities between first- and third-world nations, and a complex trade regime that may well benefit only the richest in richest countries. What went wrong?

In his new book, "Making Globalization Work," Nobel-prize winning economist Joseph Stiglitz argues that the special interests of governments, corporations, and international organizations like the IMF and the World Bank have thrown globalization off its proper path. But he doesn't stop there. He offers a practical vision for making globalization the equalizing force he believes it was always meant to be.

Joseph Stiglitz, University Professor at Columbia University, was chairman of the Council of Economic Advisers during the Clinton administration and later chief economist and senior vice president of the World Bank. His book, "Globalization and Its Discontents," was translated into 35 languages and has sold more than 1 million copies worldwide.

Why did you become an economist?

JS: Like one of the first Nobel-prize winners and one of the greatest economists of the 20th century, Paul Samuelson, I grew up in Gary, Indiana. When you grow up seeing the problems of the economy -- problems of poverty, discrimination, unemployment -- it's hard not to want to do something about them.

But why did you decide that an economist was someone who could do that?

JS: Well, maybe that was optimistic ... but it was always my hope that if I could understand the nature of the problems, maybe I could make them better.

In layperson's terms, what were you awarded the Nobel for?

JS: For 200 years or more, economists have constructed models to analyze the economy, under the assumption that there was perfect information. Not that they really believed there was perfect information, but they didn't know how to analyze markets where information was imperfect, at least not with the precision of the mathematical models that were fashionable.

I figured out how to do this in a rigorous way, focusing particularly on the problem of "asymmetric information." That just means when one person knows something that others don't, which, of course, is the way everything is in the real world. The startling result was that a world with imperfect or asymmetric information was very, very different from a world of perfect information.

Anyone who's bought a used car, anyone who's bought a house, probably anyone who's bought a salami, knows that people have differing amounts of information, and more or less accurate information. The fact that such an unrealistic assumption was embedded in economics for hundreds of years is a very strange thing.

JS: I thought so too. And it had some very strange implications. For instance, it implied that there was no such thing as unemployment. Now, remember, I had entered the field of economics because I wanted to understand unemployment. Yet the standard models I was taught as a graduate student implied that the problem I was interested in didn't exist.

How did you end up becoming interested and identified with the problems of globalization?

JS: I was always interested in the problems of developing countries, the poorest of the poor. Just out of graduate school, I was asked by the Rockefeller Foundation to go to newly independent Kenya and help them think about their economic policies. That experience gave me an enormous number of ideas that have influenced my thinking for the rest of my life.

Later, the major turning point came in 1996, when, after winning a second term, President Clinton asked me to stay on as a member of his cabinet and his economic adviser. At the same time I was approached by the World Bank to become its chief economist. I thought long and hard about it. At that point America was doing very well, and I finally decided that the real economic challenges of the world were in the very poor countries. Moving to the World Bank brought me into the center of an entirely new set of problems.

That led to your book, "Globalization and Its Discontents". Although you've written a book on fair trade in the interim, this new book is really the next big development, isn't it?

JS: That's right. My earlier book focused very particularly on the two major international institutions, the IMF and the World Bank. They help govern the international financial institutions and help direct how development occurs. In the United States we don't typically pay much attention to these institutions. But if you lived in a developing country, you would understand the power they have over your government to dictate economic policies, and how often the policies that they dictate are misguided.

That first book was directed at the discontent that these institutions had generated. My new book broadens the issue to take in a much wider set of problems. "Making Globalization Work" begins by saying that globalization isn't working in some very important ways. It tries to diagnose what went wrong and, on the basis of the diagnosis, to figure out how we can make it work better.

You write, "This book is as much about how politics has been used to shape the economic system as it is about economics itself. Economists believe incentives matter. There are strong incentives -- and enormous opportunities -- to shape political processes and the economic system in ways that generate profits for some at the expense of the many." Not news to a lot of us, but can you say a few words about that?

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Interviewer Terrence McNally hosts Free Forum on KPFK 90.7FM, Los Angeles (streaming at kpfk.org).

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