Challenging the Growth Gurus
October 19, 2002
By MICHAEL MASSING
As the chief economist of the World Bank in the late
1990's, Joseph E. Stiglitz got a firsthand look at how
policy was made at its sister institution, the
International Monetary Fund, and he was dismayed.
Decisions, he said, were made on the basis of ideology
rather than sound economic reasoning.
The fund was made up of "third-rank students from
first-rate universities," as he once put it. Frank
discussion was discouraged, and developing countries were
expected to accept fund prescriptions without question. And
those prescriptions too often failed, leaving many nations
sunk in poverty.
The experience convinced Mr. Stiglitz of the need to
reassess the ingredients of growth. As he wrote this year
in "Globalization and Its Discontents," "If the developed
countries were serious about paying more attention to the
voices of the devel! oping countries, they could help fund a
think tank - independent from the international economic
organizations - that would help them formulate strategies
and positions."
Now Mr. Stiglitz himself has set up such an institute. The
Initiative for Policy Dialogue is at Columbia University's
School for International and Public Affairs, where Mr.
Stiglitz is a professor. It is bringing together
economists, political scientists and policy analysts from
around the world to re-examine the prevailing wisdom about
development and to come up with alternative strategies.
"There's not a Brookings or an American Enterprise
Institute for the developing world," said Mr. Stiglitz,
co-winner of the 2001 Nobel Memorial Prize in Economic
Science.
It's an ambitious and controversial undertaking. Mr.
Stiglitz is the I.M.F.'s most visible critic, and the fund
has made little secret of its disdain for him. In a biting
open letter poste! d on its Web site (www.imf.org), Kenneth
Rogoff, the fund's director of research, calls Mr.
Stiglitz's ideas about development "at best highly
controversial, at worst snake oil." His "alternative
medicines, involving ever more government intervention, are
highly dubious in many real world settings."
Undeterred, Mr. Stiglitz is taking aim at the so-called
Washington consensus, a package of free-market, free-trade
policies that, critics charge, the I.M.F. and World Bank
have imposed on third world nations. "We disagree with the
World Bank-I.M.F. idea that there's one approach that's
right for all countries," Mr. Stiglitz said. Rather, he
said, there is a range of policies that must be selected
based on conditions in each country.
Mr. Stiglitz's effort to rewrite the textbook on
development is being conducted through 14 panels that are
re-evaluating such critical issues as bankruptcy, poverty,
privatization and trade.! For each a dozen or so specialists
from the Northern and Southern Hemispheres are meeting to
compare the experiences of different countries and ponder
what policies have worked where. The objective of each
group is to produce a series of papers that will provide a
fresh look at the components of growth.
But Mr. Stiglitz hopes his institute will be more than a
paper exercise. He has accused the I.M.F. of acting like a
"colonial ruler" and stifling discussion in developing
countries, so in addition to the study groups, he is
organizing forums in some countries. The goal is to expand
the policy debate beyond the usual elite of government
officials and business executives to include civic leaders,
activists, academics and journalists. So far, forums have
been held in Ethiopia, Moldova, Nigeria, the Philippines,
Serbia and Vietnam. At the Nigeria session a key theme was
the need to raise living standards in the countryside,where most
Nigerians live. Soon after, Mr. Stiglitz
recalled, Nigeria's agricultural minister obtained more
money for agriculture.
Mr. Stiglitz spends about a third of his time advising
foreign governments, providing alternatives to the ideas of
the I.M.F. He has been to Argentina four times in the last
four years and recently visited Bulgaria at the invitation
of that country's president.
"What's amazing," Mr. Stiglitz said, "is how little
information is available that is disinterested and
balanced. In many cases the discussion has been very
general. For instance, it's said that countries need good
corporate governance. But what does that mean?"
Finding the answers to such questions is the goal of his
institute's study panels. The panel on privatization, for
example, is looking at the experiences governments have had
in selling state-owned enterprises. Gerard Roland, a
professor of economics at the Universit! y of California at
Berkeley and co-chairman of the panel, said that the fund
had pushed governments to give away the assets of such
companies "as quickly as possible." If those assets don't
immediately end up in the right hands, the reasoning goes,
marketplace incentives will ensure that they eventually do,
with less skilled owners selling to more able ones. But in
Russia and other countries that tried this, Mr. Roland
said, the new owners quickly became oligarchs who blocked
future reforms. The outcome was rampant corruption and a
sharp decline in output.
Poland initially planned to have a similar program, Mr.
Roland continued, but it was blocked by the Polish
parliament. So privatization there proceeded more
gradually. As a result Polish enterprises ended up with
more seasoned owners, and its economy grew more briskly. By
comparing such experiences, Mr. Roland's group is trying to
determine which approaches work best ! in which
circumstances.
"When the I.M.F. says that these are the particular
policies you should follow," Mr. Roland said, "those
policies often aren't thought through and don't have a
scientific basis. Policies have to be adjusted to each
country's environment."
Similarly, the panel on trade is examining the effect of
efforts to lower trade barriers. "The I.M.F. and World Bank
are pushing across-the-board trade liberalization," said
Dani Rodrik, a professor of economics at Harvard University
and co-chairman of the committee. In reality, he added,
"Trade reform is something that has to be tailored to each
country's circumstances, taking into account its geographic
advantage, its institutional needs, its relations with its
main trading partners." He added: "What are the best
policies to encourage foreign investment? Is this good for
all countries, or are some countries throwing away
resources through tax subsidies! ? And how can trade policy
be targeted to reduce poverty? We're not trying to present
a particular take but to summarize and describe what we
know about these issues."
Such an approach troubles Jagdish Bhagwati, a colleague of
Mr. Stiglitz's at Columbia and a strong advocate of free
trade. "Joe assumes that there's a monolithic view at the
fund and the bank, but that's not the case," he said. The
whole idea that there's a Washington consensus that
promotes a one-size-fits-all policy is absurd, he said,
adding, "In practice shoe sizes are bound to vary and do.
The real choice is between wearing shoes and going
barefoot. Socialism didn't work. In countries like India,
Egypt, Brazil and China, the market was absent. The debate
is moving away from knee-jerk interventionism and excessive
controls."
Mr. Stiglitz's institute, Mr. Bhagwati went on, is not
including people "who really have alternative points of
view." It! s trade group, he said, "has none of the big trade
people," including himself. "The Initiative for Policy
Dialogue is in danger of turning into the Initiative for
Policy Monologue."
Mr. Rodrik disputed this. Of the five economists from
developed nations invited to join his panel, he said, two -
Gene Grossman of Princeton and Rob Feenstra of the
University of California at Davis - are former students of
Mr. Bhagwati. (Mr. Feenstra declined to join because of
time constraints; Mr. Grossman has yet to decide.) The
three other economists "are also utterly mainstream," Mr.
Rodrik said. Mr. Bhagwati himself may be asked to join the
group. "We have no intention of keeping certain views off
the table," Mr. Rodrik added. "That would defeat the
purpose."
The institute's architects deny any inclination to turn the
clock back to an era of state farms and five-year plans.
Thomas Heller, a professor of international law at Stanf! ord
University and co-chairman of the committee studying the
rule of law, said that while it has become clear that the
wholesale withdrawal of government from the economy is
ill-considered, no one would deny the value of the market.
The institute, he said, "is attempting to make a series of
adjustments without getting countries to go back to the
state-heavy systems of the past. We don't want to throw out
the baby with the bath water."
Is the institute likely to have any impact? That depends on
how confrontational it becomes, said Robert Solow, an
emeritus professor of economics at the Massachusetts
Institute of Technology. A recipient of the Nobel in
economic science who has long argued that governments must
be prepared to intervene in the market, Mr. Solow said the
idea that a Washington consensus forces cookie-cutter-type
policies on every country is overdrawn. "If you look at the
way the World Bank and I.M.F. operate! ," he said, "you will
see that they have regional and country specialists who
know their way around. When they deal with a country, they
study it very knowledgeably, and their prescriptions do pay
attention to local conditions."
On the other hand, he said, I.M.F. programs "do tend to
have an awful lot in common, whether they're aimed at
Turkey or Thailand." So the institute's effort to look at
how different policies work in different environments could
prove useful, Mr. Solow said. If, however, it "starts with
the notion that it's going to turn everything upside down,
that it's going to be the dark destroyer of the I.M.F. and
the World Bank, then it won't succeed.`
Rather, he said, the institute should try "to bring around
the international financial institutions, to present a
reasonable case and induce them to move a little bit."
http://www.nytimes.com/2002/10/19/arts/19STIG.html?ex=1036034287&ei=1&en=c24d0d0e30a5e64d
Seth Sandronsky