Globalization and Its Discontents Revisited

by Joseph E. Stiglitz

  26 These were called “escalating tariffs,” with higher tariffs on the higher value-added products. See Joseph E. Stiglitz and Andrew Charlton, Fair Trade for All (New York: Oxford University Press, 2005).

  27 There is now a large branch of economics called behavioral economics, exploring the systematic ways in which individuals act “irrationally.” More recent developments have emphasized that the economic system shapes individual preferences and behavior (in contrast to standard theory, which assumes preferences as given), for instance, making individuals more selfish or more shortsighted than they might be otherwise. See, for instance, bestselling books such as Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus & Giroux, 2011); Michael J. Sandel, What Money Can’t Buy: The Moral Limits of Markets (New York: Farrar, Straus & Giroux, 2012); and Richard H. Thaler, The Winner’s Curse: Paradoxes and Anomalies of Economic Life (Princeton, NJ: Princeton University Press, 1992). For a discussion of how preferences are shaped, see Karla Hoff and Joseph E. Stiglitz, “Striving for Balance in Economics: Towards a Theory of the Social Determination of Behavior,” Journal of Economic Behavior and Organization 126(B) (2016), pp. 25–57.

  28 Of course, in a short book, I could not really go far back into history: globalization has been with us in fact for a very long time, evidenced, for instance, by the foods we eat, which originate in many different parts of the world. A key driver of economic activity in the last few centuries has been the creation of new trade routes and new colonies.

  29 Fortunately, there seems to be a large gap between Trump’s campaign rhetoric and what his administration has done. Later in the book, I explain why this should not come as a surprise.

  30 Indeed, the evidence is that such agreements would have had a negligible effect on growth. See the discussion in chapter 1.

  31 This has historically been the case, though in recent years developing countries and emerging markets have had larger emissions of greenhouse gases. Still, the United States has the highest level of emissions per capita.

  32 See J. E. Stiglitz, “Sharing the Burden of Saving the Planet: Global Social Justice for Sustainable Development,” in Mary Kaldor and Joseph E. Stiglitz, eds., The Quest for Security: Protection Without Protectionism and the Challenge of Global Governance (New York: Columbia University Press), pp. 161–90.

  33 UN Conference on the World Financial and Economic Crisis and Its Impact on Development, June 2009. Outcome of the conference available at http://www.un.org/esa/ffd/documents/Outcome_2009.pdf.

  34 The United States has, however, paid a high price for this advantage. As foreign countries buy more U.S. bonds, the value of the exchange rate increases, depressing exports and increasing imports—part of the cause of the trade deficit that Trump excoriates.

  I had been active in promoting a global reserve system, and an international commission which I chaired, whose key recommendations were endorsed by the UN General Assembly, came out strongly in support of such a system. When I discussed the matter with President Obama, he seemed to understand the costs to the U.S. economy of the current reserve arrangement, but he saw too the advantages, the ability to borrow at a low interest rate, and those advantages seemed particularly relevant at a time when the United States was running large deficits in its attempt to emerge from the 2008 crisis. Besides, a change in the global reserve system was a radical change, something too radical for Obama’s natural conservatism. See The Stiglitz Report: Reforming the International Monetary and Financial Systems in the Wake of the Global Crisis, with Members of the Commission of Experts on Reforms of the International Monetary and Financial System appointed by the president of the United Nations General Assembly (New York: New Press, 2010); Bruce Greenwald and Joseph E. Stiglitz, “A Modest Proposal for International Monetary Reform,” in Stephany Griffith-Jones, José Antonio Ocampo, and Joseph E. Stiglitz, eds., Time for a Visible Hand: Lessons from the 2008 World Financial Crisis (Oxford: Oxford University Press, 2010), pp. 314–44; and Bruce Greenwald and Joseph E. Stiglitz, “Towards a New Global Reserve System,” Journal of Globalization and Development 1 (2) (2010), article 10.

  35 In 2015, China’s urban manufacturing employment was around 80 million, while Sub-Saharan Africa’s population between twenty-five and sixty-four years old is projected to increase by 581 million by 2050. Sources: China Statistical Yearbook and United Nations (World Population Prospects, median fertility variant).

  36 Which, in any case, will only be effective in 2020, just as his term comes to an end.

  37 According to the Department of Homeland Security report, the number of successful illegal entries—including people making multiple attempts—between ports of entry along the entire southern border with Mexico plummeted from 1.7 million in 2005 to 170,000 in 2015. Source: “Barely Half of Illegal Border Crossers from Mexico Caught,” Associated Press, October 6, 2016, http://www.latimes.com/local/lanow/la-me-border-cross-20161006-snap-story.html.

  38 See Joseph E. Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy (New York: W. W. Norton, 2010).

  39 Some economists like Nobel Prize winner Gary Becker argued that there was no discrimination—income differences just reflected differences in productivities. See Gary Becker, The Economics of Discrimination, Second Edition (Chicago: University of Chicago Press, 1971). Not surprisingly, there was a large subsequent literature explaining what was wrong with Becker’s theory. See, for instance, J. E. Stiglitz, “Approaches to the Economics of Discrimination,” American Economic Review 62 (2) (May 1973), pp. 287–95.

  40 See David Autor et al., “A Note on the Effect of Rising Trade Exposure on the 2016 Presidential Election,” MIT working paper, 2016; Betsy Cooper et al., “The Divide over America’s Future: 1950 or 2050? Findings from the 2016 American Values Survey,” Public Religion Research Institute Report, 2016; and Brian F. Schaffner, Matthew MacWilliams, and Tatishe Nteta, “Explaining White Polarization in the 2016 Vote for President: The Sobering Role of Racism and Sexism,” University of Massachusetts Amherst working paper, 2017.

  41 I noted earlier that China moved some 800 million out of poverty. Standard economic theory predicted that unskilled workers in the less developed world would benefit from globalization. It did not predict that the more educated, skilled workers would benefit as well. That they have done so is in part a tribute to how these countries managed globalization.

  42 It would be tempting to focus just on the mortgage originators, who engaged in predatory lending. But the lying and deceit that was necessary to make the whole corrupt system “work” brought into the vortex the rating agencies, most of the investment banks, and a host of others. See Joseph E. Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy, op. cit., and the studies cited there; and The Financial Crisis Inquiry Report: Final Report of the National Commission of the Causes of the Financial and Economic Crisis in the United States, submitted by the Financial Crisis Inquiry Commission, February 25, 2011, available at https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.

  43 The ideas in this section are elaborated upon in Joseph E. Stiglitz with Nell Abernathy, Adam Hersh, Susan Holmberg, and Mike Konczal, Rewriting the Rules of the American Economy, A Roosevelt Institute Book (New York: W. W. Norton, 2015), available at http://www.rewritetherules.org.

  44 Since GAID, I have written extensively on various aspects of globalization, most notably Making Globalization Work (New York: W. W. ­Norton, 2006); Fair Trade for All, with Andrew Charlton (New York: Oxford University Press, 2005); and An Agenda for the Development Round of Trade Negotiations in the Aftermath of Cancún, with Andrew Charlton, prepared for the Commonwealth Secretariat, 2004. My book on the euro deals with one aspect of globalization—the attempt by a group of countries to share a common currency. See my book The Euro: How a Common Currency Threatens the Future of Europe (New York: W. W. Norton, 2016).

  ACKNOWLEDGMENTS TO GLOBALIZATION AND ITS DISCONTENTS REVISITED

  1 The report of the
commission, as well as a list of the commissioners, is available on the UN Web site (http://www.un.org/ga/econcrisissummit/docs/FinalReport_CoE.pdf) and has been published as The Stiglitz Report: Reforming the International Monetary and Financial Systems in the Wake of the Global Crisis (New York: New Press, 2010). The central recommendations of the commission were endorsed by the UN Conference on the World Financial and Economic Crisis and Its Impact on Development (June 24–30, 2009, in New York)—“Outcome of the Conference on the World Financial and Economic Crisis and Its Impact on Development,” available at http://www.un.org/esa/ffd/documents/Outcome_2009.pdf. The report was endorsed by the General Assembly in its resolution 63/303 of July 9, 2009.

  2 Even before the crisis had brought out how interconnectedness could lead to a spread of risk (“contagion”), we had begun working on the subject, though our most important work was published later. See, for instance, “Credit Chains and Bankruptcy Propagation in Production Networks” (also coauthored with D. Delli Gatti, and B. Greenwald), Journal of Economic Dynamics and Control 31 (6) (June 2007), pp. 2061–84; “Default Cascades: When Does Risk Diversification Increase Stability?” Journal of Financial Stability 8(3), pp. 138–49; and “Liaisons Dangereuses: Increasing Connectivity, Risk Sharing, and Systemic Risk,” Journal of Economic Dynamics and Control, 36 (8), pp. 1121–41. (The last two papers are coauthored also with Delli Gatti, Greenwald, and Mauro Gallegati.) The East Asia crisis, with large fractions of firms going bankrupt, had brought out some of the complexities arising from interconnectedness, especially important in understanding financial globalization, since globalization increases interconnectedness. We have finally begun to understand more fully the consequences of this interconnectedness. See “Interconnectedness as a Source of Uncertainty in Systemic Risk” (coauthored also with Tarik Roukny and Stefano Battiston), in Journal of Financial Stability (2017).

  3 Oxford University Press, 2010.

  4 The report of the commission, A Fair Globalization: Creating Opportunities for All (Switzerland: ILO Publications, 2004), with a list of commissioners, is available online at http://www.ilo.org/fairglobalization/report/lang--en/index.htm.

  5 The report of the commission is available online (http://ec.europa.eu/eurostat/documents/118025/118123/Fitoussi+Commission+report), and has also been published as Mismeasuring Our Lives: Why GDP Doesn’t Add Up (New York: New Press, 2010).

  6 The report of the commission is available online at https://www .carbonpricingleadership.org/report-of-the-highlevel-commission-on-carbon- prices/.

  7 “Overcoming the Shadow Economy,” with Mark Pieth, Friedrich Ebert Stiftung International Policy Analysis Paper, November 2016, available online at http://library.fes.de/pdf-files/iez/12922.pdf.

  8 In the Wake of the Crisis, Olivier Blanchard et al., eds. (Cambridge, MA: MIT Press, 2012); and What Have We Learned? Macroeconomic Policy after the Crisis, George Akerlof et al., eds. (Cambridge, MA, and London: MIT Press, 2014).

  9 New York: Oxford University Press, 2005. We also wrote several other papers together on both trade and aid.

  10 With whom I wrote “Intellecutal Property, Dissemination of Innovation, and Sustainable Development,” Global Policy 1(1) (2010), pp. 237–51.

  11 I coedited a volume with Giovanni Dosi, Keith E. Maskus, Ruth L. Okediji, and Jerome H. Reichman detailing impacts on developing countries (Intellectual Property Rights: Legal and Economic Challenges for Development [Oxford: Oxford University Press, 2014]), including a paper with Dosi on the subject. With Dean Baker and Arjun Jayadev, more recently, I wrote a paper spelling out implications for the design of their IPR regimes (Dean Baker, Arjun Jayadev, and Joseph Stiglitz. “Innovation, Intellectual Property and Development: A Better Set of Approaches for the 21st Century” (2017), published on behalf of the Access IBSA project, by the Azim Premji University, the University of Cape Town, and the Oswaldo Cruz Foundation and available at http://cepr.net/images/stories/reports/baker-jayadev-stiglitz-innovation-ip-development-2017-07.pdf ). Jayadev and I have written several papers proposing reforms to the global system of testing for medicines (“Two Ideas to Increase Innovation and Reduce Pharmaceutical Costs and Prices,” Health Affairs, 28 [1] [January–February 2009], pp. 165–68; and “Medicine for Tomorrow: Some Alternative Proposals to Promote Socially Beneficial Research and Development in Pharmaceuticals,” Journal of Generic Medicine 7 (3) (2010), pp. 217–26).

  12 Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises, with Martin Guzman and José Antonio Ocampo, eds., Initiative for Policy Dialogue at Columbia (New York: Columbia University Press, 2016).

  13 With whom I coedited a book, The Industrial Policy Revolution II: Africa in the 21st Century (coedited also with Justin Yifu Lin) (Houndmills, UK, and New York: Palgrave Macmillan, 2014).

  14 With whom I coedited several books on Africa (including Good Growth and Global Governance in Africa, also coedited by Kwesi Botchwey and Howard Stein (New York: Oxford University Press); Efficiency, Finance, and Varieties of Industrial Policy: Guiding Resources, Learning, and Technology for Sustained Growth (New York: Columbia University Press) and have written several papers, including “African Development Prospects and Possibilities,” in Ernest Aryeetey et al., eds., The Oxford Companion to the Economics of Africa (Oxford: Oxford University Press), pp. 33-40; “Economics and Policy: Some Lessons from Africa’s Experience,” in The Oxford Handbook of Africa and Economics, Volume II: Policies and Practices, Célestin Monga and Justin Yifu Lin, eds. (Oxford and New York: Oxford University Press), pp. 830–48.

  15 The Washington Consensus Reconsidered: Towards a New Global Governance (New York: Oxford University Press, 2008).

  16 Published as The Quest for Security: Protection Without Protectionism and the Challenge of Global Governance, Mary Kaldor and Joseph E. Stiglitz, eds. (New York: Columbia University Press, 2013).

  PART I

  1 Done for the Roosevelt Institute: S. Greenberg and N. Zdunkewicsz, “The Unheard Winning and Bold Economic Agenda,” Democracy Corps Memorandum, 2016.

  2 Though the outcome was the result of America’s peculiar electoral system. Trump got 2.9 million fewer votes than Clinton.

  3 The United States, representing the interests of producers of GMO seeds, has for instance argued that such disclosures are an unfair trade practice, because consumers in Europe will steer clear of products containing GMO products. The United States has thus been arguing not only against restrictions on GMOs, but for restrictions on access to information that individuals value.

  CHAPTER 1

  1 P. A. Samuelson, “Welfare Economics and International Trade,” American Economic Review 28 (2) (1938), pp. 261–66.

  2 See David Ricardo, On the Principles of Political Economy and Taxation, 1817, and Adam Smith, The Wealth of Nations, 1776. It is worth noting that trade policy has been the subject of contention in public policy for more than two and a half centuries.

  3 This is not their only responsibility: they have to balance this against other objectives—most important, ensuring price stability. The central bank of the eurozone, the European Central Bank, has been criticized for having a mandate focusing just on inflation (see, e.g., Joseph E. Stiglitz, The Euro: How a Common Currency Threatens the Future of Europe, op. cit.), though more recently, under the leadership of Mario Draghi, it has interpreted that mandate more broadly.

  4 Any theory is only as good as the assumptions which go into it—as the expression goes, garbage in—garbage out. If the assumptions are unrealistic, the conclusions are likely to be false or at least misleading.

  5 See D. Autor, D. Dorn, and G. H. Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” American Economic Review 103 (6) (2013), pp. 2121–68.

  6 Economists distinguish between traded goods and services—like cars and TVs—that are made in one country and can be purchased in another, and nontraded goods. Some services, like university education, are traded—many students study abroad. The sale of thes
e services to foreigners creates jobs, just like the sale of manufactured goods does. As I note later, Trump and some of his advisers have become obsessed with goods, ignoring the high-paying services that are part of America’s comparative advantage.

  7 The Washington Consensus policies that I discuss briefly in the introduction, and which are the center of my critique of globalization in GAID, are based on such models. I often referred to these policies as market fundamentalism because they were predicated on an almost religious faith in markets. Adam Smith had talked about the virtues of markets, but he realized, as well, their limitations. Since then, major advances in economics have centered around deepening our understanding of the limits of markets, for instance showing that whenever there were imperfections of information (that is, always), markets are not, in general, efficient. My work in this area was the basis of the Nobel Memorial Prize that was awarded in 2001. (See, in particular, Bruce C. Greenwald and Joseph E. Stiglitz, “Externalities in Economies with Imperfect Information and Incomplete Markets,” Quarterly Journal of Economics 101 (2) (May 1986), pp. 229–64.) It used to be the presumption that markets were efficient; there were limited circumstances, such as unemployment or pollution, requiring government intervention. Now, the presumption is reversed: markets are typically inefficient. The task of government is to identify those instances where the inefficiencies are the greatest and where selective intervention is most likely to improve matters.

  8 This is a result I showed with Professor David Newbery of Cambridge University more than a third of a century ago. See “Pareto Inferior Trade,” Review of Economic Studies 51 (1) (1984), pp. 1–12. Professor Partha Dasgupta (also of Cambridge University) and I were able to show that quotas—restrictions on the absolute amount that could be imported—might be better than tariffs, upending a key pillar of trade policy of the last half century, which has been to convert quotas into tariffs. See “Tariffs vs. Quotas as Revenue Raising Devices Under Uncertainty,” American Economic Review 67 (5) (1977), pp. 975–81.