Index

20:  Review of a book by Joseph Stiglitz, New York, 2003

The Roaring Nineties

David Gracey

Stiglitz’ first book, Globalization and It’s Discontents, was an exposé of the operation of the IMF and the World Bank by an insider. His exposure of the disastrous impact of the “Washington Consensus” policies in the developing world led to his departure from the World Bank (he was senior vice-president). Unfortunately, despite the overwhelming evidence, the book was not widely read and had little impact.

This new book is a damning indictment of the economic policies of the US federal government for the past 20 years. Even the Clinton administration comes in for some heavy criticism. While Stiglitz credits Clinton with good intentions (he was part of the administration) and even a few good policies, such as the tax increase on the wealthy, on most issues he was unable or unwilling to withstand the ideological attack from the neo cons.

The Clinton “New Democrats” enthusiastically endorsed the Reagan-Bush deregulation/ privatization agenda, with disastrous results. Stiglitz documents how telecom deregulation led to “frenzied overinvestment,” tremendous overcapacity and a bloated stock market bubble which inevitably burst.

Banking deregulation also contributed to the bubble. The repeal of Glass-Steagall allowed the banks to participate fully in the tech bubble. Unfortunately for the public, in the pursuit of their profits and fees, the banks utterly failed to exercise “due diligence.”

Giving free rein to the market was supposed to protect the public interest but the opposite occurred. Stiglitz is scathing in his denunciation of corporate behaviour. The plethora of stock options for executives – $1 billion from the Sprint – World Com merger alone – he characterizes as “theft.” The same CEOs who plundered their own companies used their influence, backed by hefty campaign contributions, to emasculate the regulatory framework. Enron’s role in energy deregulation, and its subsequent theft of billions from California ratepayers is a case in point, but there were many more. Accounting firms like Arthur Anderson were caught up in the miasma of corruption and falsified the books to keep the bubble going. When it burst thousands of workers lost their savings and pensions but the CEOs made off like bandits with their loot. Only a token few will ever do jail time.

The same CEOs who were stealing from their own companies were pushing the government to lower taxes on corporations and the rich. The Clinton administration did raise taxes on the rich early on, but was unable to withstand the pressure and implemented a “huge” capital gains tax cut in 1997 which Stiglitz calls a “pure gift to the rich.” Bush has continued this policy by abolishing the inheritance tax and the dividend tax while simultaneously running up huge deficits. Stiglitz demonstrates that these kinds of tax cuts do little to stimulate the economy, but they do undermine the government’s fiscal position and render welfare programs untenable.

On globalization, Stiglitz is clearer than in his first book. The US today “must get its way” and “rejects the rule of law.” The IMF and World Bank act as agents of the Treasury Department to maintain US economic hegemony. He condemns the US for hypocrisy in imposing free market policies abroad while doing the exact opposite at home. For example, US production costs for cotton are twice the international price, but the US subsidies, the bulk of which go to wealthy corporations, are greater than the value of the cotton produced! Small cotton farmers in Africa and elsewhere are the losers. In one sense, the policy is consistent. The same widening gulf between rich and poor being pursued at home is being promoted abroad. Financial liberalization, pushed hard by large US banks and the IMF, has caused financial crises and misery for many countries, but has been a bonanza for US and European corporations which bought up the bankrupt companies at fire-sale prices.

There are some problems with this book. Although Stiglitz deplores the cancerous growth of the financial sector and its destructive impact on the political system, he seems unaware of the true nature of banking and the explosive growth of public and private debt. However, he remains an unapologetic Keynesian and rejects the supply side nonsense that has so bedeviled our economic discourse these past 25 years. As an insider, and a patriotic American, he speaks with authority. This book needs to be widely read. But that seems unlikely.

David Gracey

— from Economic Reform, February 2004

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