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Sunday, October 22, 2006 - Page updated at 12:00 AM

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Nobel winner sees flaws, potential of global trade

Seattle Times business reporters

With his 2002 book "Globalization and Its Discontents," Nobel Prize-winning economist Joseph Stiglitz became a rock-star critic of globalization, perhaps second only to Bono.

Stiglitz, 63, has argued that greater economic integration has failed to reduce poverty in many poor countries. But that's only half the story.

In his new book, "Making Globalization Work," Stiglitz says globalization can be good and help the poor. During his visit here Tuesday, we asked him to explain. Here are edited excerpts.

Q: Lots of people in Seattle are against globalization. But even though you criticize it, you're not really against it, are you?

A: Yes, [the two books] put me in a very strange position of being pro-globalization and explaining why it hasn't worked. I argue that the most successful countries in the developing world — East Asia, China, South Asia, India — have succeeded in a historically unprecedented way because of globalization. On the other side, the increasing wealth gap for many poor countries clearly is evidence that globalization has actually contributed to their problems.

Q: So why have some countries succeeded while others haven't?

A: [The ones that succeed] manage globalization on their own terms. They cherry-pick the policies rather than following the International Monetary Fund advice or the Washington Consensus policies [of market liberalization, fiscal austerity and privatization]. The most obvious example is that China and India still have not liberalized their capital markets. They were the only major emerging markets to avoid the [Asian] financial crisis in the last decade.

Latin America followed IMF advice. Argentina was the A+ student of the IMF. Included in that was capital-market liberalization, which caused such destruction.

Brazil shut down its alcohol-fuel program under pressure from the World Bank, but when oil prices soared, they took it out of the drawer. And this year they achieved energy independence. They did what our government should have done.

Q: What about China? It has growing inequality.

A: Even though China has growing inequality, millions of people have moved out of poverty. And the government has moved the issue of social harmony to the top of the agenda. They recognize that they've failed. It's not like they're burying their heads in the sand and saying inequality doesn't matter. They've said if we're going to continue to be successful, we have to deal with this problem.

Q: A top World Trade Organization official, Rufus Yerxa, said here recently that developing countries must put these issues on the table, because WTO is member-driven and democratic. If that's the case, how come WTO isn't working for developing countries?

A: In principle, it's one country, one vote, and it's consensus. But the reality is that the rich countries drive the agenda. And the way it's been driven has been unfair to the developing countries. But the interesting thing that has happened is that it is in some sense more member-driven, which is why it's facing a stalemate.

The developing countries, the ones with democracy, more transparency, have said [to their governments] if you come back with another unfair trade agreement, like the one in the Uruguay round [of WTO negotiations], you'll be out of office.

Q: The WTO talks are suspended now.

A: That's exactly the point.

Q: So how do you see them restarting?

A: I think it will be another president. It will take a true commitment to multilateralism.

Q: Why do people still believe market liberalization will raise all boats, and wealth will trickle down?

A: Economic theory predicted that wages at the bottom would be lower as a result of globalization, that it would not trickle down. In fact, real wages at the bottom are 30 percent lower than they were 30 years ago. This is a long-term trend. So that's not a surprise, it's predicted outcome. It's just not an advertised aspect.

Q: What's your prescription for the U.S.?

A: More investment in education and technology. If you do that you can make sure that the benefits are widely shared. The forces driving down wages at the bottom are very hard to do anything about. But if you move more people into higher-skilled jobs, you have fewer people in the unskilled jobs. So by moving people up the ladder, you reduce the impact of the lowering of the rungs at the bottom end of the ladder. You have to retrain people for jobs that exist, and you have to have economic policies that keep the economy at lower unemployment rates.

Q: Where would the money come from? Won't tax increases push capital offshore?

A: We've liberalized capital faster than labor. If we liberalized everything, then labor would flee. A lot of institutions and universities are not mobile. We have to do more investments in technology and education. Maybe we don't need to raise taxes, just spend less on military investments.

Q: Lots of the remedies in your book have been around for a while. What's new now?

A: Globalization is going to change. And since it's going to change, it makes sense to think about how we want to shape the changes. We just haven't had that much political will to do them, partly because we perhaps haven't realized how important they were.

Q: Do you see that changing?

A: I do. One of the reasons for the timing for this is that the failure of unilateralism is so transparent, so clear. The U.S., the lone superpower, has not been able to get its way in Iraq or Afghanistan. We realized the limits of military power and the limits of unilateralism. We talk about soft powers, of moral force, of leadership.

So I think we are at a good place in the sense that both we and the rest of the world realize our interdependence.

But the question is, what is the right thing to do? What earns us respect in the world, as opposed to the enmity we have worked so hard to earn?

Alwyn Scott: 206-464-3329 or ascott@seattletimes.com; Kristi Heim: 206-464-2718 or kheim@seattletimes.com

Copyright © 2006 The Seattle Times Company

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