BORN: February 9, 1943 • Gary, Indiana
American author; economist
Joseph Stiglitz served for three years as the chief economist and senior vice president at the World Bank, an international organization committed to assisting poor nations worldwide. He has criticized the bank's policies as unfair and even harmful to the same developing nations and parts of the world it is designed to help. Critics of the World Bank and its sister organization, the International Monetary Fund (IMF), which promotes international collaboration in financial matters, are numerous. They gather by the thousands to demonstrate outside the IMF's annual meetings, and their demonstrations have often turned disruptive.
"Aid and trade must go hand in hand if poverty is to be reduced."
Protesters also rally outside the regularly held summits of the World Trade Organization (WTO), the international body that oversees global trade and commerce. The anti-IMF/WTO movement received a much-needed boost of credibility thanks to Stiglitz's criticisms, which not only echo the charges of the protesters but also appear publicly in some of the leading newspapers and magazines in the world. In a commentary for the The Independent, Stiglitz explained his position, noting that "Aid and trade must go hand in hand if poverty is to be reduced." Stiglitz has also expressed his views in the book Globalization and Its Discontents, which was published in 2002.
Hometown inspires interest in economics
Stiglitz was born in 1943 in Gary, Indiana, a city on Lake Michigan once dominated by the steel industry. His hometown, however, suffered when the unsteady steel business, with its periodic ups and downs, sometimes forced companies to drastically reduce their workforce. His father, who worked as an insurance salesperson, and his mother, who taught school, were generally unaffected by such layoffs. However, Stiglitz later said that he witnessed firsthand the hardships experienced in the households of schoolmates and neighbors impacted by the loss of jobs. To Stiglitz, Gary's steel-centered economy seemed to operate using a severely inefficient business model. Thus, he developed a lifelong interest in the science of numbers and in economics, which is the study of the production, distribution, and use of goods and services.
Stiglitz became a skilled debater in high school before entering Amherst College in Massachusetts in the early 1960s. His chosen major was economics, but by his third year, the economics faculty called a meeting and concluded they had taught their talented student everything they could. A place was found for him instead at the prestigious Massachusetts Institute of Technology (MIT) in Cambridge. Granted his undergraduate degree from Amherst in 1964, he earned a doctorate in economics from MIT three years later. He spent time at Oxford University in England as a research fellow and returned to MIT to serve as an assistant professor. In 1969, at the young age of twenty-six, he became a full professor at Yale University in New Haven, Connecticut.
Around this same time, Stiglitz spent a year in Kenya as a Rockefeller Foundation fellow. He saw how difficult it was for nations with struggling economies and political or social unrest to prosper in ways that were fair to all their citizens, not just an elite, or privileged, few. This experience led to his interest in the economics of developing nations. He went on to teach at Oxford in the mid-1970s, then at Princeton and Stanford universities for a number of years. Over time, he authored many academic papers and books, often with some of the most prominent people in the field. One of his research projects was about a practice known as screening—when one person or business finds out information that helps it triumph or profit over another. It was for his analysis of such practices, known as information asymmetries, that he shared the Nobel Prize with fellow economists George Akerlof and Michael Spence in 2001.
Named to top World Bank post
During the first administration of President Bill Clinton (1946–; served 1993–2001), Stiglitz sat on the President's Council of Economic Advisors and chaired it from 1995 to 1997. He was also highly regarded as an expert in developing economies thanks to his academic writings. This led to his appointment as the World Bank's chief economist in 1997, which also included the title of senior vice president. The Washington, D.C.-based World Bank is actually made up of five different financial institutions: the International Bank for Reconstruction and Development, the International Finance Corporation, the International Development Association, the Multilateral Investment Guarantee Agency, and the International Centre for the Settlement of Investment Disputes.
Formed in 1944, the World Bank is affiliated with the United Nations—an international organization made up of nearly two hundred independent countries. The World Bank, however, operates under its own charter, or set of objectives. Its goal is to provide financial help to countries for development or for building a self-sufficient economy that can compete in the global marketplace. It also works to reduce poverty and help governments of developing nations create the necessary infrastructure—such as roads and utilities—to help it and its people thrive.
The directors' board of the World Bank is dominated by members from the more economically influential nations of the world. According to its rules, decision-making power rests with votes controlled by directors who come from the United States, Japan, Germany, France, and England. Its president, by custom, is usually an American; the International Monetary Fund (IMF), by contrast, is often headed by a Western European managing director. Founded in 1945, the IMF had 184 member nations as of 2006, and its purpose is to monitor global exchange rates and the balance of payments owed between countries.
Stiglitz emerged as a surprisingly critical chief economist of the World Bank. He regularly made comments that World Bank and IMF policies for dealing with developing nations should be reviewed. He hinted that such strategies really served the interests of the West, centered around the New York City financial community of Wall Street. He contended that the policies actually contributed to economic hardship in some of the poorest parts of the world rather than helping eliminate poverty. A number of other organizations, from environmental groups to supporters of indigenous, or native, peoples' rights, had voiced similar concerns for years. But Stiglitz was a top official making these statements, and he repeatedly ran into trouble with his boss, World Bank president James Wolfensohn.
The World Bank and IMF are linked to the World Trade Organization (WTO). This 150-member body oversees trade agreements between member nations and is a leading promoter of globalization and the elimination of trade barriers between nations. Globalization promotes free-market ideas. However, in a world economy dominated by large corporations, its implementation, or execution, often means profit for the established financial order at the expense of the world's poorest citizens. In late 1999, a large number of protesters met in Seattle, Washington, where a WTO meeting was about to begin. The antiglobalization movement, as it came to be called, was well organized in Seattle. Its demonstrations dominated the news that week. Television footage showed thousands of protesters rallying against the policies of the WTO, the World Bank, and the IMF. The scene turned violent, however, when police began shooting tear gas at the demonstrators in an effort to get them to disperse.
Resigns and intensifies criticism
Although Stiglitz did not participate in any of these protests, many of the demonstrators' accusations echoed what he had been saying. Shortly thereafter, Wolfensohn ordered Stiglitz to either stop publicly criticizing the IMF or resign. Stiglitz chose to resign. He spelled out his criticisms in more detail in the April 2000 issue of the New Republic. He began by noting that the IMF was scheduled to meet around the same time that the issue of the magazine would appear on newsstands. As such, protesters would likely disrupt that international gathering as well. The IMF critics, he noted, will claim that "the IMF is arrogant. They'll say the IMF doesn't really listen to the developing countries it is supposed to help. They'll say the IMF is secretive and insulated [protected] from democratic accountability. They'll say the IMF's economic 'remedies' often make things worse—turning slowdowns into recessions [temporary downturns in the economy] and recessions into depressions [long-term and serious economic downturns]. And they'll have a point."
Stiglitz's New Republic article roused debate in the business press. It was met with counterattacks on the opinion and editorial pages of major U.S. newspapers. He began writing a book that would explain his arguments in greater detail. The work was published a year after he accepted a post at Columbia University. Globalization and Its Discontents, which appeared in 2002, recounts his experience as the World Bank's chief economist. He recalled that he had immediate concerns about IMF policies not long after stepping into the job when he traveled to Ethiopia as part of a delegation from the World Bank. The IMF was strongly urging that country's leaders to follow its policy of financial deregulation, or removing or reducing government regulations and restrictions that affected its economy.
Explains his position
In Ethiopia, Stiglitz saw that the government officials were resistant to this idea. Stiglitz took their side and explained why in his book. "Ethiopia had low inflation, a balanced budget, good growth, a government focusing on the people, no corruption—they should have gotten an A-plus" for the way in which they were managing their economy, he noted. Stiglitz agreed with the Ethiopian officials who argued that neighboring Kenya had followed the IMF's financial deregulation plan, which had caused interest rates to skyrocket and the country's farmers to endure tremendous hardship.
In the end, Stiglitz and the Ethiopians won the battle—but it was only the first of many conflicts Stiglitz had with the IMF. "I found the whole thing astonishing," Stiglitz told Eyal Press in a profile that appeared in the Nation. "Not just the policies but the way the IMF interacted with this country, basically just telling Ethiopia what to do regardless of what its leaders thought."
Stiglitz writes that when he returned to his World Bank office in Washington barely a month into his new job, he tried to meet with his senior coworkers to prevent future standoffs, or disputes, with other governments. Instead, he met with strong resistance. "It was virtually impossible to get a response," he wrote in his book. "Here you have supposedly the best expertise in the world, and they refused to engage."
Stiglitz summed up his thoughts on the IMF in Globalization and Its Discontents by recalling a rather infamous photograph from 1998 that had also angered the antiglobalization protest movement. In a bit of a public-relations slip-up for the IMF, its managing director, Michel Camdessus, was photographed looming almost threateningly over the president of Indonesia as the latter signed a document pledging to work with the IMF. In the picture, Camdessus stands with his arms folded as the Indonesian leader signs the agreement. "When I saw the picture, images of other signings of 'agreements' came to mind," he wrote. Stiglitz then referred to various instances in history when Western nations forced countries like Japan to trade with them or face military intervention.
Such comments made Stiglitz a hero to the protest movement, which grew increasingly organized in its efforts to disrupt WTO events, IMF summits, and World Bank meetings. He was the most prominent official to make the same arguments as the activists had, and his impressive qualifications lent a great deal of authority to their claims. Lucy Komisar, interviewing Stiglitz for Progressive, asked him what he thought about the April 2000 protests in Washington, D.C., that he had predicted in his New Republic article that same month. "I thought they were very effective in conveying the sense of values and concerns that a lot of young people, and people generally in the U.S., have beyond the narrow materialistic issues," he replied. "They are concerned about poor people in developing countries, about democracy and democratic participation, governance issues, and the environment."
Stiglitz has written a number of scholarly articles, books, and studies, and even co-authored economics textbooks. Globalization and Its Discontents was written not for experts in the field but for ordinary readers who are interested in learning more about its subject. His second book, The Roaring Nineties: A New History of the World's Most Prosperous Decade (2004) is also directed toward ordinary people. In the book, Stiglitz critiques the Clinton administration policies that led to the financial crisis and economic downturn that began in 2001. Once again, he writes from the insider's perspective, as a member of Clinton's Council of Economic Advisors from 1993 to 1995, and chair of the council from 1995 to 1997.
Who's to blame?
In his book, Stiglitz explains that the American economy enjoyed a healthy boom during the 1990s but was well on its way to a recession even before the September 11, 2001, terrorist attacks on the United States caused various economic indicators to begin plummeting. Stiglitz lists the mistakes made by his own Council of Economic Advisors, the U.S. Treasury Department, and the Federal Reserve Bank, among others, in the buildup to this downturn. One of his main criticisms deals with a loosening of federal regulations for accounting firms that work in corporate finance. These firms earn immense profits through their work with publicly traded companies, whose financial records must be audited, or checked, annually to comply with the rules of the federally run Securities and Exchange Commission (SEC), which monitors Wall Street and the financial markets. The best example of this mistake came with the Enron scandal, in which the Texas energy company and its accounting firm allegedly conspired to falsify numbers. The misdeeds, which led to bankruptcy for Enron in late 2001, gained notoriety for causing the largest bankruptcy ever in the history of American business.
Stiglitz also pointed out that frenzied investment in the stock market was another factor for the recession that began in 2001. President Clinton cut the capital gains tax (a tax on the profits made by the sale of assets) in 1997. Stiglitz wrote that "those who earned their money by speculating and winning on the stock exchange were the heroes of the day, and were to be taxed more lightly than those who earned their bread by the sweat of their brow." He added that "money poured in, and the bubble was inflated even further."
Stiglitz also warns readers about America's credit limit. The U.S. Treasury, which oversees the nation's finances, borrowed heavily during the 1990s, sometimes at the rate of a billion dollars a day. It also failed to plan for the future, he writes. "Too little of our investment went to address vital public needs, in education, in infrastructure, in basic research," he explains. "We provided tax credits and deductions for higher education, but most of the middle class kids who benefited were already going to college; the credits and deductions did make their parents' lives easier, but it was unlikely to have much effect on enrollments. The money could have been better spent targeting the very poor, for whom money is a real obstacle—whose parents do not pay taxes."
Stiglitz joined the Columbia University faculty in 2001, teaching at its School of International and Public Affairs. He also founded the Initiative for Policy Dialogue, an organization that attempts to bring other voices—such as those of workers and labor unions—to the table when the IMF sets development policy. He concedes that both the World Bank and the IMF eventually responded to the criticisms that he and others have had, and the organizations did begin to put into practice some much-needed reforms. There is still much work to be done, however, to help the world's most impoverished citizens, he adds.
He has pointed out that during the 1990s, the number of people who lived in the most extreme poverty—less than $2 a day—increased by nearly 100 million. Such poverty breeds deep discontent, he noted in the interview with Eyal Press for the Nation. "Clearly, terrorists can be people like [Osama] bin Laden [who organized the 9/11 attacks] who come from upper-income families," he said. "Nevertheless, abject poverty and economies without jobs for males between the ages of 18 and 30 are particularly good breeding grounds for extremism. Solving the economic problems doesn't eliminate the risk of terrorism, but not solving them surely enhances it."
For More Information
Stiglitz, Joseph. Globalization and Its Discontents. New York: W.W. Norton & Company, 2002.
Stiglitz, Joseph. The Roaring Nineties: A New History of the World's Most Prosperous Decade. New York: W.W. Norton & Company, 2004.
Komisar, Lucy. "Joseph Stiglitz." Progressive (June 2000): p. 34.
Press, Eyal. "Rebel with a Cause." Nation (June 10, 2002): p. 11.
Skidelsky, Robert. "Inside the Bubble." New Statesman (October 27, 2003): p. 51.
Stiglitz, Joseph E. "The Hospital That Makes You Sicker." New Internationalist (March 2004): p. 14.
Stiglitz, Joseph E. "An IMF Report Card." Time International (September 22, 2003): p. 56.
Stiglitz, Joseph E. "The Insider—What I Learned at the World Economic Crisis." New Republic (April 17, 2000): p. 56.
Stiglitz, Joseph E. "Progressive Dementia." Atlantic Monthly (November 2005): p. 42.
Stiglitz, Joseph E. "You Have to Walk the Talk." Fortune (November 26, 2001): p. 88.
Stiglitz, Joseph. "Joseph Stiglitz: It Takes More Than Free Trade to End Poverty" (February 3, 2006).The Independent. http://comment.independent.co.uk/commentators/article342839.ece (accessed July 6, 2006).