Joseph Stiglitz: Market Fundamentalism is Dead

2 Mar 2009

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What is the role of the U.S. in the disposition of the world's economic and environmental resources? How are financial markets best defended from economic shock? Does liberalization ensure prosperity?

These issues were discussed by journalist, Naomi Klein and economists Joseph Stiglitz and Hernando de Soto, in a conversation moderated by David Harvey, Distinguished Professor of Anthropology at the Graduate Centre - City University of New York.

To hear what Klein had to say, please click here.

What follows below is a transcript of Stiglitz's comments about free market fundamentalism.

Joseph Stiglitz: I guess I'll begin by saying ... to emphasize the difference between the rhetoric behind the American model and the reality. There was a lot of free market rhetoric. I think neo-liberalism as a doctrine, market fundamentalism is dead. I've actually remarked that this September (2008) is to market fundamentalism what the fall of the Berlin Wall was to Communism. We all know that those ideas were flawed; that the free market ideology didn't work. We all knew that communism didn't work, but these were defining moments that made it clear that it didn't work. 

But America really has a system especially that I would describe over the last eight years as a kind of corporatism, corporate welfarism if you like, under the guise of free market economics -- and its that mixture, which was fundamentally flawed, which was incoherent, that was intellectually bankrupt from the beginning -- that has been shown not to work.

But, there are going to be some very serious consequences of that. Ten, eleven years ago when there was the East Asia crisis, the US treasury and the IMF went into East Asia and talked about lack of transparency; talked about the need for good regulation and good corporate governance. If they did that today, everybody would laugh. So I think our credibility is zero in doing this. Just a few months ago, not long ago, just a year ago Paulson (former US treasury secretary - Henry Paulson) was in India lecturing them about how to run their financial system. Its absurd.

But if you watch - and I switch a little bit to the political side - the way this administration has managed this bailout; if I were the chief economist at the World Bank and this were a third world banana republic, I would say no loans to this country. This country is corrupt. The bailouts are non-transparent. You know that Bill, that three page Bill for seven hundred billion dollars with no oversight and judicial review; the nerve of somebody to present that is just amazing. Fortunately our congress did exercise a little oversight and say stop it.

But you look at what has happened and you compare what the British got when they put equity injection, you know into their banking system. The oversight ...

David Harvey: Why do you call it equity injection? Why don't you call it nationalized?

Joseph Stiglitz: Well, it’s a partial nationalisation, but it’s only a partial nationalisation. They got two votes. We had an equity injection, we got zero votes. You can't have a nationalisation where you don't run anything and at least they said ... in Britain they said if the tax payer is going to pour money into these banks, we should make sure that they don't pour money out to their shareholders. Paulson said, oh no, pour the money out as we pour it in.

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