The Stiglitz Report

"This is a very good book on the financial crisis, I’m reading it right now and, surprisingly for a book on such a dry subject, it is absorbing. I thought I ought to recommend it to readers because it has a very unusual take. It looks at the crisis that erupted in the US and spread to the rest of the world, and talks about the deep defects in the system that need to be corrected. This is one of those rare books where the focus is on what this crisis has done to the poor. Usually, when people talk about the crisis they are concerned about finance as an end in itself. It’ll be about how to repair the financial system, how to manage risk and so on. Stiglitz does talk about these matters. But it goes on to argue that, in the long run, the biggest challenge comes from the fact that a financial crisis affects poor people. It causes inequality to go up and people at the bottom end, who have very little space to be pushed into, nevertheless get pushed into it by a crisis like this. So I like the take that this book has on the crisis. And, further, one has to remember that Joe Stiglitz is one of the great economic theorists of our time. I happen to know him well, having co-authored a paper with him. I began reading this book to check out a theorist’s take on the crisis and I have not been disappointed. Stiglitz earlier had a running battle with the International Monetary Fund. Around 1997-98, when the East Asian crisis took place, there was a face-off between the IMF and Joe Stiglitz, with the latter attacking the IMF relentlessly. Given that the IMF is now quite a reformed organisation, whereas Joe Stiglitz, as far as I can tell, is totally unreformed, Joe has to be declared the winner in this strange battle. Recently, I was in Washington for the G20 and IMF/World Bank meetings. I was part of a discussion on growing inequalities in Asia, as part of a panel on the Asian economies. You couldn’t imagine the IMF, 10 years ago, worrying about inequality. It would be concerned about many other things, but not that. It’s true that the inequality problem is being posed in terms of how it impacts economic policy and the way macroeconomics is to be done. But nevertheless it’s directly tackling the question of inequality and social turbulence. This really is a new phase for the IMF. Further, the IMF has now floated a paper recognising how capital controls to prevent excessive flows of foreign capital have a place in policymaking. This is a sharp retreat from its earlier dogma. One thing he touches on, which appeals to me greatly, is the anti-democratic nature of a lot of global decision-making. Within a country, we talk of democracy and the importance of one person, one vote. But a lot of global decisions are made by just a few countries. He argues that if you want a fairer world, you have to think of giving much more say to countries that may not be economically powerful. Just because they may not be contributing much to the coffers of the World Bank, the IMF et cetera, that doesn’t mean they shouldn’t have a say – just as we believe that, within a country, the fact that one person pays more tax doesn’t mean that that person should have multiple votes. What you want is a similar restructuring of global decision-making. That’s a very nice message from my point of view. There is already pressure building up. There is talk about quota revision, giving greater say to countries that in the past have not had that kind of say in global decision-making. But these are small moves. So far there have been no more than tiny moves happening. But ideas put in public space can gather steam and have some effect, and he does that well in this book. It’s very detailed, but I wouldn’t call it technical. It talks about the effects of the global crisis on developing countries. For me, as an Indian policymaker, this is of great relevance, because it’s not just about the US and Europe, it is about Asian countries and emerging economies in general. No, it does not. Joe has been in and out of India in recent times so he has been talking a lot about India, but this book does not. Those are things I have to deduce for myself, from the recommendations being made in the book."