Wow! Ed Weick 577 Melbourne Ave. Ottawa, ON, K2A 1W7 Canada Phone (613) 728 4630 Fax (613) 728 9382
----- Original Message ----- From: <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Tuesday, July 30, 2002 8:57 AM Subject: FW: Joe Stiglitz's book > Internal critique of Stiglitz' book. Interesting. > > arthur cordell > > -----Original Message----- > From: Oliver,Geoffrey [NCR] > Sent: Monday, July 29, 2002 4:10 PM > To: Cordell, Arthur: ECOM > Subject: RE: Joe Stiglitz's book > > > A friend at the IMF (whom I rarely agree with) sent me this reference. Not > surprisingly, Jo hit a nerve! > > http://www.imf.org/external/np/vc/2002/070202.htm > > Geoff > > -----Original Message----- > From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]] > Sent: July 29, 2002 10:55 AM > To: [EMAIL PROTECTED]; [EMAIL PROTECTED]; > [EMAIL PROTECTED] > Subject: RE: Joe Stiglitz's book > > > Stiglitz' observations on Adam Smith should be a part of every Economics 101 > course. Unfortunatly most economists take the rest of their professional > career to understand the limits to perfect competition--some never realize > that markets are imperfect. > > Gee, maybe economics is like a religion. A series of statements based on > unproven and unprovable assumptions. > > arthur cordell > > -----Original Message----- > From: Ed Weick [mailto:[EMAIL PROTECTED]] > Sent: Monday, July 29, 2002 9:39 AM > To: [EMAIL PROTECTED]; Keith Hudson > Subject: Re: Joe Stiglitz's book > > > There is a tendency to convert intuitive or analytical observations into > truisms and ideologies and then project them into vast supersystems. The > huge institutional and metaphysical superstructure of the organized > Christian church is built on the simple words that Christ may or may not > have said. So too in economics. It's a long time since I encountered Adam > Smith, but his idea, that people behaving in their self interest in a free > market will arrive at socially efficient solutions, as though guided by an > invisible hand, is an appealing one. Unfortunately, the idea became > converted into a truism, and then into a dogma. > > I was in Russia in the mid-nineties when what Stiglitz describes as the > "Washington Consensus" was being applied to that unfortunate country by the > IMF. The Russian government had been urged to rapidly privatize. It > attempted to do so via the "voucher system", which proved disastrous. It > was expected to bring inflation under control, but in fact, to pay its > bills, had to keep feeding inflation by borrowing large sums of money from > bogus banks under the notorious loans for shares scheme, which moved vast > assets into the hands of the "oligarchs". It was expected to clean up the > tax system but could not do so because a large proportion of economic > activity proceeded via the "underground economy", which it lacked the means > to control. Despite the insistence of the IMF, the Russian government could > not meet the requirements of the Washington Consensus because there was no > such thing as a unified and controllable Russia at the time. As a friend of > mine once observed, it was just a bunch of sharks floating around. And > millions of little fish too, being swallowed up by the sharks, being spat > out, and sinking to the bottom. > > I'm not sure of what else might have been done. The liberalization under > Gorbachev seemed to work for awhile but then backfired. As Russian history > has proven time and again, Russia is not a place that you can liberalize > easily or without unexpected consequences. Perhaps more support from the > West to people like Gorbechev and Shevernadze, who, I believe, were > attempting to lower the Iron Curtain gradually without having it come > crashing down, would have been more helpful than the application of "shock > therapy" to the rubble that became Russia following 1989. It's all a long > time ago now, and the solutions of hindsight are never too useful. However, > what the Russian experience suggests, and suggests so strongly that even the > IMF might pay some attention, is that Western truisms and dogmas should not > be applied to situations in which they are not likely to work. Or, the > situation should at least be studied thoroughly before a decision on whether > or not to apply the dogma is made. These are the central lesson of > Stiglitz's book. Let's hope that those in authority learn them. > > Ed > > > I'm enjoying Joe Stiglitz's much-talked-about book, "Globalization and its > > discontents" and find myself very much in sympathy with his main argument > > -- that the IMF has imposed a one-size-fits-all set of conditions on all > > sorts of countries with entirely different problems. > > > > As to his economic views generally, the following two paragraphs (pp73/74) > > summarise his position: > > > > <<<< > > Behind the free market ideology there is a model, often attributed to Adam > > Smith, which argues that market forces -- the profit motive -- drive the > > economy to efficient outcomes *as if by an invisible hand*. One of the > > great achievements of modern economics is to show the sense in which, and > > the conditions under which, Smith's conclusion is correct. It turns out > > that these conditions are highly restrictive. Indeed, more recent advances > > in economic theory -- ironically occurring precisely during the period of > > the most relentless pursuit of the Washington Cenonsensus politics -- have > > shown that whenever information is imperfect and market incomplete, which > > is to say always, *and especially in developing countries*, then the > > invisible hand works most imperfectly. Significantly, there are desirable > > governmental interventions which, in principle, can improve upon the > > efficiency of the market. These restrictions on the conditions under which > > markets result in efficiency are important -- many of the key activities > of > > government can be understood as responses to the resulting market > failures. > > If information were perfect. we know now, there would be little role for > > financial market regulation. If competition were automatically perfect, > > there would be no need for antitrust authorities. > > > > The Washington Consensus policies, however, were based on a simplistic > > model of the market economy, the competititve equilibrium model, in which > > Adam smith's invisible hand works, and works perfectly. Because in this > > model there is no need for government -- that is, free, unfettered, > > "liberal" markets work perfectly -- the Washington Consensus policies are > > sometimes referred to as "neo-liberal", based on "market fundamentalism," > a > > resuscitation of the laissez-faire policies that were popular in some > > circles in the nineteenth century. In the afternmath of the Great > > Depression and the recognition of other failings of the market system, > from > > massive inequality to unlivable cities marred by pollution and decay, > these > > free market policies have been widely rejected in the more advanced > > industrial countries, though within these countries there remains an > active > > debate about the appropriate balance between government and markets. > > >>>> > > > > I find myself agreeing with this statement and, as an apparent > > laissez-faire person, am feeling a little rueful about some of the things > I > > have written on Futurework. However, Joe Stiglitz is writing from the > point > > of view as an American, whereas I write as an English person in a country > > which is without a written constitution, has always had a highly secretive > > and elitist government, and is highly centralised. > > > > Thus our constitution is being invisibly and constantly modified in > > practice (usually by the establishment with few democratic inputs), we do > > not yet have legislation anywhere comparable to the US Freedom of > > Information Act, and our government still attempts to run huge managerial > > systems (health and education in particular -- with numbers of staff far > > larger than any multinational company) by means of directives from London > > -- and by civil servants who have little daily contact with either the > > staff at the coal face or the customers. > > > > (Diversion: as to the 'Big Two' systems in England, the situation is that > > both the National Health Service and the state Education system are now > > close to breaking point. The present Labour government are now making a > > last shot at improving them by injecting vast quantities of money and > > hoping for improvements by the time of the next election in three years.) > > > > So that's where I come from, and many of the comments I've made on FW in > > the past don't necessarily have relevance to other countries. However, I > > feel gratified that one of the themes that I've been concentrating on in > > recent months -- transparency of information -- is something that Stiglitz > > also gives great importance to. It isn't the fact of greedy or criminal or > > monopolistic businessmen that's the problem -- such people are to be found > > in all walks of life -- it's the degree to which politicians (who are > > supposed to be acting on our behalf) become corrupted and secretly > conspire > > to give special privileges to a few. > > > > Keith Hudson > > -------------------------------------------------------------------------- > -- > > ------------ > > > > Keith Hudson, General Editor, Handlo Music, http://www.handlo.com > > 6 Upper Camden Place, Bath BA1 5HX, England > > Tel: +44 1225 312622; Fax: +44 1225 447727; mailto:[EMAIL PROTECTED] > > ________________________________________________________________________
