The Globe and Mail, Monday, April 17, 2000 Economist guru blasts system Former World Bank insider Joseph Stiglitz says the international financial setup is undemocratic and overly secretive By Barrie McKenna Washington -- Joseph Stiglitz, once a powerful World Bank insider, has crossed the barricades to join those who are now dumping on the international financial system. In an interview with The Globe and Mail and in a cover story in this week's New Republic magazine, the former World Bank vice-president and chief economist lashed out at the system he once served, accusing it of being undemocratic and overly secretive. Mr. Stiglitz, an American, acknowledged that the barrage of criticism directed at the Washington-based bank and its sister organization, the International Monetary Fund, is often misguided and years out of date. But he said the sentiments of the thousands of protesters who marched on the World Bank and IMF headquarters yesterday underscore a fatal flaw in the way rich countries are trying to run the global economy. "One can agree with their frustrations without agreeing with every argument," said Mr. Stiglitz, who left the World Bank earlier this year after a three-year stint, but continues to advise its president, James Wolfensohn. "There are people affected who do not have an adequate voice," he said in an interview. "And decisions are being made in a way that is adverse to their interests in many important ways. Mistakes are made that are not unbiased." Mr. Stiglitz, now a professor at Stanford University and a senior fellow at the Washington-based Brookings Institution, saved his harshest criticism for the IMF, and the finance ministers and central bankers from the major industrialized countries who run the institution. "The IMF reports to finance ministers and central bank governors," he said. "But central bank governors are increasingly independent, at the impetus of the IMF, so [these institutions] are run by people who are not directly democratically accountable." What's more, voting control of the IMF is frozen in time, based on the wealth of the 182 member countries as it was at the end of the Second World War. Mr. Stiglitz said it's absurd for an institution that dramatically affects people around the world to make decisions based on wealth. "That means that the poor countries have very little voting rights," he complained. "That would be okay if the IMF were just a club of bankers deciding how to run interbank transactions. But it's an institution that affects workers and small businesses. When they raise interest rates, people can be devastated . . . We abandoned property qualifications for voting in the 1800s in the United States." He said the IMF badly botched the Asian financial crisis, inflicting unnecessary pain on millions of poor people and small businesses. The IMF dictated policies, including sharply higher interest rates, fiscal restraint and liberalized financial markets, he said. And unless the IMF's structure is dramatically overhauled, future crises will be similarly mishandled, Mr. Stiglitz said matter-of-factly. "Unless the governing structure, the openness and the mindset are changed in a more fundamental way, it is likely that similar mistakes will be made in the future." In a controversial article in the New Republic, Mr. Stiglitz accused IMF officials of knowing more about "five-star hotels" than the countries they try to help, and that the institution hires "third-rank students." "These are things that should have been said a long time ago and need to be brought out," Mr. Stiglitz said. "Too many people treat the IMF as an elite institution that is all-knowing about economic policy. My main point is that they come from good schools and they are well educated. But don't think that these are a bunch of economic Gods. They are fallible." Even as the IMF goes about reforming itself -- as it continued to do at its spring meeting here in Washington -- Mr. Stiglitz is worried that mistakes are being perpetuated. The same unelected central bank governors and finance officials who control the institution are undertaking reforms behind closed doors. "So even in the discussion of reform, voices are not being heard," he said. "One of the problems is the lack of openness or transparency . . . When you don't have an open debate, you don't have the checks of democracy. While there is a lot of discussion about the transparency of Asian banks, there is a lot less discussion of the transparency of the decision-making process at the IMF." Mr. Stiglitz has concluded that the lack of openness by those controlling the global financial system has stifled creative solutions and originality. "If the people we entrust to manage the global economy -- in the IMF and the Treasury Department -- don't begin to dialogue and take their criticisms to heart, things will continue to go very, very wrong. I've seen it happen." Copyright 2000 | The Globe and Mail
