Joe Stiglitz Raises Important Globalization Issues

March 18, 2014

Joe Stiglitz, former Chief Economist of the World Bank, hardly a liberal institution, posts an article in the March 15 issue of the New York Times.

Here is his concluding summary on the question of whether unfettered global trade, as pursued by the Trans-Pacific Partnership (“TPP”) is a good thing for the US and the world:

In this series, I have repeatedly made two points: The first is that the high level of inequality in the United States today, and its enormous increase during the past 30 years, is the cumulative result of an array of policies, programs and laws. Given that the president himself has emphasized that inequality should be the country’s top priority, every new policy, program or law should be examined from the perspective of its impact on inequality. Agreements like the TPP have contributed in important ways to this inequality. Corporations may profit, and it is even possible, though far from assured, that gross domestic product as conventionally measured will increase. But the well-being of ordinary citizens is likely to take a hit.  And this brings me to the second point that I have repeatedly emphasized: Trickle-down economics is a myth. Enriching corporations — as the TPP would — will not necessarily help those in the middle, let alone those at the bottom.” (

There are many who believe unfettered trade is a good thing–pure and simple. It certainly can be, but there are many occasions when it’s not so simple. 

Start with answering a question: What outcome to increased trade would be considered good? Is it sufficient for trade to result in GDP growth? Is it sufficient for corporate sales and profits to grow? Or, is it necessary or important to also consider whether the particular trade that is actually implemented, with all its unique rules and regulations, results in loss of jobs and therefore increased inequality and poverty? I think the answer has to be that these impacts of trade must be considered to determine whether the particular trade envisioned is good.  

One of the best scholars on this issue is Ha-Joon Chang. In his “Kicking Away the Ladder: Infant Industry Promotion in Historical Perspective,” 2003, he documents the behavior of countries like the US, Japan, Korea, and other of the now wealthy variety, as they faced the early development challenges now faced by today’s developing countries. All of these used aggressive protectionist tactics in the early days to enable nurturing young businesses which would not have had the chance to develop if they had faced unrestrained competition in the early days. Now, having graduated to a level of high GDP per capita, the same group is attempting to impose on others a set of limitations which they themselves did not accept at the equivalent stage of their growth.

Furthermore, Chang point out in this treatise that, “Whatever the intention behind the ‘ladder kicking,’ the fact remains that these allegedly ‘good’ policies have not been able to generate the promised growth dynamism in the developing countries during the last two decades or so” (p 29).

Stiglitz is not only arguing for some compassion in regard to the developing countries. He has pointed out in other works, such as his The Price of Inequality (2012) that opening borders indiscriminately can also be bad policy in developed countries.  When relaxed regulations make it easy for US manufacturers to quickly moved production from the US to China, and then when wages rise a bit, from China to Bangladesh, there can be populations of workers who are unexpectedly displaced and need help to be re-trained in order to tackle some job higher up the food chain–help they are not getting under policies implemented by Reagan and now aggressively supported by Conservatives. Conservative policies tend to assume that what is called “flexible labor policies,” a misnomer for “let the company do whatever is in the best interest of shareholders only, with no obligation to dismissed employees” are the answer to everything. 

Stiglitz finishes the article by reminding us that this kind of “trickle down” theory has not worked. 

If it worked, would we have record levels of inequality today? We have seen record GDP and wealth creation, especially for the top 20%, but little for the middle class and below.  

It’s really that simple as it relates to the “trickle down” theory.

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