Rethinking values
October 7, 2009
Joseph Stiglitz is one of the harshest critics of the banking industry's rush to return to "business as usual" in the wake of the financial crisis. He is an outspoken man who likes to use direct and colorful language, especially when comparing the cost of bank bailouts with the amount of aid paid to help the world's poorest nations weather the economic storm.
"In one night we passed $700 billion to the banks," Stiglitz says.
"Global foreign aid has really been $60-70 billion a year. So in one hour we passed all the foreign aid of all the developed countries to all the developing countries for a decade."
"And you ask: who is more needy? The American banker or developing countries? It's hard not to come up with the conclusion that our values got destroyed."
New philosophy for IMF lending
Although the Columbia University professor says the International Monetary Fund has done a good job of managing the crisis so far. He still urges the IMF to rethink its lending policies.
In the past, Stiglitz says, IMF-credits often had damaging side-effects for the recipients. The loans were usually tied to drastic reform programs that sent the economies of many borrowers into a downward spiral.
Stiglitz warns that if the IMF wants to become a global insurer against economic disruption, as the Funds's director Dominique Strauss-Kahn claims, then it needs to take a new approach to dealing with the needs of poor countries.
"When you have a crisis and the doctor comes in and says: 'By the way, if you want the medicine you have to do A, B, C and D' and you say 'I don't want to do A, B, C and D' -- you are not getting medicine, then it doesn't serve the function of insurance," Stiglitz points out.
Global finance sector needs taxation
Financial markets should also be subject of new taxes designed to discourage 'dysfunctional' trading and help pay for the damage the global crisis has inflicted on poorer countries, Stiglitz says.
IMF Managing Director Dominique Strauss-Kahn recently announced that the Washington-based organization is already studying ways to tax the financial industry at the request of Group of 20 leaders.
Such a global financial-transaction tax would only be fair, the Stiglitz argues, and it would not be without precedent.
"In environmental economics we have a principle called 'polluter pay'. If you cause pollution you have to pay for the clean-up. The financial sector polluted the global economy with toxic assets and now they ought to clean up that," the Nobel Prize-winning economist says.
Excessive risk-taking by the banking sector has imposed huge costs on the rest of the society, including workers, developing nations, house-holders and tax-payers, he explains. A global tax on financial market transactions is therefore not just a question of equity, but a question of efficiency.
Stiglitz stresses that such a tax would also help shrink a 'bloated' financial industry in the United States, arguing that statistics showing that the finance sector accounted for 40 percent of US corporate profits before the crisis were a clear signal that “something's wrong.”
Tax revenues could be used for poor countries
Stiglitz says the money raised by the proposed tax could be used to help poor countries, which were by no means responsible for the financial crisis, but are nevertheless suffering its worst consequences.
According to estimates by the Development Committee of the World Bank and the International Monetary Fund, another 90 million people around the world are at risk of being driven into extreme poverty by the end of 2010.
Reporter: Thomas Kohlmann, Istanbul
Editor: Sam Edmonds