Chennai: Economist Joseph Stiglitz has been in the news recently with French President Nicolas Sarkozy endorsing his call to relinquish “GDP fetishism” and focus on broader measures of well being. In a telephone interview with Mint from New York, the 2001 Nobel laureate in economics talks about the shaky state of the global economy, sustainable development and the free rope given to the International Monetary Fund (IMF) in the Group of Twenty (G-20) nations. He speaks about China’s advancement, the US’ lack of progress in climate change policies, and his criticism of “market fundamentalism”—a belief that free markets are the best way to solve problems. Fellow Columbia University professor and free-trade proponent Jagdish Bhagwati has been critical of Stiglitz’s argument. Edited excerpts:
What is your perception of the global economy? Are the green shoots emerging?
I think it is true that it is emerging and it is in a much better stage than it was soon after Lehman Brothers collapsed. But that doesn’t mean that the global economy is heading towards a strong recovery. And the question that remains unclear is what will provide an impetus to the economy that America’s total consumption did in the years before the crisis.
You have mentioned that Asia could emerge out of the crisis sooner.
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The point is that right now it appears that China and India have so much room to grow based on the expansion of domestic consumption that they can and they have to resource it, particularly China with its large reserves, to continue to stimulate their economy. But the problem is that they are too small by themselves to provide impetus to the global economy. It will help, particularly commodity producers, but it is not sufficient to solve the world’s problems.
Europe is probably taking the direction that America takes.
Europe has the same problem as America has. And they and America are going to face the problem of fiscal stringency because many of them went into the crisis with deficits and high levels of national debt that makes it difficult to sustain the kind of fiscal stimulus they need at this time.
What about Wall Street, where is it headed? Financial businesses continue to be big contributors to some countries’ gross domestic product (GDP).
That is one of the big issues that we have, to restructure our financials in our economy. The financial sector was over quoted and we will have to downsize it and the question is, how can we do that? That is going to be a big challenge. One of the problems is that the way we have been restructuring it recently in effect has strengthened the parts that do not contribute to our economy down the road.
Moving on to the G-20, do you think it will replace the G-7 and G-8?
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I am expecting that to be one of the announcements to come out of the G-20. The G-7 or G-8 is going to be dead and the next meeting in Canada will be the next G-20 meeting as opposed to the next G-8 meeting.