Joe and I

Brad DeLong reports that a student of his wants to know the difference, if any, between Joe Stiglitz's views on development and mine. Frankly, I had not thought about this quite in this way before, so the question set me thinking. I know that I have shaken my head many times at things that Joe has said or written, so I know there are differences. But what are they?

Leaving issues of rhetoric aside (which I am afraid are often important), here are a few points for future students who want to see the product differentiation a bit more clearly.

1. Joe sees the world economic system as grossly unfair to poor nations, and this unfairness as a severe constraint on their development. This has never been a big part of my own thinking, partly because I don't see things in quite the same black-and-white terms, and also more importantly because I do not believe the constraints lie in the external rules. I see the main constraints as being internal--domestic politics and policies. Consequently, our take on issues like Doha is quite different. Joe sees a one-sided set of commitments on the part of rich countries to open up their markets in agriculture and other goods as being very important. I see very little benefits from Doha for the poor countries under the best of scenarios.

2. Joe sees international organizations (in particularly the IMF) as being the driver of policy in many developing countries, with uniformly negative consequences. I think that to the extent that this is true, it is more because poor-country leaders choose to rely on their advice excessively than it is because these institutions have the power and ability to impose their will on the world.  Much of the bad economic policy in these countries has been self-imposed, and I don't think the fault should be placed at the doorstep of multilateral institutions. The truth is that developing country leaders have too often abdicated their own responsibilities. 

3. On the substance of development policy, I think Joe's approach is holistic and comprehensive, whereas mine is selective and sequential. As far as I am aware he has not articulated a vision of how developing nations should choose among competing priorities, whereas a lot of my recent work focuses on that specifically. He thinks of growth, development, and social policies as all one thing--whereas I think of them as distinct in terms of policy needs.

4. On macroeconomic policy, Joe has an instinctively dove-ish position on inflation, believing that central banks can always loosen up at the margin with little cost to overall macro stability. I think many circumstances demand a more hawkish position on monetary policy and inflation-especially when fiscal policy is not cooperative.

There. That should be enough to fill up an essay question.  

Comments

[Etienne Calame]

I am not an economist, just one of the thousands of citizens of privileged countries around the world who decided one day to settle in a less privileged country. Working and living in a country that struggle to exports its goods toward the EU or USA yet ranking in the top world economies I can say that from a practical, empiric experience it is true that opening the barriers profit in priority to the riches. The poor buys at premium prices in expansive currencies equipments ranging from megawatt sized power plants to simple tools or fertilizer; the riche imports only the cheapest products with low added values, and pay with precious USD or EUR that devaluate furthermore the already shacked local currency. This is true for agriculture, food, textile, toys, packaging, furniture… and armament. Helping a local and balanced development would probably work slower but bring a healthier result.

[robertdfeinman]

I'm in the middle of Paul Collier's "The Bottom Billion" and am having a hard time placing him in the spectrum of opinions about the faults and fixes for under developed countries.

I don't know if the large number of contradictory ideas is due to ideological biases, poor data or some other factors, but I don't see how anyone can feel confident giving these nations advice under the circumstances.

[Per Kurowski]

Let me add what I think since from what I have read (and heard) I believe there are some substantial differences between the two.

Though both are critical about the possibilities for the market delivering what others preaches it can, Stiglitz slightly more so, Rodrik is much more skeptical about our being better than the markets at that than Stiglitz.

Second Rodrik would never be quoted by Hugo Chávez as an inspiration for his "Bank against the North"

And, if I am totally wrong, then remember what the credit ratings like to tell us…”it is just our opinion”

[Chandan]

a) Poor countries need money to finance development activities. It is a must!

b) the IMF extends "concessional" loans and some grants.

c) with (b)comes a set of commitments (ooops...conditionalities!) that countries need to follow.

d) with (b) and (c) comes a free package of a forceful imposition of IMF's beliefs in default.

e) Often (d) is poorly thought by IMF appointed consultants, who care more about theories with practically unfitting constraints...

f) the country's economy gets screwed up...then comes more advice from IMF...again, gets screwed up...

Does not this indicate that policy failure is mainly due to multilateral donors (chiefly the IMF) who are intent on blindly imposing growth theories that they think right, irrespective of local circumstances?

Hence, bad policies are not self-imposed but imposed by someone else! So, No 2. is not convincing. I agree with Stiglitz.

[Dan Olner]

I concur with Chandan. My understanding was that developing countries, particularly in Africa, were given loans only if certain policies were imposed. In many (all?) countries this included having World Bank and IMF people right in the centre of the finance ministries, which themselves were designed by Western donor institutions. Such aid makes up huge chunks of African country's budgets. I think there's one where it was 50% for a while.

So I wonder what Dani thinks? It is true that leaders could have rejected the policy-loan package - but their budgets would have been decimated. And where else could they turn? - those few countries that *did* reject Western assistance - Mozambique, for example - tended to find themselves under military attack from Western sponsored proxies who saw any left turn as a door for the USSR to sneak in through. (Possibly true, but that doesn't change the basic point: politics and power ratcheted African leaders toward a Western economic consensus.) Any leader who rejected the West's methods might well find themselves overthrown in a US-backed coup.

All horrible over-generalisations, I know, and I don't buy into some great global capitalist conspiracy. It is feasible that an African country may have found a way to pilot safely through the dangerous waters of the cold war and maintained independence, and their own development policy. But politically, financially and structurally the odds were enormously against that happening.

Hopefully this gets the point across: in various places, at various times, African leaders have had less freedom to move than Dani says they have had. Particularly as regards the need of leaders to keep aid money flowing just to keep afloat, there's no reason to think this has changed.

[John Jenkins]

Chanda and Dan both commit the same logical fallacy: that any country must borrow from the IMF (or other institutions). If the conditions that come with the loans are so onerous that the conditions outweigh the benefit of the loans, then do not take the loans.

The conditions are very much voluntarily adopted, and certainly not forced on anyone. Just because the government wants a bigger budget (or more likely, the despot-of-the-week needs money for himself and his cronies), does not mean the bigger budget is required. Even if the policies of the IMF are wrong, the IMF does not get to make its policies the law of a sovereign country. That country's government does, and if that is a bad decision, then the fault lies with the government, not the IMF.

[Mauricio Santoro]

Dear prof. Rodrik,

I have just read Stiglitz´s "Making Globalization Work" and it made me think a lot about the points in common with your own books and posts.

Certainly, your work gives much more freedom for policy makers than Stiglitz´s and I think your reflections are very well suited for major developing countries like Brazil and India. As a Brazilian, I find hard to agree with the importance that Stiglitz puts in IMF or Wold Bank. The National Development Bank of my country has larger assets than the WB and our plans to curb inflation were usually very heterodox and not in the best line of IMF. Of course, it was different in Argentina, but even so, I agree with you that the main responsibility lied with Argentine politicians themselves.

Or if we look to the WTO, foreign trade is just not that important to Brazil, 80% or more of the GDP is related to the domestic market. But it is always easier to blame the international organizations, with all their problems of lack of transparency and democratic deficit, than to look to our contries´ internal problems.

All the best,

[Na Prática a Teoria é Outra]

Just in order to qualify the notion that Stiglitz sees IMF intervention as always harmful, I've seen Stiglitz saying, during a lecture in Oxford in 2004 (I think), that the IMF did a good job in Brazil.

[corvad]

I'm with Chandan and Olner, but am definitely ambivalent about the degrees of freedom afforded "countries." As pointed out by others, states ruled by despots (not too different from states ruled by leaders selected by socioeconomically dominant minorities) may have chosen to cooperate with IMF conditionalities with the knowledge that they could shift the costs of structural adjustment to socioeconomically subaltern majorities. In this case who got the shaft and who was free to choose? The nation-state as a unit of analysis is a problem here, and different states at different times have clearly been exposed to variable forms of leverage. Kirchner's Argentina seems to provide evidence that states can sometimes stand up to IMF conditionalities without absolute refusal, but then again Argentina was essentially a first world country, in terms of industrialization and wealth, until very recently. Not sure of course how much the fact that it's still a first world country, ethnically [thanks to 19th century genocide, a la the US], has to do with things.

[corvad]

which is all to say that substantially justified critiques of the Washington Consensus increasingly mobilized by national elites, at least in Latin America and the Caribbean serve to deflect responsibility from local oligarchic institutions and actors -- one of the reasons why I find Rodrik's arguments very compelling. After all, the "que se vayan todos" crowd celebrated by Naomi Klein finds itself in agreement with Dani "bad books [Klein's] that need to be burned") on the issue of local responsibility!

[Chandan]

John, so what is restricting countries from borrowing from sources other than the IMF? You might signal out international financial institutions and bilateral donors? Well, the former bases (mostly) its decision on lending based on the IMF's assesment. This means that rejecting the package from IMF would mean not getting credits from other donors?

A case in point: the relationship between WB's PRSP and PRGF. Loans are increased by the WB only if the IMF thinks that a borrowing country is fulfilling previous commitments. No more further loan is sanctioned if the IMF's assessment is negative, which of course happens if a country does not abide by conditonalities (tight budget, often pressuring governments to slash health and education funds, tight monetary policy, liberalization, privatization, flexible exchange rate...all these in one shot!)...

So who will give money to cash-strapped developing countries like Nepal, Bhutan, Burkina Faso, etc?

[paine]

dani
i feel let down

a moment of clarification
turned to pea soup

point one

has this mind bender
"the world economic system "
talk about holistication...

are you saying there is no north tilt
no trans nat advantage
built into
the global game
in practice if not rules??
"I see the main constraints as being internal--domestic politics and policies"

main constraints ???

as in look at
people's china
or singapore
the rules didn't stop them
would joe disagree ??
i suspect you've missed characterized joe here

"I see very little benefits from Doha for the poor countries under the best of scenarios"
here god bless your acuity
you simply
out joe joe

on point two
you are claiming
the south is its own worse enemy
how useful that line is around
the average imf meeting
and trans nat board room
"hey so we give bum advice..well then
why the f do they take it "

you gotta be fooling here
are you saying the imf has no big stick
or at least won't use it ??

point three
hardly shows a "substantive" difference
invoking the old
fox vs hedgehog dodge
to me
this lack of specifics amounts to a charge
of
"easy for you to say joe
flying over head at 10,000 feet "
yes policy on the ground involves
specifics and he he
the opportunity to fail ..

and btw that's why
i'm with you
lets get to the brass tacks here

stiglitzian
"holism "
like bryanian "holy -ism"
ends with
hollow dongs
symbolic gestures
and kabooooooki images
lots of hot sacred air
full of
banishing money changers
and defaming
crosses of gold and such

on point four
i think joe has
you by
the hairs on
your chinny chin chin

inflation is a fear for bankers
and mugabe baiters

south world
inflation in itself
never starves
anyone
and usually
runs amock only
long after dracula
has taken over the wheel
of the blood wagon

[StevenT]

During the 1997 economic crisis, the IMF told the Malaysian government that if you do not follow our policy, your country will go broke. Malaysia did not take the loan from IMF but instead from Japan. A few years later, Malaysia recoved at a much greater pace than the asian countries which took the IMF route.

[corvad]

well, yes, precisely: what happens when governments don't toe the line? During the Cold War, it meant they often turned to the Soviet Union, or even if they didn't or weren't about to such a possibility meant political and economic destabilization led by the US. That option is not so much on the table, except for possibly Venezuela (Per, this is why although I'm critical of Chavista patrimonialism and domestic gas subsidies, I'm not so critical of him handing out AK-47s, and not all critical of his effort to catalyze regional alternatives to the neoliberal model). Now, the only excuses the US has for standing in the way of democracy -- or blocking its emergent possibilities -- are the war on terror and the war on drugs (possibly the human rights issue can be abused as a trojan horse too). Historically, everything has been sacrificed to the god of capital.

The question in my mind is, what happens to a country that despite the threat of loan cutoffs and so forth, more governments had said not no, but not sure, we'll go ahead and do it all at once? I think Malaysia is a good example, I'm not a regional specialist but isn't it the case that many SE Asian countries drove a harder bargain with the Washington Consensus than did Latin American and African countries.

The question of local responsibility, for me, turns on the variability of different governments at different times displaying different amounts of sensitivity -- including but not limited to rejection -- to adopting structural adjustment wholesale and shoving it down the throats of their constituents. My sympathies are with the rejectors, but how much of the W.C. was something that was sold as precisely that, an expert opinion that smart leaders should adopt if they ever hoped to catch up? to the extent that it was, there is indeed a fair share of blame to be laid on the shoulders of national bourgoisie. Not that that makes the IMF any less coercive ...

[Tarek]

Well, thinking about how developing countries could pull themselves out of poverty is an extremely hard task. However, it can always be reduced, in my opinion, to the lack of productive and creative workers. The most straight forward way for governments to raise the productivity of its work force, in my opinion, is by paying more attention towards educating people. None the less, a lot of under developed countries argue that increased spending on education didn't have any positive impact on their growth rates. They even extend their argument by providing empirical evidence in support of their claims. However, they always provide evidence of increased spending and not evidence of raising educational standards. After all, spending more money on education doesn't necessarily mean that the extra money managed to raise the educational standards. That’s why i still think that access to better education is the only way theses countries would be able to grow out of poverty. That's not to say that no institutional changes would be needed; the benefits of having more creative and productive workers in the economy would never be visible unless the whole institution supports their contributions and listens to what they have to say.

The real question is though, do these governments really want to do what’s necessary to grow out of poverty. In my opinion, the answer is no. As previously mentioned the real reason for the poverty of these countries is the un productivity of it’s workers. And, if some how productive and creative individuals managed to appear in the horizon, the institution will always put obstacles in their way instead of providing them with the necessary assistance. Strange as it might seem, for those who never lived in places like that, creative and productive individuals, in unproductive societies, are always treated like enemies and not friends, not for anything but the fact that they are more productive and creative than the others. That’s probably why these countries will always stay the way they are.

[Thomas]

Chandan--in your response to John, that's all fine. But governments turn to the IMF only when things have gone horribly wrong, usually as a consequence of poor prior policy decisions. So, a simple solution is to avoid poor prior policy choices and thus avoid needing to draw from the IMF.

[Chandan]

Thomas:
"But governments turn to the IMF only when things have gone horribly wrong..."

well, I don't think so. Governments turn to the IMF or any other donor primarily to get funds to finance development activities/reforms. They do not turn to the IMF after getting in trouble caused by themselves. In fact, joining the IMF eases the problem of credit crunch to fund internal economic reforms/activities!

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