Nobel-Winning Economist says System Stacked Against Developing Countries

11 March 2009

Joseph Stiglitz at the World Economic Forum in Davos, 31 Jan 2009
Joseph Stiglitz at the World Economic Forum in Davos, 31 Jan 2009
Nobel Prize-winning economist Joseph Stiglitz says the global economic system is stacked against developing countries. He warns rich countries will lose out by ignoring the plight of poor nations during these testing times.

Nobel laureate, economist Joseph Stiglitz spoke at a meeting of a U.N. Commission of Experts to explore reforms of the International Monetary and Financial System. The Commission was created to deal with the impact of the financial crisis on developing countries.

Stiglitz says the Commission supports the view there needs to be a strong stimulus by all countries in the world, but he notes poor countries do not have the billions of dollars needed to revive their economies.

"There is a very strong need for additional funding to developing countries in order for them to respond adequately," he said. "And, it is a matter of social justice. It is also a matter of the interest of the advanced industrialized countries because you will not have a robust global recovery if one part, a very important part of the international system is not working well."

Stiglitz says the Commission is concerned about the rising tide of protectionism. These policies, he says, exist in the stimulus packages of some countries. He says they discriminate against developing countries.

He decries the many distortions in international trade created by tariffs and subsidies. He says subsidies in rich countries have totally destroyed, what he calls, the level playing field, putting poor countries at a permanent disadvantage.

"The fact that the developed countries have stood ready to provide these subsidies means that the level playing field will be destroyed for years to come because it means that companies, financial firms in developed countries can undertake risks that those in developing countries cannot, knowing that if there is a problem, they may be bailed out," he said. "So, that the nature of a free-market economy has been really undermined by what has happened."

Economist Stiglitz says funds need to be provided to developing countries to offset this distortion in the global economic system. He says if rich countries do not provide assistance to poor countries the fallback could be very serious.

Stiglitz says this can already be seen in Europe, where the collapse of Eastern Europe is likely to weaken financial institutions in the West and that, in turn, may weaken financial institutions all over the world.

The U.N. group of experts is expected to come up with a series of recommendations by the end of the month on ways to facilitate recovery and prevent another crisis in the future.