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RSA LECTURES AT THEEDINBURGH INTERNATIONAL BOOK FESTIVAL 2006

Nations Unlimited

Manifesto Challenge: Advancing Global Citizenship

Speaker: Joseph E. Stiglitz

Chaired by: Diane Coyle

, Enlightenment EconomicsDate: 27 August 2006Venue: Edinburgh International Book Festival, Charlotte Square Gardens, Edinburgh

NB

This is an

unedited

transcript of the event. Whilst every effort is made to ensure accuracy theremay be phonetic or other errors depending on inevitable variations in recording quality. Please docontact us to point out any errors, which we will endeavour to correct.To reproduce any part of this transcript in any form please contact RSA Lectures Office atlectures@rsa.org.uk or +44(0)20 7451 6868

The views expressed are not necessarily those of the RSA or its Trustees.

www.theRSA.org

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Paul Crake:

Good evening. I am Paul Crake,programme director of the RSA, and it is mypleasure to welcome you to the third in theseries of RSA lectures at this year’s EdinburghInternational Book Festival, with our specialguest speaker tonight Professor Joseph Stiglitz.The series started with Professor FrancesFukuyama, continued with Professor FelipeFernandez-Armesto and comes to a crescendothis evening with the Nobel Prize winner JosephStiglitz.Our chair tonight is another distinguishedeconomist and also a member of the RSA’scouncil, Diane Coyle. Please join me in formallywelcoming both our speaker Professor Stiglitzand Diane Coyle. [

Applause.

]

Diane Coyle:

I welcome you all. It is alwaysa great pleasure for an economist like me whois used to being boring to see such a large andenthusiastic audience for a talk abouteconomics, so welcome. That is a testament, of course, to the achievements of Joseph Stiglitz,who is widely known for his writing onglobalisation and his advocacy for poor peoplein poor and rich countries alike. If you read hisNobel Prize winning autobiography, you willrealise that that is a reflection of a lifelongengagement and advocacy. This evening, he ishere to talk about his new book, which I amsure he will hold up so that you can go and buya copy afterwards. There will be some time forquestions afterwards.I ask you to welcome Professor JosephStiglitz. [

Applause.

]

Joseph Stiglitz:

It is a real pleasure to behere. I can’t really say that it’s a pleasure to seeall of you; because of the lights, I can’t see anyof you, but it’s a pleasure to be here to talk about my new book.To begin, maybe I should say a word abouthow I came to write the book. As many of youknow, I have been engaged in discussions aboutglobalisation and complaining about the IMF, somuch so that many of you may have thoughtthat I was anti-globalisation, which is actuallynot the case. My concern is with the way inwhich globalisation has been managed. My wifesaid to me, “You have complained long enough.What would you do about it?” So I feltchallenged to think not only about what waswrong but about what could be done about it.A wealth of ideas was already out there, andthinking about the problems lead to furtherideas. It is not that any of them would solve theproblems of globalisation, but I do think that, if the ideas were implemented—simple ideas,some big, some small—they would makeglobalisation work, or at least work a lot betterthan it has been working.Let me begin by spending a few minutestalking about what I think is wrong with the wayin which globalisation has been working—somemight say the symptoms. Fifteen or so yearsago, when the topic of globalisation first cameto the fore, its advocates thought that it wouldmake everybody better off, so they were reallyquite surprised when, in Seattle, in December1999, at what was supposed to be the beginningof a new round of trade talks, there were thesemassive protests. A lot of economists said,“Really, the problem isn’t one of economics.The problem is one of psychiatry. Why is it thatpeople are better off but aren’t happier? Whydon’t they know that they are better off?” But,in fact, as economists looked at the issues morecarefully, they realised that an awful lot of people were being made worse off, partlybecause of globalisation.Consider, for instance, the last round of tradeagreements, which was completed in 1994. Theresult was that the poorest countries of theworld, including those in sub-Saharan Africa,were made worse off because the agreementwas so unfair. The advanced industrial countrieskept their subsidies and their tariffs, whoserates are four times higher against thedeveloping world than they are against theother developed countries. In fact, the tariffsthemselves do so much more damage to thedeveloping countries, multiple of the foreign aidthat the advanced industrial countries give.

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What is so remarkable about some of theagricultural subsidies is not only the magnitudesbut how few people in the advanced industrialcountries have had such influence on theoutcomes.For instance, one of the big issues in theround that recently came to a halt and isprobably at the end—the so-calleddevelopment round—is the fact that 25,000American cotton farmers divide three to fourbillion dollars among themselves. The result isthat the price of cotton is lowered, whichpushes 10 million subsistence cotton farmersliving in semi-arid parts of Africa into furtherpoverty. As I said, what is so remarkable is notonly that that does so much damage but thatthat small number of cotton farmers was ableto put an enormous amount of influence on theAmerican government—enough to make itimpossible for it to make a deal in thisimportant area.Most of you have probably heard the storyabout the European cows that receivesomewhere between $2 and $2.40 a day. Thatfigure resonates because the World Bank measure of poverty is $2 a day. Some 40 percent of people in the developing world live onless than $2 a day, so it is better to be a cow inEurope than a person in the developing world.Those are just a few of the peculiarities. If somebody from Mars was looking at the globalfinancial system, they would look at that in avery strange way. Money should go from therich countries to the poor, but in fact, in thelast several years, the money has been flowingthe other way around. The richest country inthe world has been borrowing 2 to 3 billiondollars from other countries of the world,which are obviously poorer than it is, and at thesame time it has been lecturing them on theirhaving to live within their own budgetrestraints. While money should be flowing fromthe rich to the poor, risk should flow from thepoor to the rich. The rich are more able tobear the enormous risk of interest rate andexchange rate volatility, but in spite of theability of financial markets such as Wall Streetto slice and dice risk, the poor have to bear thedisproportionate burden of these risks and theconsequences are enormous. The increase ininterest rates at the beginning of the 1980s ledto a global financial crisis that led to the lostdecade in Latin America.I could go on, but I think it is fairly clear thatthere are some very peculiar things about theway in which globalisation has been managed— not only peculiar things, but things that havemade it particularly hard for the developingcountries. There have been more than 100crises in the past 30 years in spite of the factthat we are supposed to know more about howto manage an economy. It is more unusual for acountry not to have had a crisis than for it tohave had a crisis, and while we talk about theproblems of the burden of debt on the poorestcountries, the fact is that it is not just one ortwo countries. It is not a result of profligacy. Itis obviously a systemic problem.Given all these complaints that I have, I wantto make it very clear that, in some parts,globalisation has had some very positive effects.Globalisation of knowledge has led to anincrease in lifespan; globalisation of global civilsociety has led to important treaties such as themines agreement and important actions such asdebt relief; and, even in the area of economics,the most successful developing countries— those in East Asia—have grown as a result bothof the opening of export markets and of theglobalisation of technology. The growth of thecountries of East Asia and even of India is achange of historic proportions. The migrationinto the global economy of 2.5 billion peoplewho have previously been marginalised is havingeffects not only on the lives of the people inthose countries but on the whole globaleconomy.A recent book by Thomas Friedman arguesthat, in fact, the world is flat. Most of youprobably remember from your schooldays thatthe world is not flat, and that is actually true.Thomas Friedman is wrong—the world is not

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