RSA LECTURES AT THE

EDINBURGH INTERNATIONAL BOOK FESTIVAL 2006

Nations Unlimited

Manifesto Challenge: Advancing Global Citizenship

Speaker: Joseph E. Stiglitz

Chaired by: Diane Coyle, Enlightenment Economics

Date: 27 August 2006

Venue: Edinburgh International Book Festival, Charlotte Square Gardens, Edinburgh

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Paul Crake: Good evening. I am Paul Crake, not the case. My concern is with the way in
programme director of the RSA, and it is my which globalisation has been managed. My wife
pleasure to welcome you to the third in the said to me, “You have complained long enough.
series of RSA lectures at this year’s Edinburgh What would you do about it?” So I felt
International Book Festival, with our special challenged to think not only about what was
guest speaker tonight Professor Joseph Stiglitz. wrong but about what could be done about it.
The series started with Professor Frances A wealth of ideas was already out there, and
Fukuyama, continued with Professor Felipe thinking about the problems lead to further
Fernandez-Armesto and comes to a crescendo ideas. It is not that any of them would solve the
this evening with the Nobel Prize winner Joseph problems of globalisation, but I do think that, if
Stiglitz. the ideas were implemented—simple ideas,
some big, some small—they would make
Our chair tonight is another distinguished
globalisation work, or at least work a lot better
economist and also a member of the RSA’s
than it has been working.
council, Diane Coyle. Please join me in formally
welcoming both our speaker Professor Stiglitz Let me begin by spending a few minutes
and Diane Coyle. [Applause.] talking about what I think is wrong with the way
in which globalisation has been working—some
Diane Coyle: I welcome you all. It is always
might say the symptoms. Fifteen or so years
a great pleasure for an economist like me who
ago, when the topic of globalisation first came
is used to being boring to see such a large and
to the fore, its advocates thought that it would
enthusiastic audience for a talk about
make everybody better off, so they were really
economics, so welcome. That is a testament, of
quite surprised when, in Seattle, in December
course, to the achievements of Joseph Stiglitz,
who is widely known for his writing on 1999, at what was supposed to be the beginning
globalisation and his advocacy for poor people of a new round of trade talks, there were these
in poor and rich countries alike. If you read his massive protests. A lot of economists said,
“Really, the problem isn’t one of economics.
Nobel Prize winning autobiography, you will
The problem is one of psychiatry. Why is it that
realise that that is a reflection of a lifelong
people are better off but aren’t happier? Why
engagement and advocacy. This evening, he is
don’t they know that they are better off?” But,
here to talk about his new book, which I am
in fact, as economists looked at the issues more
sure he will hold up so that you can go and buy
carefully, they realised that an awful lot of
a copy afterwards. There will be some time for
people were being made worse off, partly
questions afterwards.
because of globalisation.
I ask you to welcome Professor Joseph
Consider, for instance, the last round of trade
Stiglitz. [Applause.]
agreements, which was completed in 1994. The
Joseph Stiglitz: It is a real pleasure to be result was that the poorest countries of the
here. I can’t really say that it’s a pleasure to see world, including those in sub-Saharan Africa,
all of you; because of the lights, I can’t see any were made worse off because the agreement
of you, but it’s a pleasure to be here to talk was so unfair. The advanced industrial countries
about my new book. kept their subsidies and their tariffs, whose
To begin, maybe I should say a word about rates are four times higher against the
how I came to write the book. As many of you developing world than they are against the
know, I have been engaged in discussions about other developed countries. In fact, the tariffs
globalisation and complaining about the IMF, so themselves do so much more damage to the
much so that many of you may have thought developing countries, multiple of the foreign aid
that I was anti-globalisation, which is actually that the advanced industrial countries give.

2
What is so remarkable about some of the ability of financial markets such as Wall Street
agricultural subsidies is not only the magnitudes to slice and dice risk, the poor have to bear the
but how few people in the advanced industrial disproportionate burden of these risks and the
countries have had such influence on the consequences are enormous. The increase in
outcomes. interest rates at the beginning of the 1980s led
For instance, one of the big issues in the to a global financial crisis that led to the lost
round that recently came to a halt and is decade in Latin America.
probably at the end—the so-called I could go on, but I think it is fairly clear that
development round—is the fact that 25,000 there are some very peculiar things about the
American cotton farmers divide three to four way in which globalisation has been managed—
billion dollars among themselves. The result is not only peculiar things, but things that have
that the price of cotton is lowered, which made it particularly hard for the developing
pushes 10 million subsistence cotton farmers countries. There have been more than 100
living in semi-arid parts of Africa into further crises in the past 30 years in spite of the fact
poverty. As I said, what is so remarkable is not that we are supposed to know more about how
only that that does so much damage but that to manage an economy. It is more unusual for a
that small number of cotton farmers was able country not to have had a crisis than for it to
to put an enormous amount of influence on the have had a crisis, and while we talk about the
American government—enough to make it problems of the burden of debt on the poorest
impossible for it to make a deal in this countries, the fact is that it is not just one or
important area. two countries. It is not a result of profligacy. It
is obviously a systemic problem.
Most of you have probably heard the story
about the European cows that receive Given all these complaints that I have, I want
somewhere between $2 and $2.40 a day. That to make it very clear that, in some parts,
figure resonates because the World Bank globalisation has had some very positive effects.
measure of poverty is $2 a day. Some 40 per Globalisation of knowledge has led to an
cent of people in the developing world live on increase in lifespan; globalisation of global civil
less than $2 a day, so it is better to be a cow in society has led to important treaties such as the
Europe than a person in the developing world. mines agreement and important actions such as
Those are just a few of the peculiarities. If debt relief; and, even in the area of economics,
somebody from Mars was looking at the global the most successful developing countries—
financial system, they would look at that in a those in East Asia—have grown as a result both
of the opening of export markets and of the
very strange way. Money should go from the
globalisation of technology. The growth of the
rich countries to the poor, but in fact, in the
countries of East Asia and even of India is a
last several years, the money has been flowing
change of historic proportions. The migration
the other way around. The richest country in
into the global economy of 2.5 billion people
the world has been borrowing 2 to 3 billion
who have previously been marginalised is having
dollars from other countries of the world,
effects not only on the lives of the people in
which are obviously poorer than it is, and at the
same time it has been lecturing them on their those countries but on the whole global
having to live within their own budget economy.
restraints. While money should be flowing from A recent book by Thomas Friedman argues
the rich to the poor, risk should flow from the that, in fact, the world is flat. Most of you
poor to the rich. The rich are more able to probably remember from your schooldays that
bear the enormous risk of interest rate and the world is not flat, and that is actually true.
exchange rate volatility, but in spite of the Thomas Friedman is wrong—the world is not

3
flat. However, there has been a change in the going down. That is evidenced in studies of
global landscape and, as I just said, the change is health by the heights that people grew to.
of historic proportions. In many ways, not only People were getting shorter and their health
is the world not flat, but it is becoming less flat. conditions were worse. However, the
There is an increasing divide between the rich democracies in the western countries led us to
and the poor. The new technologies that have learn how to temper capitalism so that more
made such a big difference are technologies that people could gain from the benefits that the
require resources and education, and the fact market could bring. Unfortunately, globalisation
that there is such a divide between the rich and is providing more challenges to the nation state
the poor means that those who have access to at the same time that it is undermining the
technology are going to do very well. That is ability of the nation state to address the
why countries such as China are doing very well problems.
but those that do not have the resources, such
The second underlying problem is to do with
as countries in Africa, are doing very poorly.
the end of the cold war. Since the end of the
The new rules are also contributing to making war, there had been strong competition
the world less flat, and finally, perhaps for the between Russia and the communist system and
first time that the world has seen, we have the west. For all the disadvantages of the cold
some global monopolies in areas such as that war, one of its advantages was that the west
occupied by Microsoft, where competition has
paid a great deal of attention to the well-being
become monopolised on a global scale.
of the developing world. It competed, not
I’ve given a brief sketch of some of the necessarily for the hearts and minds but at least
problems, successes and challenges that face the for the interest of their political leaders. With
global economy. Let me spend the next few the end of the cold war, the advanced industrial
minutes trying to describe my diagnosis of why countries faced new opportunities. They could
things have gone so wrong in so many instances try to design a global economic system that was
while they have gone well in a few. I think that more reflective of their values. They no longer
there are three underlying problems. had to give support to people like Pinochet in
Chile. They could try to design an economic
First, economic globalisation has outpaced
system that was a fair form of globalisation, or,
political globalisation and the globalisation of
freed from the threat of competition, they
mindsets. Economic integration has made us
could try to shape a global economic system
more interdependent and greater
that reflected their own economic interests. I
interdependence means that we have to act
together more—we have to act more was in the White House in those critical years,
collectively and co-operatively. Unfortunately, beginning in 1993, and it was very clear,
the institutions and the mindsets that would unfortunately, what choices were being made. It
enable us to act in that way, particularly the was clear that America’s international economic
policy was almost totally driven by concern for
democratic institutions, are not there. Some
its own economy. There was very little concern
150 years ago, when similar processes were
for principles of global fairness or global social
going on, when the nation state was being
justice.
formed and the market economy was
developed, we learned how to temper The third underlying problem arises from the
capitalism. Pollyanna-ish view of globalisation with which I
In the beginnings of capitalism 150 years ago, a began my remarks this evening—the view that
globalisation would inevitably lead to everybody
lot of individuals were actually worse off.
being better off. If we think about last spring,
Studies of what it was like to live in British cities
when the young French students and workers
at that time suggest that living standards were

4
protested on the streets, they were concerned in the economy being better off but also in the
because they were told that they had to accept unskilled workers at the bottom being worse
globalisation but they were puzzled by how off. The fact that the economy as a whole is
lower wages and less job protections would better off means that the winners can
make them better off. Sometimes, they were compensate the losers, but it doesn’t predict
told, “Well, just be patient. In the long run, that they will. In the United States, and
eventually, you will be better off.” Keynes, increasingly elsewhere in the world, not only
Britain’s great economist, was fond of saying has that not been happening but things have
that in the long run we are all dead. actually been getting worse. Safety nets have
been eroded, income tax systems have become
Actually, economic theory had long predicted
less progressive, and public services have been
some of these consequences. My own teacher
eroded, so the economic forces that have led
Paul Samuelson wrote a paper more than half a
to the people at the bottom being worse off
century ago describing what economic
have been compounded by the political forces,
integration and full liberalisation would mean.
His set of assumptions was not actually very sometimes in the name of globalisation, when
descriptive of the global economy, but since people say, “Globalisation forces us to do this.”
then it has provided an increasingly accurate However, there is another way. The
description of the world economy. Full Scandinavian countries have shown that one can
integration means, of course, that workers live with globalisation. One can make sure that
everywhere in the world with the same skill the benefits of globalisation are more widely
would get the same wage. That means, for shared. The result is that, although the tax rates
instance, that unskilled workers in the United in those countries are among the highest in the
States, the UK, France, China and India would world, the countries have continued to grow in
all get the same wage. That is what full ways that are as rapid as anywhere else in the
economic integration would mean. Economic world and those in the middle and the bottom
theory has shown that, even if we are still far have shared in those gains.
from that state of full economic integration, the
I now come to, in a way, the hardest part of
process of integration will result in strong
my talk. Most of my book goes from these
forces in that direction. We already see that
broad discussions of the underlying problems of
going on. In the United States, real wages for
globalisation into a large number of very specific
the bottom quintile of workers have fallen by
areas such as global financial markets,
20 to 30 per cent during the past three
intellectual property, trade, debt, the
decades. It is not just that they are stagnant. environment, natural resources and global
The real wages have gone down. Some of those warming. Obviously, I don’t have time in the
workers have made up for that by working next 10 minutes to go through all of those, so I
longer hours, but there is no doubt that their thought I would begin with one and, if I have
standards of living are falling. This, in a period in
time, go on to a second. Maybe some of the
which average incomes have increased by
others will come up in the question period. I
perhaps 50 per cent.
want to leave at least 20 minutes for discussion
In the past five years, things are even worse. at the end.
Although GDP has been increasing, even the Let me begin by talking about intellectual
median household income in the United States property. Everybody agrees that intellectual
is lower than it was five years ago, so all the property rights are important, particularly
gains that have occurred in the past five years
people like me who live off intellectual
have gone to the people at the very top.
property. I would not be enthusiastic if— well,
Economic theory says that globalisation results

5
actually, I wouldn’t mind so much, but my need some way of getting returns in order to
publisher would not be enthusiastic if… produce drugs that will be of benefit to the
developing countries, but the drug companies
I should tell a story. About 20 years ago I got
a letter from a Chinese publisher who wanted spend far more on advertising and marketing
me to write a foreword to a pirated edition of than on research. They spend far more money
my book. [Laughter.] I was so pleased that they on research on lifestyle drugs for growing hair
were willing to read my book in China that I and other things that I won’t talk about here
than they spend on life-saving medicines. They
said, “Of course.” When my publisher found
spend almost no money at all on life-saving
out, he said, “No, no, you can’t do that.” Today,
drugs that affect the developing countries, such
China is actually very good on the intellectual
as those for malaria and the forms of AIDS that
property rights issue.
are more prevalent in developing countries.
The issue isn’t whether intellectual properties
are important. There is a whole host of issues The developing countries have had to pay
on the design of intellectual property. One of very high prices that they cannot afford. A
typical year’s drug treatment for somebody
the so-called advances in the Uruguay
with AIDS costs about $300 for generic
agreement that was signed in 1994 was the
medicines, or even less now, but it costs
inclusion of intellectual property. I think that
$10,000 if they have to pay the American
that was a major mistake. Most trade
prices. The American drug companies’ view is
economists think that it was a major mistake. It
that they have to pay the full amount, but, of
was an attempt to impose on all the countries
course, no one who lives on $500 a year is
of the world, including the poorest countries of
going to pay that. A few governments can pay a
the world, the same intellectual property
regime that works—or does not work very little bit for a few people, but that means that
well—in the United States and in Europe. they have less money to spend on the other
When they signed the agreement of the diseases that plague these countries.
Uruguay round on 15 April 1994, they were in In this example, there is an alternative that
effect signing the death warrant of thousands of would work far better than the current system,
people in developing countries in Africa and which clearly isn’t working because it does not
elsewhere because it meant that individuals in provide incentives for companies to provide
those countries would no longer have access to drugs for the poor countries, for an obvious
life-saving medicines, to which they had reason. Poor people don’t have money to buy
previously had access. drugs, so the drug companies aren’t interested
in producing the drugs. Therefore intellectual
Interestingly, I was on the Council of
property will have absolutely no effect. The
Economic Advisors at the time when that
alternative is to create a medical prize fund.
agreement was being discussed, and both the
Interestingly, the sponsor of this evening’s
Council of Economic Advisors and the Office of
event, the RSA, has an initiative on intellectual
Science and Technology Policy opposed the
property going on. I was talking to the people
trade-related intellectual property—or TRIPS—
from the RSA about that earlier. Two hundred
agreement. It has nothing to do with trade. It is
about intellectual property, but they had to call years ago, people talked about this very issue
it trade related to put it in the trade agreement. and about the use of prizes, as opposed to
We thought that it was bad for American intellectual property, to provide incentives for
science and for world science, and we also innovation, because the patent system impedes
the usage of innovation. Knowledge is a public
thought it was bad because it would have the
good, yet the patent system privatises that
effect of denying people access to life-saving
public good and makes it more difficult for
medicines. The drug companies argue that they

6
people to use it. The system doesn’t provide we faced a crisis, but the good news is there
the incentives and, in some areas, there is will be another crisis. We just don’t know
increasing concern that it actually impedes when. I think I know which countries it will
innovation. affect, but I can’t say it without getting into
There are areas called patent thickets, which trouble. The question is, why do these crises
is a problem that goes way back. In the early happen, and why are they so painful, particularly
part of the last century, the Wright brothers to developing countries?
and Curtiss both got patents on the aeroplane The second question is fairly easy to answer.
and no-one could develop an aeroplane because The answer goes back to the fact that, as well
they didn’t know who they had to pay off. As as we think the international financial markets
their lawyers fought it out—even then they had work, they still force the poorest countries to
lawyers—nothing happened to the wonderful bear the brunt of the risk. I gave a story of Latin
idea of an aeroplane. (At least, it seemed America, but another story is that of Moldova. I
wonderful at the time). It was not until World visited Moldova, which is a former Soviet Union
War One occurred that the government said, republic, and like so many of the others its
“The development of an aeroplane is too move to a market economy was not easy.
important to let you lawyers in intellectual Capitalism and the market economy were
property stop it. We need the aeroplane for supposed to bring unprecedented prosperity
the war.” So they took the intellectual property but they brought unprecedented poverty. In the
away and created a patent pool. They said, “We decade after the beginning of the transition to a
will give compensation relative to the market economy, GDP in Moldova fell by 70
importance of the contribution of each per cent. At the time I went there, in 2001 and
inventor.” 2002, the government was spending 75 per cent
The medical prize fund is really a very simple of its very meagre budget—the budget had
idea, It says, “We will give a prize, and a larger gone down as the economy had gone down—
on servicing foreign debt. Ten years earlier, it
prize for a more important discovery.” For me-
had no foreign debt, so all this had happened in
too drugs, which is where a lot of the research
a short span of time, in 10 years. If you are
goes today, people will get a little prize because
spending all your money servicing foreign debt,
usually there are differing side-effects, but a
you don’t have money to do anything else, and
discovery such as a cure for malaria or a
one could see the consequences.
vaccine for AIDS would get a very big prize.
That would direct research efforts into areas It was very hard for an economist because
that are more important, so more research one could see the process of de-development.
would go into life-saving drugs than into lifestyle People were moving back to using horses and
drugs and more research would go into drugs buggies. The roads were full of potholes. There
that affected billions of people than into drugs was a very dramatic event. The daughter of one
that affected relatively few. In some ways, the of the people in our team was hospitalised and
idea has been around for a very long time, but it put on oxygen, but in the middle of the night
is an idea, I think, whose time has come. the whole country ran out of oxygen. There
Let me talk about one other set of ideas, was just no oxygen to be found and she died.
which is to do with global volatility. There has Now, we take for granted the ready availability
been an enormous amount of global volatility. of oxygen. We would never think about the
We saw it very strikingly in the East Asia crisis idea that we couldn’t get oxygen because the
government couldn’t afford it, but the debt
in 1997 and the global financial crisis in 1998
burden in that case was so high that the
but we tend to forget about it when we aren’t
country couldn’t afford it.
facing a crisis. It’s been a couple of years since

7
 The origin of Moldova’s problems was very government to increase its reserves because
simple. The exchange rate was linked to the the American bank might demand the money
Russian rouble, and the Russian rouble back and they have to have the dollars ready in
devalued. It wasn’t anything that they had done, case that happens. So, dollar reserves go up by
but Russia had an enormous amount of a hundred million dollars, but what does that
problems. The Russian rouble devalued mean? They are holding a hundred million
enormously and Moldova’s debt went from a dollars of US Treasury bills; they are lending the
manageable level to an unmanageable level. United States a hundred million. So the country
Their debt was denominated in dollars and in is borrowing a hundred million from an
Euros—at the time, in marks—and so they American bank and lending the American
were forced to bear the volatility of government a hundred million. On the hundred
international exchange rates. That is true of million that it’s borrowing, it’s paying 20 to 25
developing countries all over the world. The per cent. On the 100 million that it’s lending to
solution to the probably is fairly easy—we need the United States, it’s getting 1 per cent or 2
to create markets that allow these countries to per cent. Today, it is getting 5 per cent, but it is
borrow more in their own currency or in a bad deal. You don’t have to be an economist
baskets of related currencies. There are some to figure out that, if you borrow at one rate and
efforts to do that. The Asian bond fund is lend at a much lower rate, you are losing
moving in that direction. I don’t have time to money.
talk about it here, but we know how to help
In effect, the developing countries are shipping
create these markets. We just haven’t gone
enormous amounts of money to the United
about doing it.
States—more money than they get in foreign
The more fundamental problem is that the aid from the United States. For the United
global financial system has an enormous amount States, this might seem to be a great system
of volatility. Some of it is caused by the global because its Treasury is able to borrow more
reserve system. In order to protect themselves cheaply than it would otherwise be able to, but
against this volatility, countries hold more for the global economic system it is a disaster.
dollars. They used to hold gold, but now it is It is a system that has within it the route of its
dollars. If someone came from Mars and looked own destruction, in a sense. The number of
at the system, they would think it very peculiar. dollars in reserves has being going up steadily
At great cost to the environment, people dig up over time because people need more reserves,
gold in South Africa, ship it at great cost and given the instability in the economy. If they hold
then bury it back in the ground. more reserves, the indebtedness of the US goes
We have moved more and more away from up and, as that happens, confidence in the dollar
the gold system to a dollar system, but it is erodes. The whole process leads to greater
equally peculiar. When countries are holding global financial instability.
dollars, their purchasing power is not reflected The system is already fraying. Simple banks
in the global economy, so the system has a around the world are increasingly moving out of
deflationary effect on the global economy. It is the dollar. Again, there is an alternative—one
also very inequitable; in effect, when countries that Keynes talked about some 75 years ago—
are holding dollars—basically they are usually in the creation of a global greenbacks. There is
holding T bills—they are lending money to the already a version of that within the global
United Sates. If a firm in a poor African country financial system, but we need to create global
borrows a hundred million dollars from an greenbacks or SDRs on an annual basis using a
American bank and pays an interest rate of 20 global currency as the basis of reserves. That
to 25 per cent, prudence requires the would have several advantages. It would

8
eliminate the inequity; it would enhance see what mechanisms are in place, or perhaps we
stability; and it would offset the downward need new institutions to drive and organise the
pressure on global aggregate demand that the reforms of which you speak.
current system creates by burying money in the
2. I was going to ask exactly the same thing. You
ground every year. Again, this is a simple
said that, in globalisation, there is a gap between
reform that could be adopted and it which
the economics and the politics. If the WTO, the
would contribute to making globalisation work
IMF, the World Bank and the UN were reactions to
much better.
the 1930s and the 1940s, what would an
To conclude, globalisation will change. That is organisation for the 21st century be like? Who will
not the issue. It is very clear that the current be the leaders who will drive the change?
system, with all the anomalies and problems
3. I think that part of your thesis is that
that I described, will not continue for long. The
democracy of some form is necessary as
issue is not whether we will change. The issue is
amelioration of the excesses of capitalism. How do
whether there will be a crisis and whether we
you view the position in China and the economic
will respond to it in the typical way in which we
power that is being wielded in a country where
respond to a crisis—by focusing on some short-
democracy is questionable?
run patch. That will lead to another crisis and
we will muddle along in the way that we did in Joseph Stiglitz: Those are all good
the crisis of 1997 and 1998, leaving the questions, and they are related in many ways.
fundamentals unchanged. The issue is whether I think that the driving force for change will
we will take that approach or whether we come first from civil society, from a demand
should approach it perhaps in the spirit of the from citizens that something is wrong and
Scottish enlightenment—the notion of rational something is going to change. I find the
analysis and pragmatic discussion of what is difference between the UK and the United
wrong and how to fix it. States very interesting. A large number of
My book is offered up in the hope that the British politicians have become very sensitive to
world will take the latter course—that it will the issue of unfair trade, but that is not true of
reform globalisation to make it work, or at least the United States. I talked to the largest all-
work better, in ways that will enable party parliamentary group in the UK and it is
globalisation to live up to its potential of concerned about issues of development. Again,
enhancing the well-being of everybody in the that is not true in the United Sates. I asked
world. Thank you. them, “Why?” I talked both to the
Conservatives and to Labour and they say that
[Applause.]
it is because of a key voting group. A lot of
Diane Coyle: Thank you for that. I’m sure people are concerned about the issue. We saw
that you’ve convinced the audience here. that with debt relief in the Jubilee 2000. People
We now have time for questions. I will take were responding. That group might not be 80
per cent of the people, but it is a small vocal
two or three questions at a time and then let
group—or hopefully a larger vocal group—that
Professor Stiglitz respond.
is articulating its concerns. That is basically why
I wrote the book—to try and strengthen the
Questions from the audience. voice of those who are taking those positions.

1. You talked about reform, which is fine. It is The good news is that, at least over the past
obvious that reform is needed, but I am not clear decade, a remarkably large number of political
about who is actually going to drive the reforming. leaders in western governments have also been
Is it the WTO, the IMF or the World Bank? I don’t very concerned about the issues. I think that

9
they are genuinely so—you know, you always the world to change their policies. However, it
worry about whether they are just putting on a hadn’t done any research to show that that was
face because they think that it is pleasing the going to be good for growth. We knew that it
voters, for whom the issue is important. was bad for stability. As a result of an
Obviously, politicians want to be responsive to enormous amount of discussion and pressure,
the concerns, but it is also the case that there finally, in 2003, it came out with a study. It
are a number of politicians in Britain, Canada finally decided that it ought to look at the
and other countries around the world who are evidence and it came out with the same result
genuinely concerned. I think that they welcome as I did, that the proposal would lead to more
pressure that will get them to move more in instability and not to more economic growth.
that direction. That is to say, they would like to That helped to change, although not overnight,
do more. the policies that it pursues.
The politics of international economics is such The WTO has become much more
that, in the past, the only people who were very transparent than it was 20 years ago, so the
informed about international economic issues institutions themselves are changing in ways
were the multinational corporations, so their that will make some of these changes that I
voice gets heard very clearly. I saw that strongly describe come about. That will happen slowly,
when I was in the cabinet. They were there— but if there was more pressure they would
AIG—and they were calling up on the phone all come about faster. At the last meeting, the
the time, but the voices of all the other people head of the IMF called for a change in voting
were not heard. That is why we see such a rights because he recognised that the allocation
difference in the policies. For instance, the of voting rights undermined the legitimacy of
Clinton administration was pushing for greater the IMF. The United States was not very
access to health inside the United States, but interested. As you may know, the G1 still has
internationally, the Uruguay round denied the veto power, but when the pressure has got
access to medicine. How could that happen? to the point where even the head of the IMF is
Well, who was active internationally? The saying that there ought to be change, I think
United States wasn’t paying any attention to the that there will eventually be change. Hopefully
voters abroad but it was paying attention to the there will be a change of administration in
pharmaceutical companies that were calling up Washington to a less unilateralist one
all the time and it responded to that. If we can [Applause.]
get more civil society groups calling up on the
Diane Coyle: A controversial statement.
other side—that did happen in 1999 when the
AIDS activists got involved—that changes the Joseph Stiglitz: I hope that there will be a
dynamic completely. less unilateralist policy and people with more
sensitivity, and there will then be an opening for
I think that there have to be changes in
those changes.
international institutions. Some of those
changes are going on already. It is the case that I want to talk a little about China. China is not
these institutions are undemocratic or a democracy, but no government that does not
imperfectly democratic, but they do listen. In want to impose itself by force of arms can
my earlier book I talked a lot about the ignore the issue of legitimacy. In other words, it
consequences of capital market liberalisation may not get elected by votes, but even though
and capital going in and out overnight, which it was not elected through the electoral
can lead to instability but not to economic process, the fact that it was not elected puts on
growth. In 1997, the IMF called for a change to it a greater obligation, in a way, to be sensitive
its charter to allow it to force countries all over to some of the things that are going on. That is
one of the reasons why, in China’s eleventh
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five-year plan, which it announced last March, it Poverty History campaign meant that we had a
switched the emphasis to the rural sector. civil-society G8 for the first time and I do think that
For the past three years, the Premier has there is a chance for a new enlightenment from
been talking about the importance of social Edinburgh—a chance to go back to what Adam
harmony. What is he talking about? The fact is Smith and David Hume said. I would like you to
that, as in the advanced industrial countries, a enlighten me. I have just come from a talk by Al
lot of people are being left behind. He said, Gore and he mentioned the same things, so there
“We won’t be able to survive unless we do must be something going on out there in the ether.
something about the people who are being left 5. You talked a lot about economic globalisation
behind.” Even though he is not being tempered and made very clear the disparities between the
by democracy, he is being tempered by reality, rich and the poor within and between countries, but
and there was an active debate in China. A the other side of the coin is the erosion of the
group of pro-market people, just like they do in environment. Will you comment on that as a direct
the west, said that trickle-down economics will consequence of economic globalisation?
work. Let the economy grow and eventually
6. Economics seems to pride itself on pretending
everybody will benefit. There was a strong
that it strips out ethical considerations in its
debate between the two schools of thought—
analysis. I wonder whether you feel that there is
trickle-down economics with its focus on
something in the nature of economics as it is
growth and the other school of thought, which
practised today that allows injustices around the
said, “No, we can’t do that. We have to focus
world to build up, or do you have more sympathy
on growth, but we also have to worry about
with the view of people such as Carl Polanyi, that
the bottom.” The latter school won the debate,
ethics needs to be incorporated at the beginning of
at least for this round. These are on-going
the analysis?
debates and there will be other rounds, but
right now the social harmony school has won Diane Coyle: Professor Stiglitz, you have
the day. three minutes on whether there is a new
enlightenment, whether you can solve the
Questions from the audience
environmental problem and whether economics
4. I thank Professor Stiglitz for an informative is immoral. [Laughter.]
talk. I am South African in origin, freedom fighting. Joseph Stiglitz: Adam Smith is often
We got our freedom but we just found that it was misinterpreted. Obviously, he thought that
an illusion. The same vested interests were still there were important moral issues. He wrote a
running the country and they were getting away book called The Theory of Moral Sentiments and
with things that the Apartheid regime would not he was a moral philosopher. He was supposed
have got away with, such as privatising water and to be a part of the Scottish enlightenment,
natural resources. I am an international which focused on rational thinking, but he
development consultant with one of the major became the head of a religion called the free
global consultant corporations, which actually take market religion, and it is that religion that has
up a lot of the aid money, I am not too happy caused so many problems. Part of that religion
about that. It is all an illusion. Where did we go undermines ethics because it says that
wrong? It seems that economics is a weird science. individuals’ pursuit of their self-interest leads to
You talked about the Scottish radical enlightenment, the social good. It says that the only sin that
but we do not have Adam Smith economics. What you can commit is not being selfish enough. If
we have is woody economics. I attended two G8s as you are selfish enough and you just follow your
an observer, and I really wanted to kill myself after self-interest, you will lead to the common good,
the WTO in Hong Kong. On a positive note— but if you start to be a do-gooder, that’s when
Edinburgh is quite important in this—the Make the danger sets in.
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 That view is not a correct analysis of production is the destruction of the
economics. One of the reasons why I wrote the environment. They get away with it, but
book is to highlight the ethical failures—such as producers in Europe are not allowed to get
the value-of-life issues, the IPR issues and the away with it. That is an unfair trade advantage.
environmental issues. They have been Within the framework of the WTO we have a
undermined by the way in which globalisation way of addressing the problem. All that is
has been managed but they would not be needed—it is a big “all”, of course—is for some
undermined by the way in which globalisation
of the European countries to be brave enough
has to be managed. For example, there is a
to bring a case against the United States. That
chapter on global warming. One problem with
would require some civil society pressure,
dealing with the problem of global warming is
because I don’t think that Blair, in his cuddling
enforcement. How do you get a country—we
up with Bush, is likely to do that in the next
all know which one—that is the largest polluter
month.
in the world to go along? The recent
administration went so far as to deny the signs. Diane Coyle: I think that you have given us
In 1993, we tried to pass an emissions tax and our next campaign. Thank you.
replace a tax on things that are good with a tax I’m aware that there are lots of hands going
on things that are bad. There would be higher up, but I’m afraid I can’t call on anyone else
tax rates on emissions associated with coal, because we have to finish promptly this evening.
because they are larger, and lower rates on Before we do, let me tell you that Professor
energy that does not create emissions. Stiglitz will be signing copies of his book after
I point out in the book that, within the the event in the signing tent next door. I hope
current WTO framework, there is a way of that we will continue the discussion later in the
forcing the United States—or certainly Spiegeltent, so please stay on for that, and of
encouraging it—to adopt a more energy- course the RSA will continue the discussion
friendly and emissions-friendly approach. The over the months and years ahead as well.
United States imposed trade sanctions against Thank you for being for being here this
Thailand for catching shrimp in nets that were evening and for being a great audience. Thanks,
turtle-unfriendly and the WTO sustained that too, to Professor Stiglitz for a wonderful talk.
decision. The implication is that, even within the [Applause.]
current WTO framework, environmental
concerns trump commercial concerns. If it is
important enough to impose trade sanctions
that protect an endangered species of turtle, it
is important enough to impose trade sanctions
to preserve our whole globe, and that means
our atmosphere.
In the book, I describe how we could use the
trade sanctions to induce the United States to
go along with the global agreement to reduce
emissions. If we do not do that, it gives
American firms an unfair trade advantage over
other firms. In effect, the fact that American
firms are being allowed to pollute means that
they do not bear the full cost of their
production. Part of the social cost of their

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