Bangkok Post | 10 January 2005
Stiglitz raps bilateral trade pacts
Unilateralism a risk to global economy
Unilateralism, in which the largest economies, notably the United States, impose their will on smaller ones, is the main driver for the proliferation of bilateral trade agreements and represents a growing risk for the global economy, according to Joseph Stiglitz, the 2001 Nobel laureate for economics.
"There is a tendency for the US to think that policy that is good for the US will also be good for the rest of the world," Dr Stiglitz said.
"Unilateralism makes the mistake of thinking that what is good for a country will be good for the world."
Dr Stiglitz, speaking on threats to the global economy at a presentation organised by the Foreign Ministry on Friday, said one example was the US concept that free market principles necessarily created prosperity for all countries that adopted them.
A professor in economics at Columbia University, Dr Stiglitz served on the US Council of Economic Advisors during the Clinton administration and was chief economist of the World Bank from 1997-2000, in the midst of the economic crisis.
His 2001 book, Globalization and Its Discontents, argued that globalisation could be a positive force for poverty alleviation, but only if organisations such as the International Monetary Fund change the way they operate, placing the needs of poorer nations ahead of those of wealthy countries.
In his speech, Dr Stiglitz said debate was growing about the accuracy of the US view of capitalism, and noted that European models had a much different view of how policy should be conducted.
Gross domestic product, a common measure of economic output, did not weigh the well-being of the people, he said, and also failed to capture other factors such as environmental degradation.
In real terms, the average American household had actually seen its income fall despite overall growth, he said.
"We may see a rich country that’s filled with poor people. The reason is simple - all the growth is going to the very top."
Failures by the US to keep its commitments on issues such as farm subsidies, and the creation of new non-tariff barriers such as intellectual property rights, led to the collapse of multilateral talks under the WTO’s Doha Development Agenda in Cancun, Mexico in 2003.
In the aftermath of the Cancun meeting, he said, the US began to pressure other countries to sign bilateral trade agreements instead, a move that would undermine efforts to reduce global poverty.
"Few countries would benefit from signing bilateral trade agreements," he said. "Most are left with false hopes and dreams that by signing the agreements, there will be flood of US firms coming to invest."
But Dr Stiglitz pointed to the case of Mexico, where economic growth in the decade after the North American Free Trade Agreement was lower than it was before the treaty was signed. In other cases, countries such as Morocco and Chile were both forced to adopt policy changes under pressure from the US, which continued to keep protectionist barriers.
Another growing global risk, he said, was the volatility of the foreign exchange markets, with the weakening dollar the result of huge trade and fiscal deficits in the US, creating an "enormous cost" to the world economy.
Central banks around the world would see their dollar-denominated assets decline in value by $200-400 billion each year as a result of rate fluctuations, resulting in deflationary pressure.
Dr Stiglitz said that even an appreciation of the Chinese yuan would not help resolve the US trade deficit, and expressed concern about a possible global financial crisis if investors lose confidence in the US dollar.