August 8, 2002: Former World Bank Chief Economist Joseph Stiglitz discusses the Argentine crisis with host Jamie Rubin.
Jamie Rubin: Joseph Stiglitz, welcome to WIDE ANGLE.
Joseph Stiglitz: Nice to be here.
Jamie Rubin: We've just seen a powerful film showing what amounts to a great depression in Argentina. Could you tell us a little bit about what the impact in your view this crisis in Argentina and broadly in Latin America will have on the United States, on Americans?
Joseph Stiglitz: Well, it's having an enormous impact in Latin America and throughout the developing world. If this is what happens to the A+ student, the student who followed the advice of the
IMF, the United States. If this is what happens, then many countries around the world ought to say we want no part of it. We've been pushing, and I think quite rightly, a philosophy based on democracy and
markets, and in the long run, democracy and markets are the only way these countries are going to be able to grow and bring the kinds of prosperity and the kinds of freedoms that we have . . .
Jamie Rubin: That people want.
Joseph Stiglitz: That people want. But the question is the way you go from here to there. There are many different forms of capitalism. Swedish capitalism is different from German capitalism is different from American capitalism. And the problem is that we
pushed a particularly narrow view of capitalism and democracy, and one which has really not worked in Latin America; not worked in the sense that growth in the last decade has been just over
half of what it was in the '50s, '60s and '70s; not worked in the sense that many people at the bottom of income distribution have actually seen their incomes fall; not worked in the sense that there is an unprecedented level of
instability, crises in Brazil, Argentina, the Andes, recessions, depressions, and as a result of that, there's a frustration, despair.
Jamie Rubin: Is this analogous to the Great Depression here in the United States, what's going on there?
Joseph Stiglitz: Well, in fact, in terms of the numbers, it's probably a faster fall, a deeper fall than the Great Depression. Now you saw some of the ... what it was doing, to the people, in terms of their ability to earn income. The social unrest is worse than the Great Depression. Some of the violence. I see numbers like, one policeman in Buenos Aires killed a day, for a long period of time. It is real social unrest.
Jamie Rubin: Help us to understand the impact of this crisis in Argentina on the United States, and on American foreign policy in Latin America. What message do you think the Argentinian crisis is sending?
Joseph Stiglitz: There are several messages. In the 1990s, the United States, and the international economic institution sent a message that, if you only followed our advice, had market reforms, American style democracy, all these would bring new growth, widely shared -- a new era. Argentina was held up as the A+ student. And now, people around the continent
are saying "If this is what happens to the A+ student, we don't want anything of it." There's a decade now of economic reform. The statistics are coming out, and the statistics are confirming what people's impressions are. Growth in the '90s is just over half of what it was in the '50s, '60s, and '70s. And the benefits of that growth have gone disproportionately to the upper 30 percent, the upper ten percent.
People at the bottom, many of the people at the bottom, the bottom ten, the bottom 30 percent are actually worse off.
Jamie Rubin:
And the rich are getting richer and the poor are getting poorer?
Joseph Stiglitz: And, on average, growth is worse than it was in the '50s, '60s and '70s.
Jamie Rubin:
Let's look at the hemisphere a little bit. The president of the United States said that he wants to make Latin America a hemisphere of liberty in an age of prosperity. That was his goal stated in the early months of his administration. What's happening across the hemisphere in terms of the perception about democracy and the free market?
Joseph Stiglitz:
I think the perception is one that America, rather than standing for these high-minded principles, stands for hypocrisy. After talking about free markets, what did the United States do? It passed a huge agricultural bill, increasing subsidies to agriculture, enormously. Remember in a country like Argentina, the basis of their economy is agriculture. If they can't export to the United States, if they have to compete against hugely subsidized agricultural commodities, it hurts them.
So, what they see the United States standing for is, while they're telling other countries "Open up your markets, cut out your subsidies," the United States is increasing its subsidies. And then, in the area of protection, the United States put forward these tariffs on steel. They said we needed a safeguard. But if the United States, the richest country in the world, a country with a good safety net, a country with -- even in the midst of a recession -- very little unemployment -- under seven percent -- if it says it needs safeguard, what do you think the people in Latin America, people in Argentina say? They have unemployment exceeding 20 percent. They have no adequate safety net. Some countries have no safety net. So when they lose their jobs, to subsidized American goods, because of the protection that the United States has put, they really suffer. And so again, it's another example of this hypocrisy.
Let me give you a third. In our recession of 2001, both the Democrats and the Republicans in the United States said, "We need a fiscal stimulus. We need to stimulate our economy." There was a
disagreement about . . .
Jamie Rubin:
"We need to spend money."
Joseph Stiglitz:
"We need to spend money, cut back taxes, do something - there's a federal government responsibility, to help strengthen the economy." And whether there's a disagreement about the best way of doing it, that it was the responsibility of government there was absolutely no doubt. Yet in Argentina, and other countries in Latin America,
the IMF, which basically reflects the view of the United States, because we, the United States, have the veto power. The only country with the veto power. The IMF went into Argentina and said, "You have to cut back your expenditures." In two years, they cut back expenditures on things
other than interest by ten percent. It only made the recession deeper.
Jamie Rubin:
You've compared this to the days when doctors used to bleed patients, and then when it wasn't working, they'd bleed them some more. Is that really your view of what the International Monetary Fund, the IMF, has been doing?
Joseph Stiglitz:
Well, it has this characteristic of blaming the victim. They did it in East Asia, they're doing it in Argentina. When the medicine doesn't work -- and everybody knew that contractionary fiscal policies, cutting back on expenditures, in the midst of a recession is the wrong medicine -- when it didn't work, when it made things worse, when they said, "Oh, the problem is they didn't follow our advice enough. . ." They said the problem was corrupt government, the problem was this, the problem was that. The problem was that the underlying economic system, the
fixed exchange rate, the privatization of social security, a whole set of policies that had been put in place over preceding years was misguided. And made the failure . . .
Jamie Rubin:
And these are the policies that the International Monetary Fund had urged on the Argentinian government. Let's talk about their view of this problem. The president of Argentina has said their biggest problem is the ignorance in the United States about what makes Argentina tick. There are many here in this country who think Argentina's biggest problem is the Argentinian politicians, who cannot agree on a scheme, cannot work between the states and the federal government, and implement a successful economic plan, and they're blaming the outsider.
Joseph Stiglitz:
I think that's wrong. What happened was a little bit analogous to what happened in the United States, back in ... in the beginning of the Reagan era. You know, I don't know if you remember, when Reagan cut back expenditures enormously,
expenditures on social programs, and, the people at the ground level, the people in the states and localities, knew that the system couldn't handle that level of cutback. And so what you did was, while the federal government was cutting back, there were some increases, at the state and local level.
Jamie Rubin:
You think the same has been happening in Argentina ...
Joseph Stiglitz:
And the same thing has been happening in Argentina. There was this ten percent cutback in expenditures, in two years. You know, in the Clinton administration, there was great pride about how we put the fiscal house in order. It was only slowing down the increase in
expenditures. There weren't real decreases. This is an enormous political achievement. But it pushed the problems of education, and health down to the local level. They did increase, but only a little bit, a limited amount. The overall deficit of the federal government, even at the end, was only three percent. And if you had put aside the privatization of the social security system, it was zero.
Jamie Rubin:
Let's talk a little bit about the percentages of blame for this terrible situation. Are you seriously suggesting that most of the blame for Argentina's ills, economic ills, the failure to export goods, the failure to have confidence in their banks, is the fault of outsiders or do you think there is a shared responsibility?
Joseph Stiglitz:
Oh, there's clearly a shared responsibility. But, let me make it clear. I think it would have been almost impossible for anybody to have made the system of fixed exchange rates work, in an environment in which they're linked to the United States, and the United States, for a
variety of reasons, had an over-valued currency.
Jamie Rubin:
So they were linking their currency to making it equal to the dollar.
Joseph Stiglitz:
That's right. And when the dollar went up, relative to the euro, and where their neighbor, Brazil's currency went way down, they were put in a position where their currency was vastly over-valued, they couldn't sell their goods.
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