The globalizer who came in from the cold: Joseph Stiglitz

by Gregory Palast

International Socialist Review, Aug/Sep 2001

"It has condemned people to death," the former apparatchik told me. It was like a scene out of Le Carre. The brilliant old agent comes in from the cold, crosses to our side, and in hours of debriefing, empties his memory of horrors committed in the name of a political ideology he now realizes has gone rotten. But this was a far bigger catch than some used Cold War spy. Joseph Stiglitz was chief economist of the World Bank. To a great extent, the new world economic order was his theory come to life.

He is in Washington for this week's Spring Ministerial, the big confab of the World Bank and the International Monetary Fund (IMF). But instead of chairing the meetings of ministers and central bankers, Stiglitz was kept outside the blue police cordons the same as the nuns carrying a large wooden cross, the Bolivian union leaders, the parents of AIDS victims, and the other "antiglobalization" protesters.

Two years ago, the World Bank fired Stiglitz. He was not allowed quiet retirement; the U.S. treasury secretary demanded a public excommunication for Stiglitz's having expressed his first mild dissent from globalization World Bank style.

Here in Washington, we completed the last of several hours of exclusive interviews with Stiglitz for the Observer and BBC TV's "Newsnight" about the real, inside workings of the IMF, World Bank, and the Bank's 51 percent owner, the U.S. Treasury.

And here, from sources unnamable (not Stiglitz), we obtained a cache of documents marked "confidential," "restricted," and "not otherwise (to be) disclosed without World Bank authorization." Stiglitz helped to translate one from bureaucratese, a "Country Assistance Strategy." There's an assistance strategy for every poorer nation, designed, says the World Bank, after careful in-country investigation. But according to insider Stiglitz, the Bank's staff" investigation" consists of close inspection of a nation's five-star hotels. It concludes with the Bank staff meeting a begging, busted finance minister who is handed a "restructuring agreement" pre-drafted for his "voluntary" signature.

Each nation's economy is individually analyzed. Then, says Stiglitz, the Bank hands every minister the same exact four-step program. Step one is privatization-which Stiglitz said could more accurately be called "briberization." Rather than object to the sell-offs of state industries, he said national leaders-using the World Bank's demands to silence local critics-happily flogged their electricity and water companies. "You could see their eyes widen" at the prospect of 10 percent commissions paid to Swiss bank accounts for simply shaving a few billion off the sale price of national assets. And the U.S. government knew it, charges Stiglitz, at least in the case of the biggest "briberization" of all, the 1995 Russian sell-off. "The U.S. Treasury view was this was great, as we wanted Yeltsin reelected. We don't care if it's a corrupt election. We want the money to go to Yeltsin" via kickbacks for his campaign. Stiglitz is no conspiracy nutter ranting about Black Helicopters. The man was inside the game, at that time a member of Bill Clinton's cabinet as chairman of the president's council of economic advisers.

Most ill-making for Stiglitz is that the U.S.-backed oligarchs stripped Russia's industrial assets, with the effect that the corruption scheme cut national output nearly in half After briberization, step two of the IMF/World Bank one-size-fits-all rescue-your-economy plan is "capital market liberalization." In theory, capital market deregulation allows investment capital to flow in and out.

Unfortunately, as in Indonesia and Brazil, the money simply flowed out and out. Stiglitz calls this the "hot money" cycle. Cash comes in for speculation in real estate and currency, then flees at the first whiff of trouble. A nation's reserves can drain in days, hours. And when that happens, to seduce speculators into returning a nation's own capital funds, the IMF demands these nations raise interest rates to 30 percent, 50 percent, and 80 percent.

"The result was predictable," said Stiglitz of the hot money tidal waves in Asia and Latin America. Higher interest rates demolished property values, savaged industrial production, and drained national treasuries. At this point, the IMF drags the gasping nation to step three: market-based pricing, a fancy term for raising prices on food, water, and cooking gas. This leads, predictably, to step-three-and-a-half: what Stiglitz calls "the IMF riot."

The IMF riot is painfully predictable. When a nation is "down and out, [the IMF] takes advantage and squeezes the last pound of blood out of them. They turn up the heat until, finally, the whole cauldron blows up," as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998.

Indonesia exploded into riots, but there are other examples-the Bolivian riots over water prices last year and, this February, the riots in Ecuador over the rise in cooking-gas prices imposed by the World Bank. You'd almost get the impression that the riot is written into the plan.

And it is. What Stiglitz did not know is that, while in the States, "Newsnight" obtained several documents from inside the World Bank, stamped over with those pesky warnings "confidential," "restricted," "not to be disclosed." In one, last year's "Interim Country Assistance Strategy" for Ecuador, the Bank several times refers-with cold accuracy-that the plans could be expected to spark "social unrest," to use their bureaucratic term for a nation in flames.

That's not surprising. The secret report notes that the plan to make the U.S. dollar Ecuador's currency has pushed 51 percent of the population below the poverty line. The World Bank "assistance" plan simply calls for facing down civil strife and suffering with "political resolve"-and still higher prices.

The IMF riots (and by "riots" I mean peaceful demonstrations dispersed by bullets, tanks, and tear gas) cause new panicked flights of capital and government bankruptcies. This economic arson has it's bright side-for foreigners, who can then pick off remaining assets, such as the odd mining concession or port, at fire-sale prices.

Stiglitz notes that the IMF and World Bank are not heartless adherents to market economics. While stopping Indonesia from subsidizing food purchases, "when the banks need a bailout, intervention (in the market) is welcome." The IMF scrounged up nearly $100 billion to save Indonesia's financiers and, by extension, the U.S. and European banks from which they had borrowed. A pattern emerges. There are lots of losers in this system but one clear winner: the Western banks and U.S. Treasury, making the big bucks off this crazy new international capital churn. Stiglitz told me about his unhappy meeting, early in his World Bank tenure, with Ethiopia's new democratic president. The World Bank and IMF had ordered Ethiopia to divert aid money to its reserve account at the U.S. Treasury, which pays a pitiful 4 percent return, while the nation borrowed U.S. dollars at 12 percent to feed its population.

Now, we arrive at step four of what the IMF and World Bank call their "poverty reduction strategy": free trade. This is free trade by the rules of the World Trade Organization (WTO) and World Bank, which Stiglitz, the insider, likens to the Opium Wars. "That too was about opening markets," he said. As in the nineteenth century, Europeans and Americans today are kicking down the barriers to sales in Asia, Latin America, and Africa, while barricading our own markets against Third World agriculture. In the Opium Wars, the West used military blockades to force open markets for unbalanced trade. Today, the World Bank can order a financial blockade, which is just as effective and sometimes just as deadly.

Stiglitz is particularly emotional over the WTO's intellectual property rights treaty, which goes by the acronym "TRIPS." It is here, says the economist, that the new global order has "condemned people to death" by imposing impossible tariffs and tributes to pay to pharmaceutical companies for branded medicines.

By the way, don't be confused by the mix of the IMF World Bank, and WTO. They are interchangeable masks of a single governance system. They have locked themselves together by what are unpleasantly called "triggers." Taking a World Bank loan for a school "triggers" a requirement to accept every "conditionality"-they average 111 per nation- laid down by both the World Bank and IMF, including trade policies more punitive than [those of the] WTO.

Stiglitz's greatest concern is that World Bank plans, devised in secrecy and driven by an absolutist ideology, are never open for discourse or dissent. Despite the West's push for elections throughout the developing world, the so-called Poverty Reduction Programs "undermine democracy." And they don't work. Black Africa's productivity under the guiding hand of IMF structural "assistance" has gone to hell in a handbag, the continent's income dropping 23 percent in the past two decades.

Did any nation avoid this fate? Yes, said Stiglitz, identifying Botswana. Their trick? "They told the IMF to go packing." So then I turned on Stiglitz. OK, Mr. Smart-Guy Professor, how would you help developing nations? Stiglitz proposed radical land reform, an attack at the heart of "landlordism" on the usurious rents charged by the propertied oligarchies worldwide, typically 50 percent of a tenant's crops. So I had to ask the professor: As you were top economist at the World Bank, why didn't the Bank follow your advice? "If you challenge [land ownership], that would be a change in the power of the elites. That's not high on their agenda." Apparently not.

Ultimately, what drove him to put his job on the line was the failure of the banks and U.S. Treasury to change course when confronted with the crises-failures and suffering perpetrated by their four-step monetarist mambo. Every time their free-market solutions failed, the IMF simply demanded more free-market policies. "It's a little like the Middle Ages," the insider told me. "When the patient died they would say, 'Well, he stopped the bloodletting too soon, he still had a little blood in him."' So the solution to world poverty and crisis, then, is simple: Remove the bloodsuckers.

Gregory Palast is an award-winning reporter who writes the "Inside Corporate America" column for the Observer (London). His column and contact information are available at www.GregPalast.com.

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