Export Credit

Outspoken chief economist leaving World Bank

The New York Times
November 25, 1999

WASHINGTON — Joseph E. Stiglitz said Wednesday that he would resign as the World Bank’s chief economist after using the position for nearly three years to raise pointed questions about the effectiveness of conventional approaches to helping poor countries.  Stiglitz, who joined the World Bank in February 1997 after serving as chairman of President Clinton’s Council of Economic Advisers, said he would leave the bank at the end of the year and would soon return to his academic post at Stanford University.  His departure will remove from Washington perhaps the most outspoken voice in the debate over how rich countries can best aid economic development in poor and crisis-afflicted nations. Over the last two years in particular, Stiglitz had antagonized officials at the International Monetary Fund and within the Clinton administration by criticizing their response to the financial crisis in Asia and their strategy for encouraging the development of democratic capitalism in Eastern Europe and the former Soviet Union.

Stiglitz said the decision to leave had been his. Treasury Secretary Lawrence Summers praised Stiglitz as a “major creative and intellectual force,” and administration officials said the United States had not sought Stiglitz’s removal. Caroline Anstey, a spokeswoman for the World Bank, said Stiglitz had “absolutely not” been forced out, and the bank’s president, James D. Wolfensohn, praised Stiglitz for having helped to move the institution “away from the so-called Washington consensus.”

But Wolfensohn has suggested in the past that Stiglitz was too quick to second-guess the international aid agencies and the big industrial nations that control them. “I think that his recent things about Russia, in my judgment, are not wholly correct,” Wolfensohn said during the bank’s annual meeting this autumn. “I think to stand back later and say, ‘If you’d done it my way everything would have been different,’ is a little generous to yourself.”

Stiglitz made no secret Wednesday of feeling constrained in his ability to speak out as freely as he wished. He said he was looking forward to the unfettered freedom of expression afforded by his return to the academic world.

“Whenever you’re in an organization there are some pressures,” Stiglitz said in an interview. “I felt that it was important for my intellectual integrity to be able to express myself as forcefully as I thought was appropriate.”

A liberal with a strong belief that governments and institutions have a significant role to play in economic development and that market forces cannot be counted on to deal with every problem, Stiglitz challenged the prevailing orthodoxy among policy makers in Washington.

He said that the monetary fund went overboard in Asia in demanding that the countries ensnared in the financial crisis cut their budgets, arguing that fiscal austerity sometimes extracted too high a price from poor people without generating a corresponding improvement in international economic confidence.

He took issue with the view held by the fund and the U.S. government that controls on the international flow of capital were counterproductive or impractical, saying that in some cases it was justified to restrict short-term flows of money in and out of a developing economy. He said industrialized countries sometimes pushed developing nations too fast to deregulate their financial systems.

He suggested that the United States and the monetary fund had failed to acknowledge that their prescription for Russia — quick privatization of state-owned industries, an end to state oversight of the economy, abolition of price controls and an opening up to the rest of the world — had not produced the intended results and indeed had left many people worse off.

“Stiglitz has been a very strong advocate for the poor and the excluded, and he’s been one of the best things in the World Bank in the last decade,” said Seth Amgott, a spokesman for Oxfam, which promotes poverty-fighting policies. “He’s also been very pointed and insightful in discussing the role of the IMF. We’re not used to that kind of candor.”

Stiglitz won few friends among economists and policy makers at the Treasury Department and the monetary fund. But his message was greeted enthusiastically in poor countries, and he said he was leaving the bank feeling that he had helped to stimulate a more vigorous debate about the policy prescriptions that wealthy nations impose on developing countries.

“On some of the specific issues, there has emerged really a broad consensus behind the views I took,” Stiglitz said.

“There’s a recognition that policies in East Asia were excessively contractionary on the fiscal side,” he continued. “There’s a recognition that capital market liberalization, in the absence of adequate regulatory structures, exposes countries to much higher risks. And on the debate about economies in transition, there’s a general consensus that the issues I’ve been raising are the right issues, and that while no one has the answers, we’re not going to get answers until we’re willing to ask the questions.”

Stiglitz had told friends recently that he intended to leave, and he informed Wolfensohn Wednesday morning of his decision. Wolfensohn said Stiglitz would continue to act as an adviser to him and Stiglitz would lead the search for a new chief economist.

Ms. Anstey, the bank’s spokeswoman, said that asking Stiglitz to head the search committee was a signal of the institution’s “intention to select someone who will continue the Wolfensohn-Stiglitz agenda” of focusing more on the needs of poor countries and less on more orthodox policies developed in Washington.

Stiglitz said his approach was built around two basic themes: giving more of a voice to poor nations in setting policy and recognizing the crucial role that government must play in economic development.

“We are rebalancing our thinking about the role of the state,” Stiglitz said. “Some of the failures, like in East Asia, involve cases where government did too little, like in financial regulation, rather than too much.”

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