Beware of liberalization, privatization: Stiglitz
Urip Hudiono and Riyadi Suparno, The Jakarta Post, Jakarta
A story has it that U.S. avocado farmers, feeling threatened by their Mexican competitors, complained that imported avocados from Mexico were dangerous because they were contaminated with fruit flies.
Food sanitation inspectors from both the United States and Mexico, however, found no such flies. The U.S. avocado farmers then complained again; they said the inspections proved the fruit was even more dangerous -- because the flies were undetectable.
Baffled by such an argument, the Mexican avocado farmers offered to only export their goods during winter, and only to the most northeastern part of the U.S. so that the flies would die of the cold. But the U.S. farmers stood their ground.
In the end, however, the avocado dispute was finally resolved when the Mexican farmers, using U.S. tactics, started complaining of invisible fruit flies found in U.S. corn imports.
This story was told by Nobel laureate in economics Joseph E. Stiglitz to a group of Indonesian economists here to illustrate how developed countries like the United States were creative in erecting non-tariff barriers to products from developing countries.
Therefore, trade liberalization should not aim only at dismantling tariffs but should also target these non-tariff barriers, he said.
"(Developing countries) must recognize that the position of advanced industrial countries, and especially the U.S., is not based on principles, but on advancing their own commercial and financial interests -- in spite of the rhetoric," Stiglitz said at a public lecture held by the Indonesian Economists Association.
The interests of the developed world in trade negotiations were reflected in what Stiglitz called the "unbalanced agenda and outcomes of the Uruguay Round," which served as a basis for the establishment of the World Trade Organization.
He warned that the process of trade liberalization was typically accompanied by increasing inequalities, especially between developed and developing countries and such inequalities were often exacerbated by lending conditionalities.
Stiglitz also questioned the relationship between trade liberalization and economic growth, mentioning Mexico, whose economic growth slowed after its participation in the North America Free Trade Agreement.
Therefore, developing countries must have the courage to speak out, stand up and fight for a fairer global economic environment that also served their interests to achieve prosperity through more sustainable growth.
Stiglitz advised developing countries to keep a critical eye on globalization, while readily adapting to changing global economic conditions.
He warned developing countries to remain ever-vigilant about pressure from international lending institutions such as the International Monetary Fund and the World Bank to reduce government's role and pursue more privatization.
Contrasting the experience of Latin American countries that hastily resorted to the prescriptions of privatization and liberalization when they were hit by an economic crisis, and several East Asian countries who chose not to, Stiglitz pointed out that the latter countries had proved to be more successful.
The economic development enjoyed by the East Asian countries throughout and after the crisis came because their governments remained playing an important role in the economy.
"The key, I would argue, is getting the balance right," he said. "A balance in both what the direct activities are that the government should get involved in, as well as in setting regulations."
There was nothing wrong per se with state involvement, Stiglitz said. An example was the U.S. government's initiation of the country's telecommunications and Internet infrastructure, before handing them over to the private sector for further development.
The government's role in setting adequate market regulations was also important to anticipate a possible failure of the market system, maintain competition and ensure consumer protection.
"You can have problems with insufficient regulations, just like you can have problems with over-regulation," he said.
Stiglitz said that a lack of regulations in the privatization of a natural monopoly could lead to higher prices and lower consumer welfare.
"The private company, without regulations, can be very exploitative to consumers," he said. "You need strong anti-trust laws and regulatory authorities for natural monopolies."
Stiglitz also warned developing countries to be aware of widespread corruption in the privatization process, which could also undermine gains that a country should have received.
"In many countries, privatization got the name of `briberization'," he said.
Privatization, he said, should be pursued in the context of a country's industrial policy. And most of all, liberalization and privatization were not the only means to increase people's standard of living through sustainable growth.
Therefore, Stiglitz said, it was important not to confuse the means with the ends.