Beware of liberalization, privatization: Stiglitz

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.