Globalism not working, says top economist

Global economic integration could come apart if rich countries continue to hoard its benefits from the developing world, economist and Nobel laureate Joseph Stiglitz said in an interview.

Toward that end, the United States and Europe should abandon costly agricultural subsidies that cripple exporters in underdeveloped economies and prevent nascent industries from getting off the ground, according to Stiglitz's new book.

"Globalisation is not working," he said. "Money is flowing from poor countries to rich ones. There will be a backlash."

In Making Globalisation Work, the author complements some of his earlier criticisms of no-holds-barred capitalism with specific policy proposals, which he says could moderate some of globalisation's excesses.

These include everything from patent legislation that achieves the right balance between profitability and basic medical needs, down to reforming the global financial system to reduce inequity and instability.

The trouble, by even his own admission, is that the course of action Stiglitz lays out is largely outside the realm of short-term political possibility.

However, the former World Bank chief economist argues that forces of change are already in motion. It is up to would-be globalizers to adapt to these shifts in ways that allows them to maintain some clout, he says, or face drastic unintended consequences.

One possible shock would be a massive dollar crash. Unimaginable during the 1990s peak of US economic clout, such an event has certainly been contemplated by investors, who fear an annual current account deficit close to US$900 million ($1.4 billion) is not sustainable.

While the greenback seems to be holding up for now, a dollar slump would have wide-ranging consequences for the US economy, pushing interest rates sharply higher and endangering an already overstretched consumer. A prolonged economic downturn would likely ensue, Stiglitz predicts.

Yet market reformers tend to be complacent about such risks, blinded in part because of the sort of economic triumphalism that followed the fall of communism in the Soviet Union, the Columbia University professor added.

Stiglitz depicts global financial imbalances -- a savings-rich developing Asia that lends its money to an over-consuming United States -- as a perverse wealth transfer from the poverty-stricken to the wealthy.

"The poor are lending to the rich at low interest rates and borrowing back from them at high interest rates," he said.

Stiglitz's latest work seems to lack the firebrand enthusiasm of his earlier discussions of globalisation, which earned him celebrity status in places like Latin America.

Instead of making a moral argument for poverty alleviation, Stiglitz warns corporate and financial powers that they must start making concessions in order to keep the upper hand in global economic affairs.

- REUTERS