Nationalized banks are “only answer,” economist Stiglitz says
In
an interview with Deutsche Welle, Nobel-winning economist Joseph
Stiglitz talks about nationalizing banks, the outlook for developing
countries, and the need for an international financial regulator.
Joseph
Stiglitz was awarded the Nobel Prize in economics in 2001. Under U.S.
President Bill Clinton he served as chairman of the Council of
Economic Advisers from 1995-1997. He was chief economist of the World
Bank from 1997-2000 and was a lead author of the 1995 Report of the
Intergovernmental Panel on Climate Change, which shared the 2007
Nobel Peace Prize. He is currently a professor at Columbia University
in New York.
DW-WORLD:
Many experts fear that while things are bad now, we haven’t seen the
worst of the crisis yet. Do you share the belief that we are facing a
long decline that could rival the great depression?
Joseph
Stiglitz:
We live in a very different world than during the Great Depression.
Then, we had a manufacturing economy. Now we have a service-sector
economy. Many people in the in the United States are already working
part time because they can’t get full-time jobs. People are talking
more about the ‘comprehensive’ measures of unemployment, and these
show unemployment at very high levels, around 15 percent. So it
clearly is a serious downturn.
Another
big difference between now and the Great Depression is then we didn’t
have a safety net. Now we have unemployment insurance.
DW:
Economists Nouriel Roubini and Nassim Taleb, who predicted the global
economic downturn, have called for a nationalization of banks in
order to stop the financial meltdown. Do you agree?
Stiglitz:
The fact of the matter is, the banks are in very bad shape. The U.S.
government has poured in hundreds of billions of dollars to very
little effect. It is very clear that the banks have failed. American
citizens have become majority owners in a very large number of the
major banks. But they have no control. Any system where there is a
separation of ownership and control is a recipe for disaster.
Nationalization
is the only answer. These banks are effectively bankrupt.
DW:
The Institute of International Finance estimates that the private
flow of capital to developing countries will shrink by about
two-thirds. Are we facing a situation where we could see a total
collapse of many developing countries?
Stiglitz:
I think many governments of emerging nations actually have a much
better central banking system than the United States. They realized
the risks of excessive leverage, excessive dependence on real estate
lending and so they took much more prudent actions. Many developing
countries also built up large reserves and are in a better position
to meet this crisis than they were a decade ago.
But
some will face very difficult times, potentially defaults. Some of
these countries are suffering from having paid too much attention to
what has gone on in the United States.
DW:
Should steps be taken to help these developing countries?
Stiglitz:
Very definitely. I think it is absolutely imperative not just for the
interest of these countries, not just from a humanitarian
perspective, but from the perspective of global stability. It is not
possible to have a strong global economy when there are large pockets
of economic turmoil.
The
World Bank has called for advanced industrial countries as they are
bailing out their own industries and provide subsidies, to set aside
some amounts for the developing countries, who can’t compete on this
uneven playing field.
DW:
U.S. President Obama blasted banks for paying out billions in
bonuses to executives while still on brink of collapse. Do you agree
with him that their behavior is "shameful" and
"irresponsible"?
Stiglitz:
Yes, it is shameful and irresponsible. But it is not a surprise …
for years the executives of American firms have defended their
outrageous compensation, saying it’s important as an incentive
scheme. How in the world can you give bonuses of billions of dollars
when your firm has had record losses of billions of dollars? Unless
you’re rewarding people for failure you shouldn’t be getting bonuses,
you should be getting penalties.
DW:
In her speech at the World Economic Forum, German Chancellor
Merkel warned the U.S. of protectionism and criticized subsidies for
American auto companies. Is she correct? Do you see a danger
that the U.S. will resort to protectionist measures?
Stiglitz:
Yes, very clearly. We have always been aware that protectionism takes
two forms: Tariffs and subsidies. Subsidies distort the playing field
just like tariffs do. Subsidies are even more unfair and even more
distorting, because while developed countries can give subsidies,
poor countries can’t afford to do so. Rich countries are distorting
the level playing field by giving huge subsidies, not necessarily in
the intention of protection, but with the consequence of protection.
DW:
Merkel recently called for an international financial oversight
body, and consensus on the issue is growing. How realistic do you
think it is that governments and companies would give up sovereignty
to an international entity?
Merkel’s
idea is a very important one, which I have long supported. You need
to have coordination of global economic policy that goes beyond the
IMF, which has failed, and the World Bank. You cannot say that we
have open borders without global regulation. It is inconceivable as
we go forward that we would allow financial products that are risky,
manufactured in countries with inadequate regulation, to come without
regulation into the United States and vice versa. International
companies that are committed to globalization should be at the
forefront of calling for international regulation.
Michael
Knigge interviewed Joseph Stiglitz
