SEMINAR ON ECONOMIC DEVELOPMENT AND SOCIAL EQUITY IBSA DIALOGUE RIO DE JANEIRO AUGUST 2005

1. SEMINAR ON ECONOMIC DEVELOPMENT AND SOCIAL EQUITY IBSA DIALOGUERIO DE JANEIROAUGUST 2005

2. AN AGENDA OF NORTH-SOUTH COOPERATION Keynote address Joseph E. Stiglitz Columbia University and Initiative for Policy Dialogue

3. OUTLINE • SHARING INFORMATION • WHAT HAS WORKED AND NOT WORKED • FORMULATING COMMONALITIES OF DEVELOPMENT STRATEGY • THE POST WASHINGTON CONSENSUS CONSENSUS • PRIORITIZING COMMON GLOBAL AGENDA • TRUE DEVELOPMENT ROUND • REFORMING THE GLOBAL FINANCIAL SYSTEM • A GLOBAL ENVIRONMENTAL AGENDA • THE RAINFOREST COALITION

4. THE FAILURE OF THE WASHINGTON CONSENSUS • DID NOT SUCCEED IN PRODUCING GROWTH • AND WHAT GROWTH DID OCCUR WAS NOT EQUITABLY SHARED • TRICKLE DOWN ECONOMICS DOES NOT WORK • NOT SURPRISING—EQUITY NOT EVEN MENTIONED

5. IMPORTANCE OF EQUITY • END IN ITSELF • GDP BAD MEASURE OF SUCCESS • GDP INCREASE EVEN AS COUNTRY GETS POORER • LATIN AMERICAN DEBT • RESOURCE DEPLETION, ENVIRONMENTAL DEGRADATION • BETTER TO FOCUS ON NNP • EVEN BETTER TO TAKE ACCOUNT OF LIABILITIES • CAN HAVE RICH COUNTRIES WITH POOR PEOPLE • BETTER TO FOCUS ON MEDIAN INCOME

6. IMPORTANCE OF EQUITY EQUITY PROMOTES GROWTH • BETTER USE OF HUMAN RESOURCES • SOCIAL AND POLITICAL SUSTAINABILITY

7. MARKET FAILURES • EVEN UNDER BEST OF CIRCUMSTANCES, NO REASON TO BELIEVE MARKETS CONSISTENT WITH SOCIAL JUSTICE • MODERN THEORIES EMPHASIZE THAT EQUITY AND EFFICIENCY CANNOT BE SEPARATED • AGENCY THEORY • ONE OF ARGUMENTS FOR LAND REFORM • SHARECROPPING ATTENUATES INCENTIVES JUST AS TAXES DO

8. IMPLICATIONS IMPORTANT TO INCLUDE EQUITY CALCULUS IN EVERY ASPECT OF POLICY MAKING • LAND REFORM • PROJECT EVALUATION • MACRO-ECONOMIC POLICY • CANNOT DELEGATE MACRO-POLICY, INCLUDING MONETARY POLICY, TO TECHNOCRATS • WRONG TO HAVE SINGLE MINDED FOCUS ON INFLATION • ENORMOUS DISTRIBUTIONAL CONSEQUENCES OF UNEMPLOYMENT

9. DESIGN OF WELFARE, EDUCATION, GROWTH PROGRAMS • KEY ISSUES OF SELECTION, INCENTIVES TO PARTICIPATE • SELF-SELECTION MECHANISMS • USE OF LINKAGES • VIRTUOUS CIRCLES—LESS INEQUALITY, HIGHER PARTICIPATION RATES IN EDUCATION

10. ELEMENTS OF POST WASHINGTON CONSENSUS CONSENSUS • IMPORTANCE OF EQUITY • IMPORTANCE OF EMPLOYMENT • BALANCED ROLE OF GOVERNMENT AND MARKET • PROMOTING AND REGULATING MARKETS • PROVIDING INSTITUTIONAL AND PHYSICAL INFRASTRUCTURE • PROMOTING EDUCATION, INNOVATION, AND TECHNOLOGY COUNTRIES CAN SUFFER FROM HAVING TOO LITTLE GOVERNMENT AS WELL AS TOO MUCH NOT SO MUCH SIZE OF GOVERNMENT, BUT WHAT IT DOES AND HOW WELL IT DOES WHAT IT DOES

11. TOWARDS A COMMON AGENDA:TRADE • THE URUGUAY ROUND WAS UNBALANCED—POOREST COUNTRIES ACTUALLY WORSE OFF, AGENDA SET BY NORTH, FOR NORTH • THE DEVELOPMENT ROUND AGENDA DOES NOT DESERVE EPITHET • NORTH HAS RENEGED ON PROMISES

12. WHAT IS NEEDED • PRO-POOR • DEVELOPED COUNTRY TARIFFS AGAINST DEVELOPING COUNTRIES FOUR TIMES HIGHER THAN AGAINST DEVELOPED • DEVELOPING COUNTRIES WERE FORCED TO GIVE UP SUBSIDIES, DEVELOPED COUNTRIES KEPT THEIRS • PRO-DEVELOPMENT • PRO-TRADE • FAIR TRADE AGENDA

13. PRO-POOR • EXTENDING EBA INITIATIVE • AGRICULTURE • BUT NEED TO RECOGNIZE THAT MANY DEVELOPING COUNTRIES WILL BE HURT • PRODUCTION SUBSIDIES ALMOST AS BAD AS EXPORT SUBSIDIES • U.S. BAD FAITH IN DOUBLING SUBSIDIES, CLAIMING COTTON SUBSIDIES NOT TRADE DISTORTING • OTHER SUBSIDIES CAN ALSO BE TRADE DISTORTING • INCLUDING WATER • SHORT TRANSITION • CURRENT PROGRAM ACTUALLY HURTS SMALL FARMERS • IMMEDIATE ELIMINATION OF ALL LARGE SUBSIDIES

14. PRO-POOR • LABOR INTENSIVE SERVES • MIGRATION • MORE IMPORTANT FOR GLOBAL EFFICIENCY THAT CAPITAL MOBILITY • IMPORTANT FOR DEVELOPING COUNTRIES AS FDI

15. PRO-DEVELOPMENT PULLING UP THE LADDER—TAKING AWAY STRATEGIES USED BY DEVELOPED COUNTRIES TO GET WHERE THEY GOT • ASYMMETRY—DEVELOPING COUNTRIES IMPOSE NO HARM ON DEVELOPED, CONVERSE NOT TRUE • TRIPS—IMPAIRS ACCESS TO KNOWLEDGE, HUGE DRAIN ON DEVELOPING COUNTRIES • IMPORTANT INITIATIVE BY BRAZIL AND OTHERS AT WIPO • A PRO-DEVELOPED INTELLECTUAL PROPERTY REGIME • ESCALATING TARIFFS • OTHER ISSUES—SECRET BANK ACCOUNTS, ARMS SALES, TAX COMPETITION

16. PRO-TRADE • NON-TARIFF BARRIERS REPLACING TARIFF BARRIERS • BEING USED AS A BARRIER TO SOUTH SOUTH TRADE • TRIPS AS A TRADE BARRIER (COMPULSORY LICENSE) • COUNTER WITH GLOBAL COMPETITION POLICIES • PRO-DEVELOPMENT STANDARDS • PROMOTING OPEN ACCESS • BILATERAL TRADE AGREEMENTS • TRADE DIVERSION RATHER THAN CREATION

17. A COMMON AGENDA • BARGAIN TOGETHER • RECOGNIZING DIVERGENT INTERESTS • BUT BETTER OFF IF THEY BARGAIN TOGETHER • DEMAND A TRUE DEVELOPMENT ROUND • SOUTH-SOUTH AGREEMENTS MORE LIKELY TO YIELD BENEFITS • REJECT UNFAIR BILATERAL AGREEMENTS • ESPECIALLY THOSE BUILT ON “DREAM” OF INVESTMENT FLOWS • NO AGREEMENT IS BETTER THAN ANOTHER UNFAIR AGREEMENT • RECOGNIZING THAT URUGUAY ROUND WAS UNFAIR • BUT AT LEAST ESTABLISHED RUDIMENTS OF A RULE OF LAW

18. GLOBAL AGENDA: FINANCE • CURRENT REGIME PLACES BURDEN OF EXCHANGE RATE AND INTEREST RATE RISK ON DEVELOPING COUNTRIES—AT HUGE COST • CURRENT REGIME LEADS TO HIGH LEVELS OF GLOBAL INSTABILITY—AGAIN AT HUGE COST • UNDERLYING PROBLEM GLOBAL RESERVE SYSTEM THESE ARE ISSUES IMF SHOULD HAVE BEEN FOCUSING ON • NOT CML, WHICH INCREASED GLOBAL INSTABILITY AND HURT DEVELOPING COUNTRY • THOUGH IT HAS FINALLY RECOGNIZED THAT CML REPRESENTS RISK WITHOUT REWARD

19. GLOBAL RESERVE SYSTEM • INEQUITABLE • RESERVES REPRESENT LOW COST LOANS FROM DEVELOPING COUNTRY TO DEVELOPED • HIGH OPPORTUNITY COST • COST GREATER THAN FOREIGN AID • US, RICHEST COUNTRY, LIVES BEYOND ITS MEANS, GETS TO BE CONSUMER OF LAST RESORT

20. DEFLATIONARY • BURYING LARGE AMOUNTS OF PURCHASING POWER IN GROUND DEFLATIONARY • COMPARISON WITH GOLD STANDARD

21. INSTABLE • SUM OF DEFICITS EQUAL SUM OF SURPLUSES • IF SOME COUNTRIES INSIST ON RUNNING SURPLUSES, OTHERS MUST RUN DEFICITS • SURPLUS COUNTRIES AS MUCH PART OF PROBLEM AS DEFICITS • DEFICITS AS HOT POTATOES • INHERENT PROBLEM—RESERVE COUNTRY PRODUCES IOU’S, UNTIL SO MANY NO ONE WANTS TO HOLD

22. CHANGING GLOBAL PERSPECTIVE • DOLLAR NO LONGER SAFE ASSET • WHAT MATTERS IS NOT JUST INFLATION • BUT EXCHANGE RATES • THOSE WHO HELD DOLLAR T BILLS HAVE LOST • DOLLARS NO LONGER NEEDED TO GIVE CONFIDENCE TO CURRENCY • IMPORTANT TO HAVE CUSHION • AND TO MANAGE WEALTH • IMPLYING DIVERSIFICATION • DIVERSIFICATION AWAY FROM DOLLAR

23. CHANGING GLOBAL PERSPECTIVE • ASIA SOURCE OF SAVINGS • WHY SHOULD U.S. RECEIVE SEIGNORAGE, PROFIT FROM MANAGING WEALTH? • ASIAN COOPERATION ON RESERVE—CHANG MAI INITIATIVE • ASIAN C0OPERATION ON FINANCIAL MARKETS—ASIAN BOND MARKET • NEED TO BE BROADENED

24. GLOBAL ENVIRONMENT • DEVELOPING COUNTRIES PROVIDE ENORMOUS ENVIRONMENTAL SERVICES TO DEVELOPED COUNTRIES, FOR WHICH THEY ARE NOT BEING COMPENSATED • BIODIVERSITY • CARBON • FAIR MARKET VALUE OF COMPENSATION ENORMOUS • COSTA RICA SHOWN THAT SUCH A SYSTEM CAN WORK, DELIVER BENEFITS TO SMALL LANDOWNER • MAJOR MISTAKE AT KYOTO—FAILURE TO INCLUDE AVOIDED DEFORESTATION • MAGNITUDE ENORMOUS

25. RAINFOREST COALITION • SOUTH COOPERATIVE EFFORT • RECOGNIZING GLOBAL WARMING AS A GLOBAL PROBLEM • IN WHICH THERE MUST BE SOUTH PARTICIPATION • COULD MAKE SUBSTANTIAL DIFFERENCE FOR GLOBAL ENVIRONMENT AND DEVELOPMENT OF AFFECTED COUNTRIES

26. CONCLUDING COMMENTS • IBSA ENORMOUS OPPORTUNITY • FOR SHARING KNOWLEDGE • AND DEVELOPING COOPERATIVE PROGRAMS • GLOBAL ECONOMIC AGENDA HAS BEEN SET LARGELY BY NORTH, FOR NORTH • ONE OF REASONS THAT GLOBALIZATION HAS FAILED TO YIELD PROMISED BENEFITS • IBSA CAN HELP ARTICULATE A NEW FRAMEWORK FOR EQUITABLE GROWTH • AND A NEW GLOBAL AGENDA