Book Review: The Roaring Nineties
| | RISQ Reviews | 28 Apr 2004 |
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Auteur: Nynke Hendriks
 In the sequel to Globalization and Its Discontents, Joseph Stiglitz returns to many of the central issues of its predecessor, albeit from a slightly different angle.
'The example of Enron highlights the darker side of US government especially in the international arena where the corporate and financial interests of the US dominated the globalization agenda.'
The book covers more or less the same period (i.e. with the focus on the Clinton administration) but whereas Globalization and Its Discontents viewed the development of the globalization era mostly from the point of view of the many IMF policies and interventions across the world, The Roaring Nineties looks more at the domestic US situation during that same period and at how US politics affected the countries around the world.
Naturally, as a member and then chairman of the Council of Economic Advisers (1993-1997) and senior vice-president and chief economist of the World Bank (1997-2000), Stiglitz had an inside view into the Clinton administration and this combined with his anecdotal description of the economic and political developments in the 1990s make The Roaring Nineties once again a highly readable and insightful book.
One of the strengths of The Roaring Nineties is that so many often heard statements of this particular decade, i.e. how the financial establishment seized control and how a deregulated free market led to further inequality of wealth, come alive as Stiglitz subscribes to these statements with an amplitude of examples and explanations. Explanations that may not always be watertight but that are invariably thought provoking and clear cut.
The basic tenet of the book is that markets do not function well of their own accord.
Stiglitz focuses on two reasons as to why society does not benefit from the so-called ‘invisible hand’ market capitalism, i.e. Adam Smith’s idea that markets automatically lead to economic efficiency as if led by an invisible hand. Firstly, markets left to their own devices would produce too much of some things (e.g. air pollution) and too little of others (e.g. investments in education and knowledge). The second reason is that market players themselves need regulations to act properly and efficiently. Accounting tricks and market manipulation are just some of the issues that marked the boom and bust economy of the nineties as a result of far-reaching deregulation. Government regulations are therefore of vital importance and much of the book discusses the disastrous effects of the deregulation policies initiated by Reagan and carried through by Clinton into the nineties.
Epitomizing everything that was wrong with the nineties according to Stiglitz is the example of the boom and bust of Enron. The rapid rise of Enron and its dramatic demise clearly demonstrated how the policies of the subsequent US administrations (since Reagan) had changed the corporate landscape of America and along with it the world at large.
Enron was at the forefront of using new financial and accounting techniques that gradually became the standard in American businesses signalling a change of ethics and norms, particulary beneficial to the CEOs of major companies. Stock options, accounting tricks, public influence mongering, corporate greed and banking scandals were just some of the ingredients of the brief history of Enron.
Enron made a fortune thanks to the deregulation of markets that had hitherto been highly regulated, it actively pushed policies of deregulation and played a pivotal role in the deregulation of the Californian energy market in the late 1990s resulting in skyrocketing prices and an almost total breakdown of services. Suspicions of market manipulation by Enron and other companies were confirmed after Enron’s bankruptcy.
The political influence exercised by Enron was not confined to domestic markets but also included overseas ventures, most notably in the Dabhol plant II project in India. Enron’s power project in India was one of the largest direct investments in that country and the deal was based on a so-called ‘take or pay’ contract wherby Enron was guaranteed a high electricity price by the Indian government while the US government guaranteed the loans. The ‘take or pay’ contract is typical of the kind of private/public enterprises that offer only advantages and no risks to the private party. The guaranteed price exceeded the prices offered by the domestic markets and therefore put India at a disadvantageous position on the global market. However, India had inter alia signed the contract when the US government’s pressure was brought to bear during a cabinet trip joined by Enron officials. When India threatened to cancel the deal after riots had broken out US pressure was increased and the deal remained intact.
The example of Enron highlights the darker side of US government especially in the international arena where the corporate and financial interests of the US dominated the globalization agenda. And this is the crux according to Stiglitz: the economic globalization has outpaced the political globalization. The WTO treaties of the early nineties removed trade barriers, facilitated investments and strenghtened intellectual property rights, but no political vision was put forward of a global community that was so rapidly shaped in economic terms.
In this context Stiglitz emphasizes the contrast between domestic US policy and foreign US policy. The latter is characterized by a kind of market fundamentalism that differs considerably from the situation within the US. Agriculture is a prime example of how trade liberalization was forced on other countries while the US refused to remove its own trade barriers and eliminate its subsidies, and in fact erected a whole new series of non-tariff protectionist measures.
Another major globalization breakthrough in the nineties was the establishment of worlwide intellectual property rights (WTO’s TRIPs Treaty) including draconically strict patent rights favouring pharmaceutical companies and other firms. The tightening of patent rights not only put the prices of medicinal products around the world under pressure but also had several other consequences for the developing world. For example, it facilitated bio-piracy, i.e. corporations patenting traditional medicines and foods. Stiglitz refers to one of the most notorious cases where basmati rice lines and grain (that had been grown for centures by Indian and Pakistani farmers) were patented by the Texas-based company RiceTec, Inc. In this case the international outcry was such that RiceTec withdrew most of its claims but usually the patents were upheld and, where necessary, enforced.
Both the agricultural trade barriers and the introduction of stringent patent rights are examples of the predominance of the special interests lobby pre-empting the development of a solid political vision of a globalized world. In this respect, Stiglitz describes what he envisages by such a global agenda. Apart from opening up US markets to foreign trade, it would mean that the US government would encourage abroad what it worries about at home: employment, retirement, education and health security. He refers to his own vision as ‘Democratic Idealism’ which is based on a proper balance between the market and government regulation. Government should strive to achieve social justice at all levels, at the global and at the local level.
By showing how corporations in the 1990s wasted billions of dollars through sheer mismanagement, accounting tricks and greed, Stiglitz debunks the myth that markets use money more efficiently than governments and proclaims that the role of government should be strenghtened in some respects (education, health, research and the environment) while it should be weakened in others (trade interventions and bailouts of banks and corporations). He sees it as the primary task of government to maintain the economy at full employment and to narrow the gap between the wealthy and the poor which only widened during the nineties.
Not surprisingly therefore, the final pages of The Roaring Nineties devoted to the Bush jr. administration are a scathing attack on the tax cuts introduced by George W. Bush which benefited the upper echelons of US society, changed the sizeable budget surplus left by Clinton into huge deficits and exacerbated the economic downturn of the end of the nineties. The globalization agenda of the Bush administration meant that agricultural subsidies were doubled and other protectionist measures increased. Multilateral efforts such as global warming and strategic arms treaties were abandoned making the prospects of a global community from which all countries profit seem even more distant.
The Roaring Nineties, Seeds of Destruction (New York: W.W. Norton & Company, 2003)
Bibliography of Joseph Stiglitz
Published on 28 Apr 2004 by RISQ | www.risq.org
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