On Wednesday, April 2, Amherst sponsored a colloquium titled “Reducing Global Poverty” featuring Nobel Laureate Joseph Stiglitz ’64, former chief economist of the World Bank, and William Easterly, a former World Bank research economist. Both were supposed to propose concrete solutions for reforming the institutions that regulate aid and trade. Though the two are distinguished scholars and captivating speakers who offer devastating critiques of the current aid and trade systems, neither proposed any particularly satisfying solutions for the problems that plague the developing world.
Easterly charged that $2.5 trillion of aid to developing countries over the years hasn’t produced any positive results. Statistical analyses, he claimed, have shown no correlation between growth and aid. He blamed aid agencies’ reliance on quick fixes—development fads that would eventually die out, but not before vast resources had been wasted. These projects partly failed because of misguided optimism but more so because of the lack of incentives—especially among politically appointed managerial staffers—to effectively review particular aid programs. Easterly pointed to the latest development fad, the UN’s Millennium Development Goals (MDG), as, “one of the worst designed policy initiatives of all time.” The MDG campaign set forth 48 targets for development, presenting an endlessly tangled web of incentives for even the most well-intentioned and ambitious of aid workers.
Easterly’s disillusionment with the aid community was pervasive in his rhetoric. It seems the insight he gained working on aid for years has led to seasoned cynicism. This attitude has also led to his mistrust of collectivist solutions to problems despite the fact that developing economies suffer from market coordination dilemmas. His second talk, which was supposed to be on reforming multilateral institutions, instead relied on extensive quotations from Friedrich von Hayek, the theorist of free-market anti-interventionism (Stiglitz jokingly responded that Hayek’s masterpiece The Road to Serfdom should actually be titled The Road to Boredom). Though Easterly did call for increased transparency and a better independent review system in the World Bank and other multilateral institutions, he suggested throughout that these bureaucratic madhouses will probably never be amenable to reform. For Easterly, development solutions ultimately lie in individual entrepreneurship. As outsiders, it seems we can mostly provide aid effectively through innovative, “bottom-up” programs like micro-lending. The big plans of the West cannot possibly meet the needs of developing countries.
Stiglitz is one such proponent of the big, “top-down” plans that Easterly so easily dismissed. Stiglitz presented an overarching critique of the global economy. He spoke about the hypocrisy of developed countries’ demands for liberalization of developing economies when they themselves have refused to take down tariff barriers and eliminate subsidies. Trade agreements, especially the bilateral accords negotiated between the US and individual developing countries, have only reinforced these inequities. Stiglitz spoke with a moral firmness on these issues, demanding that the US live up to its own rhetoric of free trade. Another hypocrisy he unearthed was that the West advises developing countries not to promote state interference in the market. He pointed to the success of the export-push strategy of the East Asian tigers, but did not provide a sufficient defense for such targeted state interference, a policy which has failed in so many other developing countries.
Stiglitz’s proposed solutions for correcting the inequities between the developed and developing world were varied and extensive. He suggested liberalization of migration, which would decrease capital’s mobility relative to labor. As a result, firms would have to attract workers rather than states having to attract firms. He also encouraged the democratization of the World Bank and the International Monetary Fund, so that developing countries could have a voice in policy decisions. However, he failed to conceptualize how these institutions would become democratic—whether they would cede to pressure from the developing world or whether reformers within the institutions themselves would produce such a transformation. Easterly aptly wondered why the US, which by and large funds these projects, would allow countries outside the G8 to have much say in the way the institutions work and how their funds are allocated.
Although Stiglitz serves as a brilliant advocate for such reforms, he never really presented a coherent political account of why the US should change its stance on trade. He hinted that true liberalization of trade would be in the US’s long-term interests, since not as much anger would be directed towards it in the developing world. Simultaneously, however, his argument displayed distinctly moral overtones that ignore the geopolitical goals of individual nation-states. How can we create an equitable, democratic (even moral) system of global governance when the competing interests of nation-states are at stake? What kind of incentive structure would need to coalesce for democratic trade regimes to be enacted? The answers remain unclear even to a critic as brilliant as Stiglitz.
Neither of their approaches to development is particularly satisfying. If we follow Easterly’s prescription for letting internal economic development take place, the worst-off countries, such as Haiti, Bolivia, Yemen and Laos, may not take off within our lifetimes. However, Stiglitz’s demands for democratization of trade seem unflinchingly idealistic, and his internal development strategies, though they have worked in select cases, go against conventional economic logic. Ironically, the US-Colombia trade deal currently faces opposition from House Democrats, not because its terms are incredibly one-sided, but because it will supposedly take jobs from American workers. It is just this sort of self-interest (misplaced in this case, since the opening of Colombian markets will actually create jobs in the US) that Stiglitz fails to account for and Easterly overemphasizes, leaving us to wonder if the solutions to the dilemmas of aid and trade lie somewhere in between.