Disillusionment in the Developing World

Joseph Stiglitz reflects on the consequences of the economic crisis for market economies and democracy in developing countries, where the jury is still out on these institutions. “Many countries may conclude not simply that unfettered capitalism, American-style, has failed,” he writes, “but that the very concept of a market economy has failed, and is indeed unworkable under any circumstances.” [%comments]


Derick

Anyone who believes the market economy doesn't work frankly lacks empathy. Whatever ethical or social or ideological incentive they have to ignore history is causing them to deny the world the only social system that has ever brought a people to an industrial standard of living, ever. Period.

I don't know how a financial crisis caused by the federal reserve, government-funded corporate safety nets, the "coummunity reinvestment act," fanny and freddy (government institutions), etc. can be called the responcibility of the "unfettered market." Further, even if these kinds of crisis were the market's fault, I don't see how that can lead to "very concept of a market economy has failed, and is indeed unworkable under any circumstances" seeing as no nation has ever come even close to a Western standard of living without capitalism, and this crisis is nothing compared to the pre-Industrial state of people without capitalism live in.

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frankenduf

whoa, Derick- ever hear of the commies?- they established a 'Western standard of living' via a more blatant state-run economy (the myth is that we have a market economy- we have a state-run form of capitalism)- as to the Stiglitz quote- a market economy is indeed unworkable when it is exposed to the powerful 1st world corporations- think of our colonial origins- our only hope economically was to block cheaper European textiles (tariffs), otherwise our economy would have been gutted much the same way as the third world is today

caveat bettor

frankenduf, I think you have made an excellent point. Personally, I was thinking that Professor Stiglitz was channeling Walter Duranty.

Brent

The problem with these countries has nothing to do with capitalism. Adam Smith always said you needed strong legal and social institutions for capitalism to function. It's no surprise that these countries would conclude this. They have only natural resources in a world that really depends on a stable work force, and strong human capital to see economies grow. These countries have neither of these, only resources. Invariably selling natural resources only just distorts a developing country's currency and leads to wretched corruption (Russia,Nigeria, Ivory Coast etc.,). People don't feel like they can take risks in these countries, because of the unpredictable nature of their governments and cultures. the IMF and UN can dump billions more in, but these countries will never rise from poverty until they begin to respect property rights and construct governments that have checks and balances on different bastions of power.

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Avi Rappoport

Adam Smith recognized that some markets don't work rationally, and Alan Greenspan admitted the same before Congress.

For example there's an infinite demand for health care, and a limited opportunity to compare prices.

Matthew R.

The people who actually lived under communism didn't seem to think it was so great. Why were people risking their lives crossing the Berlin Wall only going in one direction? Of all the problems the commies had, illegal immigration wasn't one of them.

The Soviets and Warsaw Pact nations achieved a standard of living noticeably below Western standards (although above African standards), but at a tremendous social cost in repression and a complete disregard for environmental issues. The worst environmental problems of the West hardly hold a candle to the Trabant and Chernobyl.

Matthew R.

I don't blame the developing world -- the West did not follow its own rules, and we're paying the price. Their take-away from all this shouldn't be that there's something wrong with the system, however, but how the system was bastardized by politicians. The author hit it on the head: "... what is required for success is a regime where the roles of market and government are in balance, and where a strong state administers effective regulations." Market capitalism can't function without a neutral government to play referee -- not a government that picks winners and losers ahead of time, but one that enforces the rules the same for rich and for poor, and holds all people accountable for their actions and inactions (again, whether rich or poor).

Derick

Matthew makes some very valuable points.

One thing I must emphasize in relation to my earlier comments that I am not in all cases (only usually) pro-Western. Rather I am adamently pro-capitalist. Farm subsidies, an example of our "not playing by our own rules" and stop the third world from being able to fairly trade with us, and corporate subsidies and government conspiracy with the corporate world causes corporate corruption. We've done a lot of bad. It's simply not the market ideology that's made us done bad, as most Western government's detractors alleged; it's been in contradiction to it.

myron

Free trade is only sustainable when the exporting nation repatriates its profits. The creation of the credit bubble can be traced back to the imbalance in the financial accounts balance brought on insufficient repatriation of profits.

Until people start to understand this ultimate cause of the problem instead of blaming proximal policy matters like, "the federal reserve, government-funded corporate safety nets, the “coummunity reinvestment act,” fanny and freddy," we will not be able to have long-term stability in the financial market.