In conversation with
Lord Meghnad Desai
In association with Youth Forum on Foreign Policy and Eclectic Times
"Asia Rising: Implications for the World Economy"
These issues raise some key questions: On the domestic front, what are the appropriate economic policies that will allow India to continue weathering the crisis and to maintain healthy growth while addressing persistent challenges of poverty and inequality? On the international front, can India and China play a greater role in stabilizing the global economy, especially by assisting the ailing economies of Europe and the United States? If India and China are to take up the challenge of bailing out Western economies, what can they expect in return? For example, will the West in turn heed India's long-standing demands of greater representation and decision-making power in organisations such as the IMF, World Bank, UN Security Council, etc.? Taking a long term view, what would be an appropriate path for the two Asian economic giants in the near future as the global crisis unfolds?
Meghnad Desai(MD): Okay, let me start by, Joseph Stiglitz is not just a practical economist, he is one of the greatest theorists, and I respect him more as a theorist when we used to work in different economic departments. Now, you have been warning western countries about the weakness of the financial structures, their lack of regulation somewhat. What we are witnessing now is the rise of Asia and the relative decline or slowing down of the west, now do you see this arising from a common set of circumstances? Or do you think this is going to be a completely new world in which we are going to live?
Joseph Stiglitz (JS): First of all, I think you need to think about this in historical perspective, in 1820, China and India together has more than 45% or more, 50% of the global GDP. And then a series of things; colonialism, unfair trade agreements, unfair trade practices, industrial revolution resulted in the shared GDP of these two countries going from near 50% down to less than 10%. When we are thinking about what is going on now is a correction of this historical anomaly. With 40% of population in India and China, of the world's population, there is no reason why they do not have a much larger share of global GDP, I think that's what you are seeing. What has accelerated the process are, on the one hand, the mistakes in the United States and Europe, and that's the financial deregulation and there are some discussions in India to follow that deregulation, a mistake I think. The second thing is that, I think there has been some very good policies followed in India and China, but particularly one of the things that is important, is that, we've realized that what separates developed from less developed countries is not just the gap in resources, but also a gap in knowledge. And there's been a re-orientation in trying to close that gap, and India has done a very good job of doing that, and that's allowed growth rates that no one ever thought was possible before. So I actually think that there's no reason why that gap shouldn't continue to close and convert back to the world we had before the 1820's.
MD: Can I give another interpretation which you can then challenge. That all that has happened is that, the western countries have lost the habit of saving, they are spending. Asian countries have learnt the virtues of saving and hard work and what we are witnessing is Asian countries are now practicing the old methods of capitalism, and Europeans and Americans are now in a post-capitalist euphoria. Would that be self correcting?
JS: That's a clear part of it and just to give you some numbers on that. Before the crisis in United States, the household savings rate had gone down to zero. That obviously is not sustainable, and it wasn't sustained. And the result of this, in the case of China, the problem they have is too much savings. The savings have been close to 50% of GDP. But the implication of that is, even though China's economy is much smaller still, the total savings originating from China now exceeds that in United States. And that's going to have profound effects going forward.
MD: Now one thing one could say in this, addition, is that Asia has a demographic dividend as they call it; it's got a rising population, whereas in the west, they have a stagnant population. So, in a sense, these things are adding to narrow the differences between the regions. Do you think that's of any importance, or do you think that is a minor.....
JS: What some people like Bernanke said in the United States was that the problem was a savings gap. I think that was basically a wrong view, because it wasn't as if the world was saving too much, it was that the savings was not well used. There are huge needs for retrofitting the world for global warming, needs for development, needs for addressing the problems of poverty, and to say there was too much savings from a global perspective was just wrong, it was absurd. The problem was the global financial market was not using the savings efficiently. And it was a failure of global financial markets, and that goes back to the question you asked in the beginning, it was really the failure of de-regulation, the failure to trust financial markets to allocate savings to manage risk well and they didn't do it. De-regulated markets did a very bad job of it.
MD: Now going one thing further, will a reform of the global governing institutions, IMF, World Bank, perhaps giving the emerging economies a bigger role, would that improve the efficiency of the international monetary system? Or you think it's more the private financial markets which are the problem not the regulatory system.
JS: I think both. I think both are part of the problem. I think it's inevitable that the emerging markets will eventually get more voice, but it's also almost inevitable that United States in Europe are going to be resisted and it's going to be very difficult. I was at a meeting of the IMF just last fall and one of the speakers from Asia made the observation, he quoted one of the American officials ten years ago, who said, when people were complaining about the U.S. having too much voice in the IMF, the American official said, "He who calls the piper, calls the tune" and he said, "Now that we're paying the piper, we call the tune." And there was a little bit of grimace on the part of some of the other people in the room but that's the reality of where we are going that it's clear where the savings is, where the money is, and that will change the global economic balance of power, inevitably.
MD: Now let me move to one another thing that was mentioned earlier by the Chief Minister and from the podium. There is poverty in Asia, there is poverty in the developed countries, these are I presume different sorts of poverty and they have a different card of solutions. Would you say the Asia needs the standard economic solutions of higher productivity, more investment, more education whereas in west they is a different kind of issues about incentives and somewhat poverty.
JS: I think there are some similarities and some differences, let me talk about one of the general principles, a lot of people used to think that trickle-down economics. That is, you let the economy grow, and everybody is going to benefit. An expression that was used in United States was that, 'a rising tide lifts all boats'. That's not true. It's not true in developed countries; it is not true in developing countries. It's a common failure. As an example, in United States, our GDP was growing steadily until 2008, but most Americans were not sharing. So today, most Americans have an income lower than what it was in 1997. And the typical worker, say, a male worker, working full time today has an income that's comparable to what it was in 1978, over thirty years ago. So even though it has grown, it hasn't gone to most citizens let me say, it's not just the poor, it's even the middle that's not participating.
That's the same problem in emerging markets, the problem in India, you've had a lot of growth but a lot of people have not benefited from that growth. So governments I think have to really think hard about how to shape economic policies to make sure that everybody benefits from the growth. We call that inclusive growth. And some policies actually hurt the people in the middle and the bottom; can cause more poverty. You know, financial de-regulation causes instability. It's always the people in the bottom who suffer. So that's an element that is common between developed and developing countries. Where it's different, I think is, in United States we are rich enough that we could eliminate poverty overnight if we wanted to, we have the resources. India is not really at that point, and that's why the challenge of making sure that you continue to grow so you have more resources, so you can share some of those resources with the people in the bottom and eliminate poverty, that makes the challenge or difficulty in India much greater.
MD: You were an author along with Amartya Sen of the famous study of the measurement of GDP and well-being. Would you say that is more germane, the idea was that GDP was not a good measure of well-being, not an adequate measure of well-being and that report caused a lot of good discussion. Would you say that particular perspective is more relevant to developed countries, as for the developing countries the old GDP is a good war-horse?
JS: No, I think the issues that we raised are equally relevant but the form they take is different. The Chief Minister said you have to have different policies for different countries, even different parts of the country. So let me just give you an example, what we emphasized were two or three points, the first thing is that GDP does not talk about what's happening to most citizens. (Distribution) The distribution issue.
The second thing that we emphasized was sustainability, environmental sustainability, economic sustainability, social and political sustainability. In United States, we had growth but it was sustainable. In India one of the concerns right now that, your agriculture in many parts of the country is not sustainable even though growth is small, it's using up the ground water and it's not environmentally sustainable and the planet as a whole is not environmentally sustainable because of global warming so that's the second thing. That's an issue for developing countries as much as it is developed countries.
The third issue that we emphasized that there are many other aspects of well-being that are not captured well in GDP and you need to think of more holistically about a society in which people are better off, in a meaningful sense. An important aspect for that, for instance is jobs. And jobs, employment is not only important because of the income to which it gives rise but it's an important part of people feeling meaningful, a meaning to their lives.
MD: Now you have been walking in the backward Assam, having this first-hand experience of the economy. So, coming closer home, Assam is rich in natural resources, do you think there is a problem of fostering development by using natural resources. Would that have a conflict of sustainability or do you think there is something Assam can do, encouraging certain activities which is productive and sustainable.
JS: Let me first say, the general principle, which is that, every society, every country, every state, needs to think about its natural comparative advantage to leverage off that, to use those. Markets won't use them necessarily well on their own, and that's particularly true in the case of natural resources. Markets don't price natural resources correctly therefore they are not the right incentives, there are huge problems of externalities, and therefore there needs to be a more pro-active role in government in shaping these policies. Around the world I think the countries that are lucky enough to at this point of time have preserved their natural resources, should really take an active policy to try to maintain that going forward.
Most of the world has lost their environmental heritage, but Assam is lucky that it still has so much of these natural resources, there's obviously a challenge because of the confrontation between settlement and some of the natural resources. And therefore managing that is going to be very difficult but I think the economics can work out on a positive side. That is to say, I think it can be an important component to development, eco-tourism, organic farming, all of these are important components. It was mentioned that I had the opportunity to walk around some of the rural villages and you can really see the potential in this area. We visited an organic tea plantation, and one realizes that the chemicals...It was right near the park and chemicals that have previously been used obviously get into the ground water, into the environment. And what one does at one place has effect on others. And this was a very impressive initiative to try to prevent those kinds of spillovers.
MD: Now, you talked a lot about government, some people would say in a stereotypical sense a state is a good neutral actor but in actual form, what we actually get are governments which might make mistakes, are corrupt or driven by short-term considerations. Is there a better way of talking about government, some rules of good governance? Or should we rely more on collective action, which is more civil society, NGO's...Can NGO's play a role in economics?
JS: I think that we need civil societies, we need...You know, sometimes we talk about the market and the government as if they are the only two actors. I think that's wrong. I think you need an act of civil society to be a check. When I was in the Clinton administration though, one of the most interesting projects, you might say, initiatives that we had was something we called re-inventing government and what we did was, we went through every department in the government and asked a question – why was the role for government? What were we trying to do? What were the alternative ways of doing that? Could we do it better? Were we serving the population which was our goal, better? Which was in many areas successful, not in all the areas but I think it attained a lot of success. In a sense, in a democracy, there is always this pressure, from the citizens for us to deliver more. It's not the same as market pressure but it's the pressure from the voters.
And we were having a conversation in the cars when we were coming up here about the issue of populism and some people say populism is a bad thing and I said, "What is populism?" It's giving people what they want and if that's not what democracy is about, what is it about? I really liked the remarks of the Chief Minister in saying that this is the, you might say, the market pressure on the political side like the market pressure on the market side.
MD: Let me just explain that a little bit further. I would say populism is giving people something without charging the proper price for it because the price falls somewhere else in the system. Now one of the big debates going on in India, as you are no doubt aware, is about corruption. And whether corruption has become part of the system because that is the way it performs its tasks. Or whether one can go on having populist policies as it clear them off corruption...Have you given thought to corruption as such...
JS: Let me just say, the problem is a serious one and it's serious both in the public sector and the private sector in every country. If I look at what went on in the financial sector in United States, we don't use the word corruption but it was corrupt and the consequence was a greater waste of resources than any demographic government has ever been engaged, literally the cost to society in trillions of dollars. So you have to keep this in perspective, perfection is not our goal but it is improving things. I think that there are some aspects of our democracies which contribute to this problem. And that we ought to think about and figure out how to address those and they are not necessarily easy. I thought more about the case in United States obviously than India, in United States, what contributes to corruption American-style is the fact that our elections are so expensive, we need to have campaign renounce reform, we need to make it easier for people to vote, so there are a number of political reforms that I think would actually reduce the extent of corruption.
Lady from the audience: Good afternoon Professor Stiglitz, Lord Desai, thank you very much for coming to Assam. My question pertains to what this means to Assam and Northeast in general, especially for India in terms of geo-politics? And what are the implications for India with China, what is the geo-political issue?
MD: I think one can look upon Assam's situation as they say in business school not so much as a challenge but as an opportunity. Obviously there is a problem with China in relations but unless it explodes, it will go on getting better and easier for China and India to trade with each other, exchange populations ...There are 7000 Indian students in China as I was told yesterday. Now I think the greatest opportunity for Assam is Myanmar on its border which was kind of asleep for 50 years. It's going to wake up, going to be lot of investments there; it's going to be growth area. So east of Assam there's going to be rapid growth area than there has been over the past years. So it might be possible for Assam to take advantage of these new opportunities. So don't think of these things entirely negatively, there may be with sufficient ingenuity and using the skills of the people and plus investing and improving under the skills, it would be possible for Assam to benefit, so I would say geo-politics can look bad but it is something that one can use creatively and use it to enhance Assam's growth opportunity rather than think of it negatively. Because thinking of it negatively does not help you, you're not going to be able to go to war with China so let's take advantage of it, and let's hope that things improve.
JS: I very much agree, you know, I mentioned before, the economic strategies have to be based partly around your natural comparative advantage, and what was a disadvantage of your location is becoming an advantage with the change in geo-politics. The fact is...I visited Burma a year ago, I am going in February, it is opening up, it is likely to open up, it is not fully transparent but it's likely to be opening up and they are engaged in a lot of trade with China and in a way this area becomes much more open and Assam rather than being cut off from India becomes India's window to Southeast Asia and to China and that really is a real opportunity and you start thinking about....China's main interest, I believe, is economic. Any complex society has different people with different agendas but the main interest in China is economic growth and therefore this is a new opportunity for reaching out, a real opportunity for Assam as well.
Audience: The mass of the people, they are poor, they are not there as consumers or producers, I mean they are not producing them or consuming them. That means they are left out of the economic loop, I would like to have your comments on it. He talks about these great resources that India has, the natural resources but we find in recent times, there is a transfer of natural resources from public domain, i.e. government hands to the private i.e. the corporate and secondly we also find that is why we have some conflicts in certain states, specially with regards to land acquisition, and secondly we find that the economic production system here in India, in certain sectors, we find that the poor are not producers of goods, specially consumer goods, also as consumers so they are basically left out of the economic loop. I would like to have your comments on that.
JS: Let me first answer the first part of the question, this is a problem in a very large number of countries, where the country's natural resources are turned over to the private sector at prices that are not really reflecting their true value. It was a problem in United States that we fought, where mining companies get access to the resources playing just the normal royalties. We have got better in some areas like oil and gas but we still don't auction them off in a way that optimizes revenues, and there's an important NGO called Revenue Watch that's been working very strongly to try to make sure that people get the full value of these natural resources. And I do know that in some parts of India, this has been a problem like in coal mines and in other resources, have not gone the value....They have been given away, and that obviously is...
Another example of a natural resource is spectrum and as you know the sale of the spectrum was a source of some sensitivity. And that's a problem again in many countries, around the world designing good spectrum auctions so that you get the full value of it. We know how to do it, and unfortunately it is often under a lot of political pressure not to do it well. The other question is a broader question that related to inequality more generally, and again let me talk about in the context of United States, then I think you can see the implications of in on other countries. One of the interpretations of the crisis, the great recession, the financial crisis in 2008 was that, what was happening in United States was that the incomes at the bottom and even in the middle was going down as I mentioned, even though GDP was going up, most people's income was going down and the problem is their income was going down, they couldn't buy goods, and there would be insufficient demand. So we figured out a solution, we said, continue to consume as if your income was going up.
Don't let the fact that your income in going down both you but of course what that meant, the only way you can continue to spend when your income is going down is to borrow, and that was not sustainable. So in a way, one interpretation of the crisis was exactly that the poor, the bottom was not participating in the economy so this is one of the reason why it's important to have policies to make sure that all the people participate in the success of the economy.
MD: You know one of the things that happened in United States in particular, in western states in general, about 40 years ago, after the oil price rise, a lot of simple manufacturing processes shifted out to Asia, so people who had good stable jobs in America or in Europe, job which afforded a car, a house...Suddenly those jobs disappeared and they could either move down to low-paid service sector jobs or they were unemployed in Europe. And so this is the kind of collapse in the standard of living which stagnated the average wage in the U.S. Now that problem has now reached a climax and when the developed countries get out of this crisis, they would have to invent jobs that give people an adequate amount of living but that would require a serious re-distribution of opportunities and assets. In India it's a different problem, in India, very often I would say, poverty is the result of low productivity, either because you live in areas which are arid zones or because you don't have assets like land or implements, tools and so on. So we have to raise the productivity of poor people in order for them to be able to take part in the consumption sector. Because first of all, they have to earn enough to be able to consume enough and you can't really have one without the other. So I think, in India it's a long running problem, it's not so much a problem of subsidizing people where they are although one should not complain about that, it's giving them the opportunity to be able to get out of poverty on a sustained basis. And that is a more tricky anti-poverty policy that we have to design.
JS: Can I just make one more remark that the problems in United States are not just that the jobs have moved to India, China, and Asia. But also we have become the victim of our own success; productivity increases in manufacturing in particular were so fast that they were faster than the increase in demand so even if there hadn't been the outsourcing, the number of jobs would have gone down. And people would have to move to other sectors, so this is an example of the kind of restructuring that in a dynamic economy that you have to do, and the market often doesn't do it very well. It was the same problem 75 years ago, the Great Depression where we had such success in agriculture that in the 19th century in the west, still today in India, most people got their income from agriculture. It took most of the population to grow the food that people needed.
Today in the United States, only about 2 to 3% of the population grows more food that even an overweight population can eat. So they had to move from agriculture to other things, they moved from agriculture to manufacturing, well now they need to move from manufacturing to something else and the market is not very good at that kind of transition.
Audience: My question is to Professor Stiglitz, since the theme of this discussion is Asia Rising, so what do you think the emerging economies of Asia emulate and avoid about western economies.
JS: I think the things they need to emulate are some of the things that we did earlier, like savings. I think strong investment in education, good universities. Our important role in investment in research and technology, I think those are some of the bases that provide molasses of long term economic growth. I think one of the things that one should avoid are the high inequality that is arising in the United States, where we grew most rapidly in the United States from 1950 to 1973 or so, was a period where we has increasing equality. Things were getting closer together and it was also a period of rapid economic growth. (And full employment) And full employment and the period since then have been run on lower growth and growing inequality. The other thing I think that, we didn't treat the environment very well initially and we have done a lot better job in the last 30 years. I think it's very important for Asian countries to recognize it's a lot easier to maintain the environment than to destroy it and try to re-create it. In your cities, it a lot easier to do what you can as early as you can to create more livable cities, public transportation systems, things like that.
Ankur Jyoti Bhuyan, Cotton College: Through your theories, you have expressed your concern to make the concept globalization more meaningful and human oriented, and you have suggested some provisions like changing the view of capitalist views of development. You have provided through your theories that the capitalist view of government should be changed, would you please elaborate this point?
JS: The point is that, what I have always claimed that you need a balance between the market, the state and the civil society. So you need a balance which you might say a market economy, but it's a managed market economy that un-federate market economies like financial markets in United States, always run into problems. There has been crisis for the 200 more years of capitalism, it's inevitable. There have been problems of exploitation, of predatory lending, of all kinds of exploitation. So you need exploitation of the environment so one has to understand that markets do certain things well, but markets fail in certain other ways, governments fail. And so it's the interaction of the two and the civil society that you try to balance out the strengths and the weaknesses of each of these institutional mechanisms.
Ankita Sharma, Handique Girl's College: We know that China and India are the fastest growing economies of the world. In fact China has the second largest economy in the world. Asia has accumulated over 4 trillion dollars of foreign exchange reserves, but many western economies see this as a bad thing. How do you see it and how can it be utilized?
JS: Well, this is a question that we have discussed in many meetings together, international meetings. My view is, I think you agree, we need a international reserve currency. A system in which dollars are held as a reserve currency is really an artifact of the past. It's inconsistent with the 21st century, and there was a great deal of hope that in the G20 meeting this year, there would be progress in helping construct a new global reserve system. President Sarkozy wanted it, the head of the Central Bank of China wanted it, the Russians supported it. The U.N. Commission of experts on the international monetary fiscal system that I chaired also supported it. And said it was the most important reform in the international financial system, unfortunately United States vetoed it. And the reason was very clear; United States likes the ability to borrow from other countries at a zero interest rate. We all would like to borrow at a zero interest rate. But the point is that the current global reserve system, the dollar based system is not sustainable and it's only a matter of time before it falls apart and the real question in my mind is whether it will end in a orderly or disorderly way and I would like to move in an orderly way to a new global reserve system.
One of the things that one can do that is standard drawing right, with IMF issues which is right now not a proper currency, it's just sort of a claim, now if we could. ...the SDR consists of dollar, yen, sterling and euro are combined currency. Now one of the things we should be doing is adding to that basket of currency. Currency like RNB, rubles, riyal, the rupee, so broaden the structure but then make it a real....something that people can make settlements in, people can hold in reserves, it will become the store of value as well as a means of payment. If we can get the international system to evolve towards that so that it is not a single dollar based system but a multi-currency based system, it will be more stable and it will be more equitable. Right now the system is not equitable so that requires some fundamental changes in the governance of the international monetary fund which is one of the issues we have been discussing.
JS: He said it's not equitable, the current system, one of the consequences of the current system is that poor countries, emerging markets are lending to United States and Europe money at zero interest rates, money is moving in the wrong direction, it's going from poor countries to rich countries which is uphill, which is not the way it should go. Now I shouldn't advertise but those who want to read more about this, there is a chapter in my book, Making Globalization Work which I devote to the topic. It is available in Penguin books, as a paperback.
MD: I would say that Joseph Stiglitz writes very good, clear books which if you read, you will learn a lot. And he's not paying me for this.
Anisha Choudhury, Ahom Jatiya Vidyalaya: In a developing country like India, how can the common people get involved in the development of economy?
MD: I think in a variety of ways, for example you can be part of the civil society movement, which can be for micro-finance or self-help groups, or you can be in movements against corruption, you can actually see that your neighbors and their daughters go to school because one the of the big gaps of development is that daughters don't get as much education as sons do. The general awareness is one the big gaps in development. And all of us can take part in that because one of the tragedies in India is that for every thousand males, there are only 832 women. So somewhere 170 women have gone astray. These kinds of day to day issues, literacy, health, general balance, a self-help, these are the development issues. This is what people can do. To the extent that we can improve our own performance and encourage our neighbors to improve their performance that will add to development because lots of small things will make big things happen.
JS: and just let me add one further thing, I agree with everything you said, almost every activity that leads to the well-being of the economy, of society is part of development. So that somebody who is creating a new business, particularly if they do it in a way that's corporately social, responsible, is good for the environment is contributing to the development of the country.
Priyam Saharia, Meghalaya: Since you have had the experience of travelling around Assam for the last couple of days, I hope you had a good time. I just wanted to know since you have also been in the thick of working with the IMF and international organizations, how do you feel about the local interests, like the rural farmers gets represented in the IMF or personally, when you were travelling do you feel a disconnect between what you see on the ground and how policies are formed at the international macro level.
JS: I mean there are many problems. That's a very good question; one of the problems is the issue of governance of the international institutions that we talked about before. The international institutions have been run in the past by the G7, G8, and advanced industrial countries with relatively inadequate representation from developing countries and emerging markets. The second problem is the ministries who represent each country at the IMF and the World Bank tend to be the finance ministries, and the finance ministries are worried about budgets and finance markets and not about the rural markets and the poor and that would be true in our own country, let alone in another country. So that's just not what they are thinking about. So those are two long standing problems in these institutions. At the time that I was in the World Bank, the World Bank did a better job I thought than the IMF partly because the focus of the World Bank, the official motto was reducing poverty. And poverty is a very large section of the poor and the rural sector. And so it was very hard for the World Bank to ignore the rural sector if they were going to fulfill their mission of attacking poverty. And while not everybody at the World Bank was focused on this, there were a lot of people who were. I think the good news is more recently the IMF has changed. I don't want to say it's totally changed but it's changed in some very important ways.
Sujoy Paul, Assam University, Silchar: Asia rising or the growth of Asia, how far is this sustainable or what are the requirements for sustaining this growth?
JS: I think that there is no reason that Asia's growth can continue to be up to 6-7% for a very long time, the reason that is there is still a very big gap between the per capita income in Asia and the per capita income in the advanced industrial countries. And there is no reason why this gap should exist, it's not based on natural resources, it's based on two things: investment in human capital, in infrastructure and fiscal capital, and it's based in a gap in knowledge. And that knowledge gap has been closing very rapidly, and with the high savings rate in some Asian countries, even resource gap is being closed at an extraordinary rapid rate. But there is still 10, 20, 30 years before the differences in per capita income will be significantly diminished to the point where I think these growth rates will not be sustained.
MD: My answer would be, it's good governance or bad governance rather than political attitude. I can look across and there are socialist countries which have been successful and failure, capitalist countries success and failure... So it is not so much political attitude, if politics is expressed as ideology. It's basically what people do in terms of practices, setting up regulatory systems, practicing good governance, encouraging high saving, giving incentives for hard work, those are the things underlying the political attitudes and if that is right, I think we can allow any kind of political rectory to go on. Maybe I am being very skeptical but I would like to see beneath political rectory and see precisely what is happening.
JS: Let me just add one point to that which is , I think there is a real, in some quarters, there is a danger of, you might say extremism. In the United States, we had the Republicans who are saying that governments shouldn't be regulating. And then we wind up with the kind of problem we wound up before the great recession. Where the government shouldn't do anything about the environment then you wind up with a real environmental disaster. So the bottom line is there is a wide range of pragmatic institutions that will work and different countries have found different way, different institutional arrangements that have worked for them but I think there is a risk of ideology distorting the economic frame-work in ways that are counter-productive.
Audience: Is the present economic crisis, by crisis I also mean the Occupy Wall Street movement, is the inherent crisis of greed, inherent crisis of capitalist system?
MD: Well, I don't think so...
JS: I think that the issue of morality; things like greed is a serious one. Looking at, say the United States, the American bankers that exploited the poorest people, engaged in predatory lending, obviously there was a problem of basic morality, but there are so many that did this that I come to the view that it is systemic problem that they had incentives to behave badly. That encouraged bad behavior and that's one of the ...that's why you need to have regulatory systems.
MD: My view is that it's not a crisis of global capitalism, because India and China are more or less capitalist countries. Lot of emerging countries are having perfectly good growth and trying to do better by its people so if there is a problem of capitalism, it's from a certain kind of capitalism. Certain countries can have pursued some policies that they should not have pursued. So capitalism is going on, there's no alternative being constructed yet, indeed in the middle of the worst crisis of capitalism in the west, socialist parties are losing elections. So there is that part about it so I think what really matters is not so much capitalism in general, but what particular countries manage by way of good policy or bad policy.
Audience: I have a local issue to ask Professor Stiglitz, and international question to Lord Meghnad Desai. The local issue, you have visited in the last couple of days, the states of Assam, you have seen the agrarian society, we have two very important parties, on one side we have the production team, if you are talking about production, we have the end users or consumers, there are two scales that get the end products to the consumer, we have several stages where we have, what I would call it, non productive influencers, these non productive influencers will increase with arithmetic progression from the time of production to the end users, government of India have recently introduced institutions like WalMart and like, these institutions could shorten or eliminate this non-productive influencers, and get the production team to the consumer team in a much better effective way, there have been both for and against, Government of India, even the Prime Minister has taken the initiative to do this, that's my first question.
My second question to Lord Meghnad Desai, you have seen the Eurogen collapse starting from Greece, Italy, Spain and also to great extent the Republic of Ireland, now your country has been from the beginning state out of the Euro's, the whole brunt of the collapse is being borne by Germany and France mainly and now it has been backed by recently, with the support of the IMF and they thinking of having the Central Bank as assistance to have the reserves, do you think the British Government even recently have not to come to the rescue of the ...Do you think it was the right decision for UK to be out? Do you think, now that we did the right things by not joining the Euro?
JS: To answer a very complicated question, very briefly, I think it's very important to get greater efficiency in the bringing of goods from the farmers to the market and it's clear that it could be done much more efficiently than it is done typically. What is the best way of doing it though is a more difficult question. I think many Americans, at best shall I say, have mixed feelings about WalMart, you mentioned one example because it has bad labor policies, it has been accused of discrimination, it acts in some places in a monopsonistic using it's bargaining power and so one wants to make sure that one has in place the right regulatory framework, that would avoid these kind of adverse effects that could occur from allowing dominant entrants into the Indian economy.