Published on IFIs Choike, source: United Nations, Oct 31, 2008.
… “We are now at another Bretton Woods moment”, he (Joseph Stiglitz) said, noting that the Bretton Woods institutions had been founded principally to maintain global economic stability and employment, not to push capital and financial market liberalization or promote contractionary fiscal policy in the midst of a depression or a recession. Liberalization had led to advanced growth, but also increased instability, and the global financial system had often worked to the disadvantage of developing countries. Emerging market countries had little if any representation in decision-making, and reform of the governance structure of the International Monetary Fund (IMF) had been insufficient. The current crisis also threatened to exacerbate poverty in developing nations, and the IMF had failed so far to propose adequate regulatory reform measures to avert the danger.
That situation must change, he said. Creation of an external shock facility was a good idea, as was creating a multilateral reserve system with greater stability. There must also be more global cooperation in setting macroeconomic policies, and the creation of a global financial regulatory commission should be studied urgently. The global response must also be based on rebuilding trust in the financial markets, which must serve society at large, not just a wealthy few. “The financial markets did not do what they were supposed to do, which was to manage risks and allocate capital”, he said. “We’re not going to restore confidence to the markets and the global economy until we re-earn that trust.”
Financial markets were not an end in themselves. What was good for them was not necessarily good of the economy, he said. The belief that the wealth earned on markets would “trickle down” to everyone was not true. On the contrary, the United States bailout had helped banks, but had done very little for homeowners losing their homes and workers losing their jobs. The United States response violated basic democratic principles of good governance and transparency, as well as the “polluter-pay” principle of cleaning up one’s own mess. The United Kingdom’s response had been the right one … (full text).