Contents | October 2002

More on politics and society from The Atlantic Monthly.


The Atlantic Monthly | October 2002

[From "The Roaring Nineties," by Joseph Stiglitz]

 
Wall Street's Handmaiden

The case for free movement of capital is based on a logical foundation. Poor countries need funds to develop, and rich countries tend to have a surfeit of savings; so why deprive the less fortunate of financial resources? Moreover, when investors are restricted from putting their capital into an investment overseas that offers more attractive returns than they can get at home, the world's overall resources are presumably being used less efficiently than they might.

But as the trend toward ending capital controls accelerated in the 1990s, some experts began to grow uneasy ... in the early years of the first Clinton term, economists at the Council of Economic Advisers (CEA) questioned whether the Treasury Department was committing a blunder by continuing the policy ... To [Alan] Blinder and fellow CEA member Joseph Stiglitz, Treasury was acting as Wall Street's handmaiden and taking insufficient account of the risks involved in exposing developing countries to the ebbs and flows of global money markets. Blinder and Stiglitz did not object to direct investment by multinational corporations overseas; along with the overwhelming majority of economists across the political spectrum, they believed the building of factories and other business operations in low-wage developing countries was generally positive for living standards. Their problem lay with financial flows, especially short-term flows, which are susceptible to sudden reversals. In those days, Blinder recalled, "everything in the administration was about job creation," and Treasury wanted to prevent countries from maintaining barriers to one of America's most competitive industries—banking and finance. Blinder and Stiglitz hotly disputed Treasury assertions that, besides providing benefits for U.S. firms, lowering obstacles to foreign financial institutions would confer benefits on emerging markets as well ...

— From The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF (2001), by Paul Blustein

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The Atlantic Monthly; October 2002; ; Volume 290, No. 3; 84.