A group of five countries has launched its own development bank to challenge the U.S.-dominated World Bank and International Monetary Fund. Leaders from the so-called BRICS countries — Brazil, Russia, India, China and South Africa — unveiled the New Development Bank at a summit in the Brazilian city of Fortaleza. The bank will be headquartered in Shanghai. Together, BRICScountries account for 25 percent of global GDP and 40 percent of the world’s population. To discuss this development, we are joined by Nobel Prize-winning economist Joseph Stiglitz, a professor at Columbia University and the World Bank’s former chief economist. "It’s very important in many ways," Stiglitz says of the New Development Bank’s founding. "This is adding to the flow of money that will go to finance infrastructure, adaptation to climate change — all the needs that are so evident in the poorest countries. It [also] reflects a fundamental change in global economic and political power. The BRICS countries today are richer than the advanced countries were when the World Bank and the IMF were founded. We’re in a different world — but the old institutions haven’t kept up."
JUAN GONZÁLEZ: A group of five countries have launched their own development bank to challenge the United States-dominated World Bank and International Monetary Fund. Leaders from the so-called BRICS countries—Brazil, Russia, India, China and South Africa—unveiled the New Development Bank at a summit in Brazil. The bank will be headquartered in Shanghai. Chinese President Xi Jinping said the agreement would have far-reaching benefits for BRICS members and other developing nations.
PRESIDENT XI JINPING: [translated] Through the concerted effort from all sides, we have managed to reach a consensus in the creation of the BRICSdevelopment bank today. This is the result of the significant implications and far reach of BRICScooperation and is therefore the political will ofBRICS nations for common development. This will not only help increase the voice of BRICS nations in terms of international finance, but, more importantly, will bring benefits to all the people in the BRICScountries and for all peoples in developing countries.
AMY GOODMAN: That was Chinese President Xi Jinping. Together, BRICS countries account for 25 percent of global GDP and 40 percent of the world’s population.
For more, we’re joined now by Joseph Stiglitz, the Nobel Prize-winning economist, professor at Columbia University, author of numerous books. His new book is called Creating a Learning Society: A New Approach to Growth, Development, and Social Progress.
We welcome you to Democracy Now!
JOSEPH STIGLITZ: Good to be here.
AMY GOODMAN: Talk about the significance of this bank.
JOSEPH STIGLITZ: Oh, it’s very, very important, in many ways. First, the need globally for more investment—in the developing countries, especially—is in the order of magnitude of trillions, couple trillion dollars a year. And the existing institutions just don’t have enough resources. They have enough for 2, 3, 4 percent. So, this is adding to the flow of money that will go to finance infrastructure, adaptation to climate change—all the needs that are so evident in the poorest countries.
Secondly, it reflects a fundamental change in global economic and political power, that one of the ideas behind this is that the BRICS countries today are richer than the advanced countries were when the World Bank and the IMF were founded. We’re in a different world. At the same time, the world hasn’t kept up. The old institutions have not kept up. You know, the G-20 talked about and agreed on a change in the governance of the IMF and the World Bank, which were set back in 1944—there have been some revisions—but the U.S. Congress refuses to follow along with the agreement. The administration failed to go along with what was widely understood as the basic notion that, you know, in the 21st century the heads of these institutions should be chosen on the basis of merit, not just because you’re an American. And yet, the U.S. effectively reneged on that agreement. So, this new institution reflects the disparity and the democratic deficiency in the global governance and is trying to restart, to rethink that.
Finally, there have been a lot of changes in the global economy. And a new institution reflects the broader set of mandates, the new concerns, the new sets of instruments that can be used, the new financial instruments, and the broader governance. Realizing the deficiencies in the old system of governance, hopefully, this new institution will spur the existing institutions to reform. And, you know, it’s not just competition. It’s really trying to get more resources to the developing countries in ways that are consistent with their interests and needs.
JUAN GONZÁLEZ: And the importance of countries like China, which obviously has huge monetary reserves, and Brazil, which had developed its own development bank now for several years, their being key players in this new financial organization?
JOSEPH STIGLITZ: Very much. And that illustrates, as you say, a couple interesting points. China has reserves in excess of $3 trillion. So, one of the things is that it needs to use those reserves better than just putting them into U.S. Treasury bills. You know, my colleagues in China say that’s like putting meat in a refrigerator and then pulling out the plug, because the real value of the money put in U.S. Treasury bills is declining. So they say, "We need better uses for those funds," certainly better uses than using those funds to build, say, shoddy homes in the middle of the Nevada desert. You know, there are real social needs, and those funds haven’t been used for those purposes.
At the same time, Brazil has—the BNDES is a huge development bank, bigger than the World Bank. People don’t realize this, but Brazil has actually shown how a single country can create a very effective development bank. So, there’s a learning going on. And this notion of how you create an effective development bank, that actually promotes real development without all the conditionality and all the trappings around the old institutions, is going to be an important part of the contribution that Brazil is going to make.
JUAN GONZÁLEZ: And how has that bank functioned differently, let’s say, than other development banks in the North?
JOSEPH STIGLITZ: Well, we don’t know yet, because it’s just getting started. The agreement—it’s been several years underway. The discussions began about three years ago, and then they made a commitment, and then they—you know, they’ve been working on it very steadily. What was big about this agreement was—there was a little worry that there would be conflicts of the interests. You know, everybody wanted the headquarters, the president. Would there be enough political cohesion, solidarity, to make a deal? Answer was, there was. So, what it is really saying is that in spite of all of the differences, the emerging markets can work together, in a way more effectively than some of the advanced countries can work together.
AMY GOODMAN: Joe Stiglitz, you’re the former chief economist of the World bank. What’s your assessment of the World Bank under the tenure of Jim Yong Kim, who is the former Dartmouth president? We just passed the second anniversary of his tenure there.
JOSEPH STIGLITZ: Well, it’s still too soon to say.
AMY GOODMAN: When it comes to issues of debt and other issues.
JOSEPH STIGLITZ: You know, because it takes a while for somebody to get in charge of the bank and to—you know, it’s like a big ship, and you’re trying to shift it. I think there’s a broad concern that he brings certain very positive strengths to the bank—a focus on health and other social issues—but successful development will have to continue to have a focus on some of the old issues. So, you know, you have to grow. And he has a little bit less experience in the fundamentals of economic growth. I think he has probably more sensitivity to some of the problems that have plagued these international financial institutions in the past, the high conditionality. But he faces a governance problem. And that’s what this issue is about, a governance problem, where the head of the World Bank is chosen by the U.S., even though the U.S. is not playing the economic role and the leadership role that it did at one time. And we all believe in democracy, but a democracy says it shouldn’t be just assigned to one country.
One of the interesting aspects of the discussions that I’ve heard is, you know, during the East Asia crisis, one of the senior, very senior U.S. Treasury officials said, "What are you complaining about, about our telling countries what to do? He who pays the piper calls the tune." And what I hear now is the developing countries, emerging markets, China and the other countries, saying, "We’re paying the tune. We’re the big players now. We have the resources. We’re where the reserves are. And yet, you don’t want to let us play even a fair share in the role, reflecting the size of our contributions in the economy, in trade." And so, that’s one of the real grievances—I think valid grievances. And it’s hard for an institution where the governance is so out of tune with current economic and political realities to be as effective as it could be.
JUAN GONZÁLEZ: I wanted to ask you about a subject we just had on—were discussing in an earlier segment: immigration and this whole issue of the world economy and financial systems. You have the contradiction that, on the one hand, globalization is breaking down barriers to capital everywhere, and yet, in the advanced countries especially, you have the growth of anti-immigrant movements, not just in the United States, but in Europe, in England and in Holland. And so you have a situation where there’s an effort to erect barriers to labor and to the free flow of labor. And the impact of these kinds of debates—just a few days ago, you had Warren Buffett, Bill Gates and Sheldon Adelson, a conservative Republican, all blasting Congress for not being able to achieve some kind of comprehensive immigration reform. The impact of this on the world economy?
JOSEPH STIGLITZ: Well, I think there are a couple of aspects of this that one has to appreciate. On the one hand, it’s absolutely true that free mobility of labor would have an impact on global incomes that is an order of magnitude greater than the free mobility of capital. So, the agenda that the U.S. has pursued, that free mobility of capital, has been driven not by on the grounds of global economic efficiency. It’s really special interests. It’s the banks that wanted this. On the other hand, both the movement of capital and labor can have disturbing effects. You know, we saw how free mobility of capital, short-term capital, especially, going in and out, can cause crises. We also know that migration of labor has—social adjustment processes have to occur. One of the real concerns, increasing concern, say, in a country like the United States, is that—how do you share the benefits of globalization? And there are wages are driving—been driven down. You know, the median income, income in the middle, of the United States today is lower than it was a quarter century ago. Median income of a full-time male worker is lower than it was 40 years ago. Productivity of workers has gone up over 100 percent in, say, the last 40 years—
AMY GOODMAN: We have 15 seconds.
JOSEPH STIGLITZ: —but wages are down by 7 percent.
AMY GOODMAN: We’re going to have to continue this conversation off air, and then we will post it at democracynow.org. I also want to ask you about the Trans-Pacific Partnership—you talk about it being on the wrong side of globalization—your assessment of President Obama when it comes to the growing gap in inequality in this country. Joe Stiglitz is the Nobel Prize-winning economist, professor at Columbia University, former chief economist of the World Bank. He is author of many books; his latest, Creating a Learning Society: A New Approach to Growth, Development, and Social Progress.
AMY GOODMAN: This is Democracy Now!, democracynow.org, The War and Peace Report. I’m Amy Goodman, with Juan González. Now part two of our discussion with Joseph Stiglitz, the Nobel Prize-winning economist, professor at Columbia University, former chief economist at the World Bank and, well, the godfather of this new bank that has been set up by the BRICS countries. That’s Brazil, Russia, India, China and South Africa. Before we talk about some new issues, like the Trans-Pacific Partnership, can you—why did you feel it was so important, in pushing this idea? And the fact that Russia has now new sanctions imposed on it by the United States, will this affect this bank?
JOSEPH STIGLITZ: I think the sanctions probably motivated Russia to be even more enthusiastic about this, because it gave it a political context in which it wasn’t the outsider but was one of the team of creating a new global architecture.
The reason I was so enthusiastic is that the needs for funds for development, for infrastructure, are so huge, and the existing institutions can just supply a small percentage. And our global private financial markets just aren’t working. I mean, let me give you an example. Before the 2008 crisis, Ben Bernanke said that there was a savings glut: We had too much savings. You know, he must have been living on a different planet than I was living, because when I traveled around Africa, other development countries, I didn’t see a problem of too much savings. I saw enough—a problem of huge investment needs. And the problem was that existing financial institutions weren’t taking the savings and putting to where it was needed. It was clear that the private institutions couldn’t do this. You know, they knew how to engage in predatory lending and taking advantage of poor people. They were good at that. But they weren’t good of taking the surplus of savings and putting them to the place where there are huge social needs.
JUAN GONZÁLEZ: But why is that, given that for the last six or seven years the Federal Reserve has basically been giving money to banks and corporations in basically no-interest loans?
JOSEPH STIGLITZ: It’s not part of their business model. You know, they make money from speculation, from trading, from derivatives, from market manipulation—you know, the gamut of everything except looking around for what are the most socially productive uses of investment and how to manage the risk associated with those investments. So, that’s why you need a development bank.
AMY GOODMAN: And how will this bank be run? Who’s going to head it?
JOSEPH STIGLITZ: It’s going to be headed by an Indian. It will be located in Shanghai. It has a governing structure that will involve all of the BRICS countries, and unlike, say, the IMF, where the U.S. is the single country with a veto power, it’s going to—all of them will have equal votes.
One aspect of it is it will employ all the new learning that we have about new instruments, new governance. So, for instance, it has the facility, the ability to, say, create a fund that can bring in not only countries, but, say, sovereign wealth funds, to use not just debt, but equity, or to use more, you know, the advances in modern financial technique, financial risk management. So, I think it’s going to try to be a 21st century institution. The other institutions have been trying to adapt from the 20th century—1944 was when they were founded—but, you know, it’s difficult to move these big institutions, particularly difficult to change governance.
The United States doesn’t like the fact that as of some time in September, the United States will be the second-largest country in the world, according to the new way we measure purchasing power parity, how we compare countries. Well, I think it’s difficult for the United States to accept the notion it’s no longer the—will no longer be the largest country. It’s no longer the largest country in trade, in savings, in other areas, but this will be the second-largest country in the world.
AMY GOODMAN: Behind China.
JOSEPH STIGLITZ: Behind China. But the global governance does not reflect these new economic realities. And this new institution is not going to change everything, I mean, clearly. It’s just a little bit of movement, but it’s a movement in the right direction, reflecting the new economic and political realities and reflecting the learning that we’ve done in the last 70 years.
JUAN GONZÁLEZ: And speaking about reflecting the changes in the economic reality, the Trans-Pacific Partnership, you’ve been a critic of this new attempt at economic realignment of forces in the world. Can you talk about that?
JOSEPH STIGLITZ: Yeah, well, there are a couple aspects of that. The trade agreements of the past were mainly focused on lowering tariffs. And as tariffs came down, you got more intense competition. Consumers benefited from access to goods at lower prices. Tariffs are pretty low now. And the areas where they are not low are what we call sensitive areas, political forces are very strong. TPP is not going to lower the tariffs on most of those. So it’s not going to be—that’s not the center of what this new trade agreement’s about. It’s going to be about things like regulation. And there, the alignment is a little different. Corporations on both sides of the Pacific have an interest at lowering regulatory standards—to protect the environment, to protect consumers, to protect workers, to protect health. But ordinary citizens, our society, will suffer. So you can get corporations on both sides pushing an agenda that will be increasing corporate profits at the cost of the well-being of people on both sides of the Pacific.
Let me give you one example of—two examples of things that are, you know, very critical in this agreement. Access to generic medicines. You know, the huge disparity in prices between the cost of production and what they’re charging used to be just for AIDS drugs; now it’s for cancer drugs, other drugs—life-saving drugs. And this agreement will make it more difficult to have access to those life-saving drugs.
Another example. There are these provisions that have nothing, really, to do with trade. They’re called investment protection, investment agreements. But they’re not really—they’re sold as protecting property rights, making the economy more efficient. We’re trying to put the same thing in an agreement with Europe. Europe’s reaction is: "What are you talking about? We have as strong property rights as you do in the United States." It’s not about property rights. And the fact that we’re putting it in the European agreement shows that. What it is about is undermining regulatory protections.
So one example of what’s going on in a provision that’s basically the same in Uruguay. Uruguay president met with Obama just recently, and he raised this issue, because it’s very, very important. Uruguay has been concerned about the impact of cigarettes on the health of their citizens. Cigarettes cause people to die. Cigarettes cause people to have health problems, which use a lot of resources. So just like Mayor Bloomberg has been pushing to kick cigarettes, so did Uruguay. WHO praised it. World Health Organization said, "You’re doing exactly the right thing." Philip Morris is suing Uruguay under an investment agreement. It says, "This interferes with our basic right to sell products to kill people." It’s like the Opium War 150 years ago, where the West went to war because China said, "We don’t want opium," and we said, "That interferes with the basic right to trade."
AMY GOODMAN: So what’s the U.S. response, with the Uruguayan president meeting with Obama? I mean, here in the United States we have severe restrictions around cigarettes.
JOSEPH STIGLITZ: Change the topic, you know, going back to the importance of trade. You know, it’s the platitudes about the importance of trade and not looking at the details of how American people and people in the countries around the world are going to be affected by these trade agreements. You know—
AMY GOODMAN: So, who are the forces who are shaping the TPP? And can people actually defeat it?
JOSEPH STIGLITZ: Well, that’s part of the interesting discussion. The actual text of what is being negotiated, the USTR is very reluctant to make public, to make transparent.
AMY GOODMAN: The Treasury representative.
JOSEPH STIGLITZ: No, U.S.—the trade negotiator—
AMY GOODMAN: The U.S. trade representative.
JOSEPH STIGLITZ: —is called the U.S. trade representative. He’s the one who’s the negotiator for these agreements. And even to make it—even to let Congress know. And, of course, that has got—you know, we’re talking about democracy.
AMY GOODMAN: WikiLeaks released the draft document.
JOSEPH STIGLITZ: And that was the—WikiLeaks released the draft document, and now we understand why he doesn’t want to release it, because there are these provisions that are so adverse to health, environment. Now they say, "Oh, now that we released it, we really want to make a strong agreement." But evidently, the corporations have had access to a lot of the details of the provision. It’s just not civil society, the rest of our society—not even Congress. So, it gives you a feeling that what’s going on is a deal. The corporations make campaign contributions. The corporations get a deal that increases their profits. And citizens, the environment, health, both sides of the Pacific, suffer. And that’s why I’ve been skeptical.
At the very least, we need a open debate about each of the provisions. And we aren’t going to get that if we don’t have transparency. We won’t get that out of fast track, because what fast track says: You take the package as a whole. And then you put everything together, and everybody says, well, yes, but we—you know, you get all the forces on one side, anybody that objects to that provision about cigarettes, and say, "Well, you have to understand we’ll fix that later. But the gains are too great to sacrifice the whole deal." I think we need to have a discussion of each of the provisions before, not in this fast-track provision that says you can’t amend it.
AMY GOODMAN: Last question. You have said that you can deal—you could solve inequality and the faltering economy in this country—in this report you did for the Roosevelt Institute—by people paying their fair share of taxes and dealing with corporate tax dodgers. Explain what you mean.
JOSEPH STIGLITZ: Well, there’s a lot of discussion about reforming the tax code. On some parts, there’s a real worry about the budget deficit. It’s come way down, and projections have come down even more. But there is still a concern, on the part of many people, we have too big a deficit, and we have to raise taxes. Question is how to do it in a way that doesn’t adversely affect the economy and addresses some of our basic problems. So, what I do in this Roosevelt paper is to try to say, "What are some of the problems we face?" Inequality, global warming, pollution, environmental problems, and we need to create jobs. And what I show is that we can have a tax reform that does all those and raises money.
So let me give you some examples. Right now we have tax provisions that effectively encourage corporations to move jobs abroad. You move jobs abroad, they don’t have to pay—they only have to pay taxes when they repatriate the money to the United States. So if they made money abroad and keep the money abroad, then they don’t have to pay taxes. But with the free trade agreements, they get to bring the goods that they produce abroad into the United States. So we have a whole economic constellation that encourages jobs to move abroad. Now, simple idea: You say to corporations, "Well, we’ll raise the corporate income tax rate, but if you invest in the United States, create jobs in the United States, we’ll give you a credit, so your taxes will go down." So the companies that are contributing to the United States will get lower taxes.
Now, one of the things that’s been brought out very strongly in the last couple years is tax avoidance by companies like Apple, Google. They used all that ingenuity to create clever products, rounded edges, you know, things that everybody loves, but they used all that ingenuity to avoid paying their share of taxes. And what’s so outrageous about that is that these companies couldn’t exist without government investment in the Internet, without government support for universities that have done the basic research that they absorb. So they’re takers. They’re willing to use our money for making their profits, but not willing to give back. And it seemed to me that’s, you know, fundamentally immoral.
So, how do you address the problem? Very easy. Let’s make taxes based on what happens, production in the United States and sales in the United States—economic activity in the United States. And what these companies are doing with a technique called transfer pricing, Apple is pretending that all their profits originated in a little company and a few people offshore in Ireland. Now, we all know that’s nonsense, but we allow them to get away with that.
Inside the United States, what we’ve done, you know, different states have corporate income tax in the states. We don’t allow them to play these games. We say, "You have to pay state corporate income tax based on the number of employees, the share of your employees, the share of sales, the share of capital that lies within your state. We’re going to give a fair share of your profits. You look at your global profits. If all your employees are in the United States, all your sales are in the United States and all your capital is in the United States, you’re going to pay all your taxes in the United States. But if you have a lot of sales abroad, we’ll adjust your taxes to reflect those global economic realities." OK, so we do that within the United States. We haven’t had the gumption to do it globally. And we should.
People won’t—you know, they need the United States, both for their production, for their research, for their sales. I mean, we’re still the largest—you know, we’re the largest economy, and we’ll be the second largest in September. But people need the United States, so they won’t walk away. So, by doing this, we will get them to make contributions, and we’ll have incentive structures to make them create jobs in the United States. That will be good for inequality, because one of the things that’s worsening inequality is the lack of demand for labor. And it’s not only the direct unemployment, but the wages are depressed.
AMY GOODMAN: Well, we want to thank you so much for being with us. Joseph Stiglitz, Nobel Prize-winning economist, professor at Columbia University, former chief economist of the World Bank, author of many books—his latest, Creating a Learning Society: A New Approach to Growth, Development, and Social Progress. This is Democracy Now!, democracynow.org, The War and Peace Report. I’m Amy Goodman, with Juan González.
GUEST
Joseph Stiglitz, Nobel Prize-winning economist, professor at Columbia University and former chief economist at the World Bank. He is author of numerous books. In 2002, Stiglitz published a best-selling book called Globalization and Its Discontents, in which he critically examined international institutions such as the IMF, WTO and World Bank.
