JIN-367 -- Japan and Stiglitz Spice Up World Bank Parley

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T H E J @ P A N I N C N E W S L E T T E R

Commentary on the Week's Business, Technology and Cultural News
Issue No. 367
Saturday May 13, 2006 TOKYO

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@@ VIEWPOINT: Japan and Stiglitz Spice Up World Bank Parley

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This week's JIN is by J@pan Inc. staff writer Willhemina Wahlin.
-- Editor

@@ VIEWPOINT: Japan and Stiglitz Spice Up World Bank Parley

What do Japan and the US economic rebel Joseph Stiglitz have in
common? For one, they have both, at one time or another,
challenged the fundamental economic philosophy on which the
World Bank bases its policies. They are also, ironically,
two of the most prominent contributors to this month's World Bank
ABCDE Conference, which will be held in Tokyo on May 29 and
30. Along with some of Japan's most important economists,
Stiglitz himself will be one of the special keynote speakers.
In a world full of dry, dull conferences, the ABCDE Conference
is beginning to look a little spicy.

Japan has an interesting history with the World Bank. According
to Dr. Kaoru Natsuda, a political economist and official
development assistance consultant with Ernst & Young Shin
Nihon in Tokyo, Japan and the World Bank have disputed the role
of the state in economic development since the 1980s. "Japan
in the past has traditionally believed that the role of the
state is important in economic development, and has worked
in close collaboration with industry to increase Japanese
corporations' international competitiveness. The World Bank,
on the other hand, has based its policies on neo-liberalism,
nowadays known as the Washington Consensus, which is essentially
a free market approach, where the role of the state is reduced
to the absolute minimum." In other words, Japan believes that
to run an economy effectively, government and business do
better when they work together, an idea to which the World Bank
was hostile.

This dispute came to a head in 1989, when the World Bank
criticized the 'two-step' loans of Japan's Overseas Economic
Cooperation Fund (OECF, now Japan Bank for International
Cooperation - JBIC). These loans, set at below the market rate
of the time, jeopardized the status quo that both the International
Monetary Fund (IMF) and the World Bank had developed as two of
the most powerful lending bodies in the world. While OECF may
have eventually compromised by re-setting the loans at market
rates, the incident provided another spark of opportunity for
Japan. Providing the World Bank with US$2.2 million, which almost
matched the cost of the World Development Report, Japan funded
the East Asian Miracle studies in 1992. This culminated in one
of the most important acknowledgements of Japan's economic
philosophy, with the publishing of "The East Asian Miracle:
Economic Growth and Public Policy" report in September 1993.
The report acknowledged the policy management success of Japan,
making special mention of the positive role government had in
economic development. One of the authors was none other than
Joseph Stiglitz.

Stiglitz, a Nobel laureate in economics (2001) and a Columbia
University Professor, was Senior Vice President and Chief
Economist at the World Bank from 1997-2000, when it is rumoured
the US Treasury pushed him out of the position. Prior to that,
he was Chairman of the White House Council of Economic Advisors
during the Clinton Administration. He is probably best known for
his 2002 book, "Globalization and its Discontents," which
criticized the policies of the IMF and, to a lesser extent, the
World Bank. The book outraged the IMF, with its Chief Economist
at the time, Ken Rogoff, writing a scathing open letter to Stiglitz.
According to the "Observer's" Faisal Islam, the open letter
actually helped to push up sales of the book. "In Globalization,
he [Stiglitz] documented the IMF hit squads that decided a nation's
spending priorities from the comfort of five-star hotels," wrote
Islam, adding that, a year later, with Rogoff as one of its
authors, the IMF published a report "which concluded that countries
that follow IMF suggestions often suffer a 'collapse in growth
rates and significant financial crises.' "

Prof. Stiglitz has gone on to write numerous books on international
economic philosophy, proving what some might call a logical
approach to development, the latest being "Fair Trade for All."
Co-authored with Andrew Charlton, they write, "while increased
trading opportunities are good for developing countries,
liberalization needs to be managed carefully - the task is much
more complex than the simple prescriptions of the Washington
Consensus, which blithely exhorts developing countries to liberalize
their markets rapidly and indiscriminately."

In another irony of this tale, Japan, under the auspices of Koizumi,
has been shifting its view on the role of the state in recent years.
His forceful mandate of privatization and deregulation has moved
Japan's economy much closer to the ideals of the World Bank.
At the same time, some Japanese economists are becoming alarmed
at the increasing gap between rich and poor as a result of these
policies. On the 1 February this year, Koizumi responded to such
criticisms, saying, "a gap between rich and poor within a society
is not a bad thing."

While all of these philosophies may seem a world away from the lives
of us here on the ground, there has, in fact, been no time in
history when more ordinary people have taken an interest in global
trade and economics, and it is beginning to have an impact on
gatherings such as the ABCDE Conference. Is it possible that there
are rumblings within the World Bank itself to move towards more
equitable agreements for Developing nations? Like any monolith,
those movements are slow-paced, but the outcome of this conference
will be well worth keeping tabs on.

-- Willhemina Wahlin


Edited by Burritt Sabin (editors2@japaninc.com)


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