The problems that excessive debt creates for both developing and developed nations are clearly enormous. As I read Stiglitz 8, in particular, I found it quite clear that the progressive development necessary in the poorest, most indebted nations to fuel and support further globalization is blatantly impeded by creditors… the picture is incitingly bleak. However, I simultaneously felt some sort of defensive reaction to many of Stiglitz’s suggestions. It would be hard for anyone living in America to deny that they enjoy the benefits of belonging to the world’s richest population, but my hesitations were not borne of greed.
My primary objection was to the insistence that “money should flow from rich to poor (nations), while risk flows (simultaneously) from poor to rich”. While in theory, the humanitarian in all of us would like to find some magic cure that, along these lines, enables everyone in the world to live comfortably and enjoy a well-functioning, profitable economy, the implications of accepting such high risk (especially when you consider the weakening of the dollar, huge deficits, etc) could not only be catastrophic for places like the US, but for the entire world… especially if you buy in to any degree of hegemonic theories. If defaulting on debt was to become a more common practice (ignoring the obvious fact that many nations have no choice, and to try to hold them to absurd debts is basically cruel and unusual punishment) and the IMF, funded by developed nations, were to take the hit then couple that with risk acceptance, etc… you get the picture. While there are responsibilities that developed nations must accept if they truly want to pursue and spread a successful global economy, a line must be drawn before we expose ourselves to the possibility of world-wide collapse (which seems highly likely is the US or EU were to suffer from a severe collapse). Although it is far from a solution to the problem that we currently face, I agree with Stiglitz that a major problem is over-lending. Yes, free-flow of capital is good. But predatory lending is a totally different story.
Ultimately, it seems that there are about 750,000,000 scattered, unparallel and often unconnected lines that we need to be walking all at once. While it is easy to see developed nations as unfairly rich and greedy, it is also necessary recognize the importance of leaders in the market and accept that they too must protect themselves. As Stiglitz points out, governments of developing nations has a responsibility to their people and must incorporate this into their dealings… while it may seem obvious, so do governments of developed nations. We must just keep trying to find a balance.
1 comment:
I don't think Stiglitz is really advocating countries to take up default as a regular response to debt, but in some cases, it does seem rational--i.e. Moldova.
And if it were to happen that countries started defaulting left and right, lenders would simply become much more reticent to lend to those countries, and to lend in high quantities. That could be a good thing, considering that these major lenders have been practicing policies that one would consider irresponsible.
Predatory lending seems to be a viable concept of Stiglitz's. I'd say the practice of encouraging developing countries to borrow when they don't necessarily require the extra capital is a bad call. And ripping out capital when the country is tanking might be a sound strategy for the first few groups to get their money, but it leaves everyone else and that country in a sinking ship.
Post a Comment