Joseph Stiglitz: Inequality stunts growth

By Ivan Arturo Ebergenyi Thorpe

Nobel-winning economist shatters conventional wisdom at World Economic Forum on Latin America.

Award-winning economist Joseph Stiglitz shared his insights on inequality and growth in Latin America, at the 10th World Economic Forum on Latin America, which took place at the Riviera Maya’s Grand Velas hotel last Friday.

Stiglitz, who shared the Nobel Memorial Prize in Economics in 2001 and served as the Clinton administration’s Chief Economic Advisor, reviewed the rates of success of past and present policies implemented by Latin American countries.

Though he has never favored high levels of government regulation, the Columbia Business School professor is known for his “third way” which considers the (limited) role of government to be important and is against the total deregulation of markets. He is also known for bucking assumptions about socioeconomic growth going hand in hand with inequality.

“We used to think that there was tradeoff,” said Stiglitz during the session, which was mediated by Cinépolis CEO, Alejandro Ramirez. “So, you could have more equality or more growth.”

According to Stiglitz, growth and equality are more accurately perceived as compliments of one another, rather than mutually exclusive. As the title of his most recent book suggests, nations actually pay a price for inequality. “You can have more growth if you reduce the extremes of inequality,” he added.

Stiglitz pointed to Latin America’s “natural resource curse” – a historically excessive dependence on natural resources – as a major factor behind erratic and unequal growth patterns, citing Venezuela as a “poster child” for this.

However, he praised the way other countries, namely Chile and Mexico, have dealt with this “curse.”

Both countries, for instance, are hallmark examples of resource economies. However, Chile created a stabilization fund fed by its massive copper revenues, much in the same way Norway has done with its government pension fund which is sustained by oil revenues.

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While Mexico’s plans for a similar policy are currently still on the drawing table, Stiglitz cited the Oportunidades program, which channels the nation’s wealth to the country’s poorest citizens, conditional upon the fulfillment of certain requisites such as regular school attendance of children in the household, health clinic visits, and nutritional support. Usually the funds are handed directly from the government to household mothers.

Oportunidades - the first true conditional cash transfer program in the world - has in fact been widely hailed for its role in breaking the cycle of poverty in families all over Mexico, and has been emulated and adapted by countries in Latin America and beyond.

Though Stiglitz expressed being impressed with the way both countries reduced inequality and, thus, promoted growth, he was sober on remarking that more was still needed. Mexico, for instance, was earnestly advised to raise its current minimum wage.

He also cautioned that monetary policy alone might not be sufficient to address inequality, as racial, gender-based and geographical discrimination have been instrumental in perpetuating it.

Though Latin America is no stranger to discrimination, he used the example of black Americans being discriminated against for employment in the American South during the segregation era, to illustrate his point.

In this sense, prejudice is not only moral issue: it actually takes an economic toll.

Stiglitz also expressed being critical to the Trans-Pacific Alliance currently being discussed by 12 countries, stating his concerns with the way private companies could potentially sue governments for loss of profits or even failure to attain expected profits.

He also expressed his concern with the way talks have been taking place entirely in secret.

“Some people think that the opposition to this as anti-trade,” he stated. “It’s not against trade. If it were a true trade agreement, they’d be for it.”

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