Ethical Dimensions of International Economic Policy

Joseph E. Stiglitz

General Perspective of Ethics

• Definition of Ethics: the discipline dealing with what is good and bad and with moral duty and obligation; the principles of conduct governing an individual or a group

• Ethics at center of individual’s relations with other individuals and with the community

• Observing basic ethical norms - enables community to function harmoniously (local and global)

Ethical Responsibilities of Economics Advisors

• The poor are in a vulnerable position

• Economic policy tends to heavily influence the poor

• Must be aware when giving economic advice of the responsibility of such advice - its consequences and benefits - affects, individuals, communities, nations

• Individual and institutional responsibilities - especially with development related advice

Five Ethical Precepts Governing International Economic Policy

• Honesty

• Fairness

• Social Justice (including concern for the poor)

• Externalities

• Responsibility

Definitions• Honesty - Telling the truth, the whole truth, and nothing

but the truth; misrepresentations violate honesty• Fairness - Treating all people, in similar or different

positions, similarly; favoritism violates fairness• Social Justice - Helping those in need to enhance their

sense of dignity and the ability to assume individual responsibility for themselves.

• Externalities - Imposing costs on others• Responsibility - Individuals taking responsibility for their

actions and the consequences of those actions

Ethics of the Economic Advisor• Do not take advantage of inside information for profit

• There are ethical norms for disclosure of information

• Honesty requires full disclosure of limits of knowledge

• Responsibility to outline the efficient economic choices (points along the pareto frontier) - and leave the choice of which point to select to political processes

• Concern for social justice - Attentive to consequences of policies for the poor - moral policy decisions

Ethics of International Financial Institutions

• IFIs take on role of economic advisors

• Generally IFIs do not follow ethics of economic advisors, instead they

push particular set of policies instead of

outlining the range of policies and trade-offs

fail to clarify uncertainties associated with

policies they promote

fail to pay due concern to adverse affects of

policies on the poor

Ethics and International Economic Policy

(some examples)

• Debt Forgiveness

• Developed Countries’ Trade Policy

• The Environment

• Population Policies

• Crises

• Growth and Poverty Reduction Strategies

Debt Forgiveness

• Difficult ethical issues:– Should those who have not repaid what they

owed in effect receive more than those who have lived up to their obligations?

– To what extent are lenders who gave funds to Mobutu—or Russia in 1998—knowing that the funds would not, or were not likely to, benefit the people bear moral culpability? Do the borrowing countries have a moral responsibility to repay?

Trade Policy• Fairness, honesty, and social justice• Developed countries set trade agenda• Structure of trade negotiations gives advantage to

developed countries• Outcomes have favored developed countries—Sub-

Saharan Africa actually worse off after Uruguay Round

• Dumping Duties levied even when there is no dumping (definition of dumping does not comport with honest assessment of what dumping is)

The Environment

• Future generations hurt by environmental degradation

• Rio and Kyoto conventions based on premise that the rich countries which pollute more today are entitled to continue to pollute more in the future: Is this fair?

• There exist alternative frameworks that are more equitable

Population Policy

• Externalities associated with increased population

– Congestion– Adverse environmental effects– Slower growth—more poverty

Crises

• Policies were more aimed at protecting creditors, ensuring that they be repaid, than at protecting the poor

• Policies protected those that engaged in risky gambles (taking an uncovered foreign exchange position) at the expense of those that were engaged in normal business activities

Crises (continued)

• What is the IMF’s moral culpability of exacerbating the crisis?– Through excessively stringent monetary and fiscal policy

– Through misguided financial sector policies

– Through beggar-thy-self policies

– Through “calling fire in a crowded theatre”—trying to shift blame towards the crisis countries, when real problem was premature capital market liberalization which the Fund had pushed

Crises (continued)

• What is the IMF’s moral culpability in cutting food subsidies, when the poor needed the assistance the most?

• What is the IMF’s moral culpability in the social consequences of its policies?– Deaths in riots were predictable—and predicted—to be a

consequence of the IMF’s policies

– Increased child prostitution resulted from the unnecessarily deep economic downturn in Thailand

– AIDs increased as a result of forced cutbacks in government expenditures

Growth and Poverty Reduction Strategies

• Moral issues in current strategies– Expose the poor to increased risk

– Have little prospect of benefits (e.g. capital market liberalization, trade liberalization in an environment where high interest rates impede job and enterprise creation)

– Force cutbacks in education and health programs for the poor (e.g. from misguided view of budget balance, excluding foreign aid)

– Do not put priority on programs for the poor, like land reform

– Force cost recovery in education, that impedes universal education, especially among girls (contrast with Uganda’s experience)

– Increase inequality; such as the privatization program in Russia, that combined with open capital markets, allowed a few to become billionaires out of state assets, while the State could not even pay pensions to the poor

Economic Policies and Community

• Ethics concerns relationships of individuals with each other and society

• Economic policies may undermine long standing norms

• Or may undermine the role of community in social protection

• Adverse effects on community can be especially large with forced, fast reforms

• Many reforms can be thought of as breaking a social contract (as important as formal contracts)

Relationships between Developed and Less Developed Countries

• Fairness (trade, environment)

• Mobility of labor as well as capital?

• Respect—from colonialism, to neo-colonialism, to conditionality

Individual Responsibility

• Individuals who observe these violations of ethical principles have an ethical imperative to speak out

• Institutions which have special roles in promoting and guarding values have an especial responsibility to speak out