Friday, October 13, 2006

Joseph Stiglitz @ Google

One of the best perks of working at Google is the series of authors and excellent speakers talking at Google. Today, we had Nobel Prize winner Joseph Stiglitz visiting to discuss his book, Making Globalization Work. As an economics junkie, I usually go to these talks not really expecting to learn much, since anything that's comprehensible to the general audience would usually have showed up in my prior reading.

In this case, though I was wrong. There were a lot of surprising facts I learnt during the talk that I didn't know before:

The Uruguay round of trade talks actually made poor countries poorer. What had happened was that the cold war ended. While the USA had a major interest in being nice to the poorer countries while the cold war was going on, once the cold war had ended, trade representatives sent to WTO talks essentially changed gears to try to get the best deals they could. Examples included the intellectual property agreements which essentially prohibited cheap generic drug copies of Pharmaceutical medicines. These essentially wrote the death sentences of many many people in poor countries.

Many pro globalization apologists stated that economic theory means that free trade is a win-win situation for the countries as a hold. "The rising tide lifts all boats." What really happened was that "The riptide wrecks the smallest boats." All Economic theory predicts is that free trade provides sufficient gains such that the winners can compensate the losers and still come out ahead (hence the "win-win" part). What it does not say is that the winners will compensate the losers, and in most cases what has happened is that the winners do not. In fact, in many poorer countries what has happened is that the winners try to create a perpetual monopoly of many key resources such that most of the benefits of trade go to them, leaving the rest of the country in poverty. In Venezuela, for instance, most of the oil profits until Chavez came along went to a tiny portion of society leaving the rest of the society poor. Remember that this was oil in the ground --- the wealthy people of Venezuela did not put the oil there. They just controlled access to the resource and used it to their benefits.

(I've heard over and over again the arguments for trade, but to hear a Nobel prize winner provide the clear arguments that trade without spreading the benefits of trade around society will eventually lead to a backlash against trade is a wonderful thing to my ears)

He went on to discuss intellectual property rights, stating that if you don't get the laws governing IP rights correct, you get all the disadvantages of restricting knowledge, without any of the incentives that you were trying to get by having IP property. For example, the Wright brothers got a patent on airplane after Kitty Hawk, but so did Curtiss, and no private company making planes could afford to pay both parties the patent fees, so it wasn't until World War I when the government set in and said that this was too important for you to hold up development that the aircraft industry got its real start.

Another example: In the race to decode the human genome, we already had a plan as to how to go about doing it and a schedule. However, private companies wanted to pick out the valuable genes to get a patent on the gene, so they raced ahead on the decoding. The social value: it was decoded slightly earlier, a small benefit if it is indeed one. The social cost: someone got a patent on the gene related to breast cancer. Another company wanted to provide a free test for breast cancer, but the patent holder wanted money. Result: large numbers of people will die unnecessarily. Canada decided not to honor this patent, but the US still honors it.

The big drug companies have not decided to use their money for more research on drugs that would save more people, but instead spent its money on marketing, advertising, and lifestyle drugs for people in rich countries. This is rational economic behavior, but it means that we've gotten our incentive system wrong. There's a proposal in his book where he discusses using a prize system rather than a monopoly system to disseminate knowledge as widely as possible. When the incentives are not working in the right direction, and we should redesign the incentives correctly to improve both economic efficiency and equity.

He finished off with a discussion of Global Warming, which to him exemplified the failure of globalization --- even if we solve the problem of economic globalization, if we don't solve our environmental problems, it might not matter. He said Kyoto had several failures, chiefest of which was the US not being a signatory, and protection of forests not being put into place. (i.e., Countries got more credit for cutting down their trees and then planting new trees, rather than for protecting the ones they had)

He ended the talk by saying that he was still optimistic that we could still make globalization work, and that things were still in a fluid stage. All I can say is that I hope he's right.

While getting my copy of his book signed, I made a statement that globalization's ill effects have only started hitting the media only when the white collar workers were affected --- when all it affected was workers in Detroit, nobody paid attention. He laughed and said "Yes. It's only a story when the reporter's next door neighbour's job gets outsourced to India. And it's a problem for free trade supporters. When Ross Perot said in the 1992 election words like 'Giant Sucking Sound', we could say, 'We didn't want those jobs anyway. We want good jobs, high wage jobs like programmers, etc.' When it's programmer jobs getting outsourced to India, we can't say that anymore."
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