Joseph Stiglitz on Global Governance in the 21st Century

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Joseph Stiglitz on Global Governance in the 21st Century

May 2008

Speakers: Professor Joseph Stiglitz

Leading economist Joseph Stiglitz explains the need for better regulatory systems for banks and other financial institutions. He highlights the interconnectivity of national economies and the way that problems in one country’s system can damage domestic systems in other countries (externalities). A pertinent example of this is the spread around the world of sub-prime 'toxic' mortgages from America.

Stiglitz goes on to observe that there are few institutions currently regulating global finance, and in the past this has allowed problems to spiral out of control. The self-regulation of the banks creates a conflict of interests - the banks are accountable only to themselves, and the only existing regulatory framework - Basle - discriminates against, and destabilises the economies of, developing countries by encouraging short-term lending. He also notes the fact that America, the country at the heart of the recent financial crisis, is the only country that has power of veto at the IMF, and laments the failure of the risk-rating agencies to foresee the current financial crisis - a lesson he says they should have learnt from the Asian Finacial Crisis in 1997.

To combat the current state of affairs, he suggests the need for Financial Product Safety Commissions, which would manage risk - performing the vital job that the World Bank and the IMF have so far failed to do.

This video was kindly provided by The 21st Century School