But it has long been recognized that subsidies can be just as destructive as tariffs — and even less fair, since rich countries can better afford them. If there was ever a level playing field in the global economy, it no longer exists: the massive subsidies and bailouts provided by the US have changed everything, perhaps irreversibly.
Indeed, even firms in advanced industrial countries that have not received a subsidy are at an unfair advantage. They can undertake risks that others cannot, knowing that if they fail, they may be bailed out. While one can understand the domestic political imperatives that have led to subsidies and guarantees, developed countries need to recognize the global consequences, and provide compensatory assistance to developing countries.
One of the more important medium-term initiatives urged by the UN Commission is the creation of a global economic coordinating council, which would not only coordinate economic policy, but would also assess impending problems and institutional gaps. As the downturn deepens, several countries may, for example, face bankruptcy. But we still do not have an adequate framework for dealing with such problems.
And the US dollar reserve-currency system — the backbone of the current global financial system — is fraying. China has expressed concerns and the head of its central bank has joined the UN Commission in calling for a new global reserve system. The UN Commission argues that addressing this old issue — raised more than 75 years ago by Keynes — is essential if we are to have a robust and stable recovery.
Such reforms will not occur overnight. But they will not occur ever unless work on them is begun now.
Joseph E. Stiglitz is professor of economics at Columbia University and chairs a commission of experts appointed by the president of the UN General Assembly on reform of the international monetary and financial system.
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