Nobel laureate encourages Asia to decouple from West

Aug 21, 2009, 8:04 GMT

   Bangkok - With the US economy unlikely to recover fully in the near future, Asian countries should focus on exploiting their domestic markets while regulating financial systems to prevent speculative investments, Nobel laureate Joseph Stiglitz said Friday.

   'Unless we have another bubble to replace the old bubble, like we had the housing bubble replace the tech bubble, it is very unlikely the US economy will be restored to robust growth any time in the near future,' predicted Stiglitz, who was awarded the Nobel Prize in economics in 2001.

   Stiglitz noted that the US economy was still not out of the woods, pointing to the 300,000 mortgage foreclosures last month. Some 3 million Americans have lost their homes since the US financial crisis began last year, he noted.

   'The commercial real estate market is at the point of an implosion. Property values have fallen 50 per cent or more,' Stiglitz told a packed audience in Bangkok attending a conference titled Asia: Road to a New Economy.

   Stiglitz warned that even if the US succeeds in its recapitalization efforts, the economy faces slow growth ahead.

   'Because what supported America, and to some extent the global economy before the crisis, was a bubble - people living beyond their means,' Stiglitz said.

   He urged the economies of Asia, which suffered their own crisis in 1997, to look inward for growth instead of relying on exports.

   'Now you have grown beyond the age of infancy, you have a strong robust economy here in Asia. You have a basis of developing a huge regional economy that can sustain itself,' he said.

   At the same time he urged Asian governments to guard against a huge inflow of liquidity from the West in search of investments in Asia, where economies are recovering faster than in the West.

   Stiglitz called for taxes on capital gains, restrictions on bank credits and other means of curbing speculation and excessive growth.

   'You had those before you were induced to follow the deregulation agenda,' he noted.

   The unconventional economic views of Stiglitz, a former senior economist at the World Bank, have been widely appreciated in Asia, which suffered a devastating financial crisis in 1997 that some blame on Western institutions such as the World Bank and IMF for forcing financial markets to deregulate, attracting hot money to Asia's booming economies a decade ago.

   Stiglitz is now an advocate for greater regulation of the global financial system and innovations such as a global reserve system, to wean developing counties from overdependence on the US dollar and the US economy.

   'Between the end of World War II and the early 1970s we had two economic crises, but between 1973 and today there have been 125 crises,' Stiglitz said. 'Something happened - deregulation.'

   He had no praise for the bailouts being pursued by US President Barack Obama.

   After the 1997 Asian financial crisis there was much talk by the World Bank and IMF of 'moral hazard,' or the need for people to bear the consequences of their mistakes.

   'The moral hazard of the East Asian crisis was miniscule compared to the moral hazard the US government has created in the last year with the trillions of dollars in bailouts enabling the banks not to bear the consequences of their actions,' said the Nobel laurate. 'What it is is socializing losses and privatizing gains.'