Nobel Prize laureate Joseph Stiglitz, a rock-star among left-of-centre progressives around the world, was quite upbeat about Latin America, Asia and other emerging economies when I interviewed him extensively last week about the possibility of a new world recession.
As we were talking early in the afternoon Thursday, the US stock market had tumbled by more than 300 points, websites carried alarming headlines about a possible financial meltdown of Spain and Italy, and my Herald column that morning had quoted several economists as saying that the expected US economic slowdown would have a negative impact on Latin America’s exports, tourism and family remittances.
Still, Stiglitz seemed upbeat about the economies of China and Latin America. Unlike most of his colleagues, who think a global economic slowdown will impact everybody — including the world’s emerging economies — Stiglitz told me it is likely to have “relatively little effect” on China and on Brazil, Chile and other Latin American countries.
Asked whether last week’s US debt agreement is more likely to lead to an economic slowdown or a full-blown recession, Stiglitz said that “there is a significant risk of another global recession.”
But he added, “I don’t think it’s going to be quite as bad as the 2008 recession,” because this time it won’t take the world by surprise as it did three years ago.
Won’t China be hurt, and by extension South American countries that owe much of their growth to China’s raw material purchases? I asked.
I reminded him that New York University’s economist Nouriel Roubini — who won world fame for rightly forecasting the 2008 economic crisis — recently predicted that China’s economy is likely to crash in 2013.
Stiglitz said that “the likelihood is that China will be able to manage growth at 7, 8 or 9 per cent rates for another decade” because of its growing domestic market and its increased interaction with other emerging markets. “I am not as pessimistic as Roubini at all” on China, he added.
When we talked about Latin America, Stiglitz said he is “very optimistic” about the region, especially Brazil and Chile.
“I see a lot of growth there, and in many of the countries, it’s really based on solid foundations,” he said.
But isn’t that growth largely a bubble based on high world commodity prices?
Aren’t many countries in the region wasting their biggest opportunity ever to invest in education and infrastructure, and to diversify their economies?
“You are right. But at the same time, there have been big advances,” he said, citing Brazil’s progress in reducing income inequality, and its successes in developing the ethanol and aircraft industries.
“But it is very important for Latin America to make investments to diversify its economy, and get out of commodities, so that if there should be a problem, they would have a more diversified base for continuing their economic success,” he said.
My opinion: Stiglitz does not have many fans among mainstream economists, who see him as a far-left academic who is playing to his fans in the developing world. But then, it is only fair to say that most mainstream economists have been as adrift as anybody else when it came to foreseeing the recent economic crises.
I tend to side with those who, like Roubini, think that China may not continue to grow as fast as in recent decades, and that Latin America’s growth will be negatively affected by overvalued currencies, growing inflation, an excessive dependence on commodities, and lack of investments in quality education.
I’m not basing my hunch on economic theories, but what I see on the ground — affluent Brazilians, Venezuelans, Argentines and other Latin Americans flocking to Miami to buy apartments as fast as they can.
They remind me of those native fishermen in Thailand who ran to the mountains when a sixth sense told them a tsunami was coming.
Like them, many wealthy Latin Americans are running to the high ground, because they see a crisis at home around the corner. We have seen that movie before, and they are most often right.
Nevertheless, the world will be a better place if the current US and European slowdown does not extend everywhere. In that sense, let’s hope that Stiglitz is right, and the rest of us are wrong.
© The Miami Herald, 2011. Distributed by Knight Ridder/Tribune Media Services.