ASIA'S PROSPECTS FOR RECOVERY ARE GOOD, IF IT IS WARY OF EASY MONEY

       In the second and final part of his interview with Nation editor-in-chief Suthichai Yoon, Nobel laureate Joseph Stiglitz explains why he has confidence in Asia amid hard times in America.
       Why did [the Americans] have a double standard? Is it because Obama could have faced some serious political consequences if he didn't bail out the banks?
       Well, they tried to sell the idea that if you play by the rules of capitalism, the whole thing will fall apart. To me, if you have good governance, it will make the economy grow. Now, what happens is, you have a system where you've given out hundreds of billions of dollars and everybody wants it - the car companies, the car suppliers. Everybody would say why do you give it to them, but what about us?
       So we have a double standard between Asia and America and we have a double standard in America. We fired GM's president but the guys on Wall Street who got us into this mess, we haven't done anything about them. So we've all these double standards which are undermining confidence in the government. It gives you a smell of corruption. Corruption American's style, but it's still corruption.
       President Obama's excuse is that if we let the financial institutions fall, the whole world economy will collapse.
       Here again we see the double standard. In the case of GM and Chrysler he saved the companies but not the shareholders. He could have done that with banks, but that's playing by the rules of capitalism, which he chose not to play. For no good reason.
       Why is that?
       They tried to tell us a story. The story was you would create panic. This is the tactic the Bush administration perfected every time they wanted something, [like] the war on terror. Well, we continue that, but now it isn't the fear of terrorism, it's the fear of financial meltdown. If you took a moment to look at it, if we had debt for equity swap and watched the shareholders fall, you play the rules of capitalism. People would have had more confidence in the companies because the money is not going out to the shareholders.
       So is Obama a socialist?
       Oh, defenitely not. Quite the contrary. It's not socialism because socialism cares about people, ordinary people but we're giving money to the rich system. This is old-fashioned corporate welfarism. It's the same thing that Bush did, saving the corporations. What we do in the US is we put the bank first and we don't do very much about the people who are in their homes. We said if we pour enough hundreds of billions dollars into banks, maybe ordinary Americans would benefit, maybe that will happen.
       Does it happen?
       No. It doesn't happen.
       You sometimes advocate government intervention. So why are you against Obama's intervention?
       There wasn't any government intervention, absolutely not. The private sector has totally failed. We should have had government intervention much earlier without the failure. The irony is that, in the name of keeping government out of the market, we wound up with the biggest intervention in the market. So the mistakes of the free markets economics like Greenspan's has led to the largest role of government in America in its history, so you have to appreciate the irony of the situation. We should have had intervention that makes sure we get the quickest recovery with the least cost. Which means for instance that if we gave money to the banks, we would get claims on the banks that would compensate us.
       That's not the case now?
       Studies show that if we gave a dollar we got back 67 cents, and the more recent ones put it at 25 cents. We were cheated, and it was very clear that the people who were negotiating for us were working for the banks not for American taxpayers. If they were working for a private company, they would have been fired.
       Back to Asia, the Thai prime minister said we are recovering with a V-shape start. Do you agree?
       Yes, all the evidence suggests that. America is likely not to have a robust recovery, so if Asia is going to have a robust road, it has to change its model. It cannot be as dependent on exports to the US. This is the problem that Asia as a whole has to face. Not every country in Asia exports to the US - some export to China, but many exports to China become Chinese exports to the US. So, the Asian system is very dependent on exports to the US. That has to change.
       What would you advise the Thai PM?
       Economies in Asia are dynamic. So, Asia is always doing very well, and now the big challenge is to increase the domestic base - investment and consumption - and to open to but not be dependent on the US. The other point is, it's a very difficult time because the US and some other countries are flooding the world with liquidity. Understandable, because they want to make sure that they don't suffer from problems. But we have a global financial system while liquidity is being decided at the national level. You provide liquidity to American firms but they do not spend in America, and they do sell it out. They look for the best economies in the world, in Asia, but now the problem is that too often they simply look for easy opportunities - real estate, commodities. Another bubble [will] distort the economies in Asia. You have to protect yourself against the mismanagement of financial policies in US.
       Be careful. You may be getting the easy money, but it's overnight money. You don't build robust growth based on easy money. You have to say, if they come in for a longer-haul investment, that is great. But for speculation, well, it's not interesting. We'll tax you. We'll tax you with capital gains. You have to recognise how dangerous hot money can be; you really have to remember the lesson of 97. It's worth it for the money to come in only if it improves the productivity of the economy.
       So would you specifically advise Thailand to be less dependent on the US market?
       That's right, and become more focused on the region and to continue your stimulus package for the country and all the lines that you've done. You have to try to fill in the gap until the region or the world recovers. But beware of the flood of liquidity coming from the West and use the full arsenal of tools that you have in your disposal. Don't buy into the notion that the market knows best. Don't buy into the notion that you only have one instrument, that is interest rates. You have many instruments. Use every one that you can so the government has both the opportunity and the responsibility to insulate the country from the volatility that comes from abroad.