NEWS | Aug. 19, 2020

GeoEconomics and the Emerging World Order

By Joseph E. Stiglitz PRISM Speaker Series

Held on August 19, 2020, this lecture and discussion featured Dr. Joseph E. Stiglitz, University Professor at Columbia University. Dr. Stiglitz is winner of the Nobel Prize in Economics (2001) and in 2011 was named by Time magazine as one of the 100 most influential people in the world. The session was chaired by PRISM Editor, Michael Miklaucic.


Mr. Stiglitz emphasizes the importance of the economic dimension of national power in competition with China, discussing changes in the global economy and their impact on U.S. national security. Stiglitz calls for trust and cooperation with international partners, but notes that growing inequality diminishes respect for the U.S. economy. Stiglitz considers the factors of a strong national economy, including sustainability, resilience, population health, industrial policy, social cohesion, and the ability to address risk. In this session, Stiglitz discusses competition with China, international trade agreements, globalization, and international development.

Speaker Bio

Joseph E. Stiglitz
Joseph E. Stiglitz
Joseph E. Stiglitz
Joseph E. Stiglitz
Joseph E. Stiglitz
Photo By: Columbia University
VIRIN: 210406-D-BD104-002

Joseph Stiglitz is professor at Columbia University and a leading economic expert and public policy analyst. He received the Nobel Prize in Economics in 2001 for his work on markets with asymmetric information. Stiglitz formerly served as senior vice president and chief economist of the World Bank and as the chairman of the Council of Economic Advisors under the Clinton administration. In 2011, Stiglitz was named one of the 100 most influential people in the world by Time​ magazine.


Miklaucic: National Strategic Studies, PRISM, and the National War College, we welcome you to the second in a series of questions on the emerging international order.

We all seem to recognize that tectonic shifts are underway affecting national security, and we're all trying to get our arms around those changes. The National Security Strategy of 2017 and the National Defense Strategy of 2018 tried to track those changes, but with the advent of COVID-19, even they seem overtaken by events. 

Despite these major shifts in the global balance of power, and even in the way that power is exercised, it's still quite common to prioritize military strength, which has been always seen as the primary currency for achieving national security. With China and Russia flexing in a variety of ways other than military power, with transnational threats like international terrorism and transnational organized crime, not to mention pandemic diseases or climate change, it seems imperative that we re-examine our understanding of national security and what roles the armed forces might have to assume in the future.

For any of you unfamiliar with PRISM, these are the kinds of questions that the journal examines. Having been published for 10 years, PRISM now has a quarterly print run of 10,000, with recipients in 83 countries. Its goal is to educate joint warfighters and other national and international security leaders in critical thinking in order to achieve security.

To help us with that today is Dr. Joseph Stiglitz: professor at Columbia University, former Chief Economist at the World Bank, Nobel Laureate in Economics, and a man considered among the most influential global thought leaders. For anyone not sufficiently impressed, his 50-page CV is available on his website. Dr. Stiglitz has agreed to speak for 40 to 50 minutes, followed by questions and discussion, and we will wrap up at about 3:30.

So just before he begins, any of you that are connected via VPN, if you could disconnect from VPN, and access via the regular internet that will help minimize technical interference. Your microphones and video have been disabled for the session, so please submit any questions you might have for Dr. Stiglitz directly for Kira Mcfadden through the blackboard chat, located in the pull-out menu on the right-hand side of your screen. When submitting questions, we'd be grateful if you would include your name and affiliation. The seminar is recorded and it will be posted later shortly on an NDU website.

With that as a scene setter, Dr. Stiglitz, thank you very much for joining us. Over to you.

Stiglitz: Well, it's a pleasure to be here. So, I want to talk about the tectonic shifts in global economics and how they impact U.S. national security, recognizing that we depend on our defense establishment for the protection of our national security.

Perhaps as a way of background, let me say a little bit about myself. I was on the National Security Council, the NSC, in the Clinton administration. I was particularly engaged in several aspects of national security, including nuclear proliferation in the initiative of what was called swords to power shares; to the conversion of Russian nuclear warheads into the nuclear energy; involved with Russia, Ukraine, and the aftermath of the fall of the Iron Curtain, where some of my strong personal connections going back 30 years with class, with classmates in college, in graduate school, with the Secretary of Defense and the Director of CIA enabled the Council of Economic Advisers, of which I was a member, then chairman, to take a more proactive role in the issues that might not normally have been the case. I’ve also been deeply involved with the issues of sanctions; with technology export restraints; with our China policy, where I've been involved since 1980, in their transition to the market economy.

I want to begin by emphasizing that there are many dimensions to security. I think it was right that the Office of Pandemics should be in the National Security Council, which is where it was. The pandemic has undermined the economic resources available to defend our country as much as any cyber security attack. I can tell you from talking to senior government officials, including prime ministers, cabinet ministers, around the world, that our failures in managing the pandemic have greatly undermined the standing of the United States. 

The pandemic has also shown another aspect of national security: the importance of self-power, something that Joe Nye – some of you may know his work – has emphasized. Our success is based on the support for others, and influence is based on respect. We're a rich country with enormous resources, but we need the cooperation of others. That's crucial for our security. The question is how we get that cooperation. 

Part of that is trust: when we withdraw from an international agreement, without reason, that others see as valid, that undermines trust. When we don't honor our word, that undermines trust. Globally, part of America is seen as living in an alternative reality, an alternative view of the world to that shared by a very large fraction of the free world, though sometimes shared by some authoritarian governments. The realization of that has undermined trust in the United States. To what extent will our actions reflect this alternative view of reality? When we don't seem to be acting cooperatively, but unilaterally, that too undermines trust in our soft power, and in that sense, it undermines our security.

I want to talk mostly today about geoeconomics and the role of economic policy in economic security and economic security in national security. To continue with the theme of trust and soft power, one of the traditional sources of influence in the United States is respect for economic system. That has been eroding. If the erosion, you might say, began most recently with the 2008 financial crisis, many countries around the world saw that as evidence that the United States was unable to manage its economy. I think in some ways, even more telling has been the growth of inequality; the stagnation of incomes for large fractions of the country; the fact that at the bottom, incomes today adjusted for inflation are the same as they were some 65 years ago, that the median income of a full-time male worker in the United States is the same level it was more than 40 years ago; the fact that those of limited education in the United States have seen their incomes declined precipitously over the last 20-30 years, all of these undermine the respect that our country has. We are not seen as a role model. 

I'll return to this soft power in our influence with others, both our strong allies and those who we would wish to join our camp in a few minutes, but I want to first emphasize the importance of the strength of our economy:  the real strength of our economy – not the stock market, which is not a measure of our real strength – and that that underlies our security. It gives us the resources that we need for our defense; it gives us the resilience we need under times of stress when things are working well.

How do we assess how well our economy is doing? Well, that's a question economists have spent a lot of time talking about recently. GDP is part of it, but only part – an increasingly discredited or a limited part. It doesn't, for instance, reflect sustainability. We could be doing very well at one moment, but if it's not sustainable, we can't persist and we won't have the resources that we need over the long term. And there was concern, evidence back in the early years of this century, that our economy was not sustainable, and it turned out it wasn't, and we had the financial crisis of 2008. Right now, there's a lot of concern about environmental sustainability, social and political sustainability. 

GDP also doesn't reflect resilience: our ability to respond to a shock. We've seen the limits of the U.S. economy, the private sector, and in some sense, the public sector. For instance, in response to the COVID-19 crisis, we were not able to produce even simple products like masks, let alone more complicated products like tests and ventilators, so we have realized that we have become highly dependent on imports. We've always been dependent on imports, and that's one of the reasons why it's important to have good relations with our trading partners. But as an economy, we need resilient global supply chains, and the pandemic has revealed that our supply chains are not actually as resilient as we had thought. And that, of course, is a key part of our security. But because we are living in an interdependent globalized world, in eroding strong relations with our trading partners, we've eroded national security. Never have our trading relations been more frayed – again a theme I'll come back to very briefly.

I want to return to, though, the first message is how important strength of our domestic economy is to our long-term national security. 

The health of our economy depends on the health of our citizens, and this is another dimension in which things have not been going well. It is interesting that – [music] excuse me [music] – it is interesting that that during previous World Wars, we became very aware of the lack of health in our citizens. Some of our nutritional programs began when it was realized that those being brought in a very large number into the army, into our armed forces, were were not in good health. The data for the United States is quite frankly very disturbing: we have among the poorest health, as indicated, for instance, by the shortest life expectancy, which actually has been declining over the last five years; the greatest divides in health between those who are in good standing and very poor than in almost any of the other advanced countries. And again, the pandemic has exposed this large nation. We often talk about American exceptionalism, but this is an American excessive exceptionalism of a kind that we should not be proud of. 

And it needn't be that way. We have the best researchers, research. We are pushing the frontier in medicine. We have the best universities, but we are not delivering.

Another related aspect is technology. We are a technological economy now. We have a very advanced technological military, and that depends on advances in basic science. We built a knowledge economy, but that too is weakening. To have a sustained knowledge economy needs investments in science. Today, investments in science represent a smaller percentage of GDP than they did decades earlier. Every year, it's been proposed cuts of science budget of 30 or more. Fortunately, Congress has resisted many of those, but the cuts, for instance, in the Centers for Disease Control – the CDC – have left us clearly less secure, less prepared for the pandemic. 

Part of the success in science is investments in science, but it's also based on respect for science. It's based on a strong education system. We have the best universities, as I said before, but data show that overall, on average, our education performance is mediocre at best. But we are below some of our competitors, especially in key areas of science. You can't play games with science. There is no alternative reality; there are no alternative facts. We have to deal with the scientific realities as they are.

Now, advances in applied technology are based on a competitive marketplace, and a number of our firms are at the forefront in this area. We've benefited very greatly from that, but I said advances are based on a competitive marketplace. There was a great deal of concern about erosion in the levels of competition in the United States. Monopolies tend to squash opportunities. Strange as it seems, if that view is correct, competition policy itself should be part of national security policy. 

The important thing also is to realize the role of industrial policy. The Defense Department, DARPA, has played an absolutely essential role in the advancement of technology in the United States. The Internet, even the browser, were developed by the U.S. government, and DARPA played a very key role in that. Industrial policy is also going to be important in AI and cyber security and lots of other areas. Too often, we've not taken as proactive role towards industrial policy. There is a growing bipartisan consensus now on the U.S. taking a more active role in that kind of – industrial policy may not be the right word, but you might call it policies to advance certain technologies, certain sectors of our economy.

While the competitive marketplace is critical, we cannot rely just on the market. We can't leave it to the market. There is one key controversy that I might mention just very briefly, in which there are two very distinct views. In some countries, there is an argument for what are called national champions: the view that having a large, maybe dominant firm is a good thing. The other view says more valuable than that is robust competition. Among economists, there's a broad but far from unanimous consensus that competition is more important than having national champions, that a dynamic marketplace will service in the long run better. And that, interestingly, is a view that has been taken in, for instance, by the Europeans on this issue.

In talking about what makes for a strong national economy, I've talked about the importance of sustainability; I've talked about the importance of resilience; I've talked about the importance of having a healthy populace, a well-educated populace, of having industrial policy. I want to end by two other factors.

The first is social cohesion. We just don't believe that the system, our economic and our social, political system is fair, and that can only be true if we have at least a modic of inequality, a modic of equality, which is something that unfortunately, we don't have. Large parts of America have not been participating in the American Dream. I think I've argued in one of my books that's more accurate to say the American Dream is really a myth: the life prospects of a young American are more dependent on the education and the income of his parents than in other advanced countries.

Finally, the strength at home and how others view us depends on how we meet the multiple risks we face. I've already talked about our failures in two areas, in addressing the pandemic, addressing the 2008 crisis. Today, I think the most important global risk for security in many dimensions which we can talk about is climate change. Looking at both more narrowly from the point of the United States, in one year alone, recent year, we lost almost two percent of GDP to climate-related events. Right now, we're witnessing the effects of California wildfires and Iowa storms. The lack of climate policy is foolish, and it's seen that way almost universally outside the United States, and I think by a majority within the United States. To contrast between what is going on here and elsewhere this week: New Zealand became the first country to mandate the disclosure of a climate risk by their firms. So how we manage risks is an essential part of our national security.

So, so far what I've done is emphasize the importance of economic strength at home, but the central theme of my talk is geoeconomics. And that's also focused on our strength, but more in a global way. Our support from our allies, our influence over others, including our vulnerabilities. I already mentioned that we live in a global economy in which we are very dependent on others; that what we saw so clearly in the pandemic, that our economic system is not resilient. I sometimes describe or explain resilience by talking about cars without spare tires: you can save a little bit of money in the short run, but if you don't have the spare tire when you have a flat tire and you're 200 miles from the nearest station, you're in a very bad fix. And in some ways, short-sightedness, the same kind of short-sightedness that led to the 2008 financial crisis, has led our overall economic system to be not as resilient as we would have liked. Of course, we will always be somewhat dependent on others, and that makes assessing fragility a very big challenge. It depends on the diversification of our supply chain, the reliability of our partners in global supply chains; it depends on reciprocal trust: if we are untrustworthy, we act in a way that seems hostile or unreliable, we cannot expect others to trust us. 

In an earlier day, in talking about geoeconomics, we would have talked about the importance of energy: fuel. So fuel, coal, I mean particularly oil, it's still important. Germany, I believe, has undermined its security by its reliance on Russian gas. If there's a cutoff of gas, it doesn't have a second easy source to make up for that. Today, I think it's an important part of national security that we need a closer assessment of our sources of fertility, our lack of resilience, and what we can do about that. That has not really been done so far. If we think about China, for instance, right now it is dependent on U.S. advanced chips, but that may end soon. U.S., on the other end, is dependent on the assembly of those chips in China. How quickly could we change if that got cut off? What would that imply for our economy? All this needs careful calculation. When we asserted that we need a terrorist​ for autos for national security purposes, we totally​  undermined our credibility. It's interesting that some other countries have begun this process and begun a process of thinking, what government can do to enhance that kind of resilience and insulate the country in response to this changing geoeconomics. A chip has actually begun announced, at least, it's beginning to do that. 

There's a second dimension of security and geoeconomics: geopolitics, and I want to talk about. Failed states are a threat to our security. The more states that we see that see themselves as ally to us, the stronger is our security. We have neglected Africa and most of the developing world. Worse, in many instances, we have taken them for granted, in many cases avoided them, encouraged the exploitation of them by our financial firms and companies. There have been scandals like 1MDB in Malaysia, which have undermined, in a very strong way, USA soft power. As a percentage of GDP, we are among the poor performing advanced countries in providing investments. Our support for infrastructure in Africa is dwarfed by infrastructure investments in the continent by China, especially Xi Jinping’s Belt and Road Initiative and the Asia Infrastructure Bank. We told countries to turn down the assistance that they were receiving from China, but we didn't offer any alternative. 

Now, I've seen firsthand the impact of this infrastructure, how it's transformed parts of Africa.

For instance, in Ethiopia – it's a crucial country for our national security, in the Horn of Africa – China went in, not because of natural resources, Ethiopia doesn't have much of that, but simply because it had a long-term vision. It believed that influence was important. Well, even as China's initiatives were seen with more skeptical, are are being seen with more skeptical eyes as a result of corruption, of harsh terms as evidenced by what's happened in Sri Lanka, the firms from the West have also been seen as problematic. In recent deputy negotiations with, say, Argentina and Ecuador, companies, our Wall Street companies, Western lenders have acted in extraordinarily harsh ways, ignoring the devastating effects of the pandemic. And in many ways, what we do in our financial policy, our economic policies towards others, does undermine our soft power and our national security. For instance, one of the things that is very disappointing to me is the U.S. effectively vetoed the issuance of what are called special drawing rights, SDRs, by the IMF, that would have provided hundreds of billions of dollars of pandemic assistance to the emerging markets in developing countries – money that would have not cost us essentially anything, and yet we vetoed that initiative. We need to ensure a longer term vision of cooperation and influence, not a transactional view of what is in it for us, now, in the short run. An example of that kind of short run action which is undermining our soft power is America's vaccine nationalism. Whether it will actually serve our purpose in the short run or not is a question that's under some debate, but what is very clear is that the rhetoric of vaccine nationalism, what we've been doing to try to protect ourselves is losing us friends around the world.

So, in the last few minutes, I want to turn to four specific questions that have been posed to me, and hopefully these introductory remarks will give you a frame in which to think about how I'm answering these questions.

The first was, how do the tectonic shifts in global economics impact U.S. national security? I want to begin in answering that question by an important fact: we have to realize that we are no longer the dominant country in the world that we were after World War II. In fact, in 2015, in the standard way that economists measure the relative size of an economy, which is called PPP – purchasing power parity, which accounts for the real purchasing power rather than the vicissitudes of exchange rate – China in 2015 became larger than the United States, and while our economy is going to decrease this year, probably an estimated 5-6 percent, China's economy is looking like it's going to increase by some 3 percent. And so their economy is continuing to grow relative to our economy. So all this means that we will need even more cooperation with our allies, and we want to have more countries join to be our allies. 

We may not even at this point have dominance in every branch of science. A particular concern is artificial intelligence, AI, which is enormous power. A key input into AI is data. China has more data. It's lack of concern about privacy gives it the access to more data. The answer is not for us to give up on our basic values, our importance of privacy, it's to be smarter and to invest more. Unfortunately, we haven't been doing very much public investment in this area at all. 

The second question is, has globalization been a boon to U.S. national security? Where has it made the U.S. more vulnerable? Well, globalization has been, as I think I've made clear, a two-edged sword. Some of the growth that we've experienced over the last 40 years has been due to taking advantage of comparative advantage, specialization. It's led to a faster growth than we otherwise would have had, but mismanaged globalization has contributed to a lack of resilience that I talked about earlier, global supply chains that are insufficiently diversified. It's also mismanaged globalization that has also contributed to inequality, which is undermining social cohesion within the United States and in many other other advanced countries around the world. We've had mismanaged globalization, which has also undermined our soft power. We managed – globalization has been basically managed for certain corporate interests. For instance, access to necessary drugs; some of the investment agreements which have impaired the ability to regulate the environment adequately. All these have really undermined the U.S. soft power, and I think had a deleterious effect on our overall security.

The third question is, what is the future of globalization? Will COVID-19 kill globalization? Well, from my perspective, COVID-19 has exposed both the importance and the limits of globalization. It has shown the need for global cooperation. It was a big mistake to withdraw from the World Health Organization. It is impossible to address global problems like a pandemic – and a pandemic is a global problem – unless we have global cooperation. And these multilateral institutions aren’t perfect, but no human institution is perfect, and when we see deficiencies, we ought to work to improve that. And so it's shown very vividly the need for multilateralism. COVID-19 has shown the importance of globalization and global cooperation, but it's also shown the vulnerability, as I said before, the lack of resilience, and exposed the weaknesses in the United States that are associated with the huge inequalities that we have. So my hope, the lesson of COVID-19 will move towards a better managed globalization, a better managed multilateral institution that will enhance our security.

The final question is, is decoupling possible? Is it desirable? And I think the issue here that's particularly salient is decoupling between the United States and China. The tensions are palpable. If the United States really does stand for democracy and concern about human rights, it's hard for us to ignore what's happening in Hong Kong, what's happening with the Uyghurs. There is a broad sense that if things continue as they are, there will be some degree of delinquent decoupling. It's not an on-off switch, but it will occur. But we need to be very strategic and very thoughtful about how to manage the process, why we are decoupling, why are we de-linking. It's not, you know, the first order effects are not whether China opens up its markets to U.S. insurance companies or financial firms, or even some of the trade issues. I think the bigger issues have to do with our value systems, with democracy, with human rights, with authoritarianism. We need to recognize it's not a zero-sum game, and anybody who views international relations, economic international relations through a zero sum lens is going to be very badly misguided. In fact, there is going to need to cooperate to solve global problems – problems like the pandemic, global warming. We have to recognize there are fundamental differences, as I mentioned, over democracy. 

So I believe we can decouple. I think we have to be prepared to engage in a process of de-linking. We have to be aware of the cost. It's going to have implications for our standard of living. There are, you know, the reasons why we got coupled, were basic economics of comparative advantage, but we can, I think, manage the process of de-linkage.

So in conclusion, let me stress the central themes that I've talked about this afternoon. 

The first is that national security is much more than defense. It begins with the strengths at home: our economy and the health of our people, of our research institutions, our ability to meet the risks at home. But it requires cooperation with others, especially as our role, as our size, our dominance in the global economy diminishes. This will require managing globalization. This will require, for instance, a more diversified supply chain and very careful assessment of our resilience and our fragility. It entails the exercise of our soft power, and that begins with respect for the United States, and that depends on our behavior both at home and abroad, but it includes how we cooperate with others and our trustworthiness. So it also includes investments in foreign assistance abroad and many elements of a foreign economic policy. 

Well, I've tried in these few minutes to paint a very broad canvas, and I welcome your questions to try to get a little bit more into detail on some of the specifics of what I talked about this afternoon.

Miklaucic: Thank you very much Dr. Stiglitz for that. In fact we have pages of questions, so I hope you're ready. Let me just begin with the first question, how does our rapidly growing national debt impact U.S. national security? That coming from the Eisenhower School.

Stiglitz: I'm not that worried about debt. Let me put it both over the long run, and then the special problems of the increase in the debt since the beginning of the pandemic. For the most part, not completely but for the most part, this is money we owe to ourself, and so the benefits that we get when we borrow money to invest in our economy and our people and in infrastructure and science yields returns that are far greater than the liability. And easily we can surface that – service that. We can particularly easily service that debt today, when the interest rates are close to zero. So you know, any firm, you would look at the balance sheet, you look at the assets on one side of the balance sheet and the liabilities on the other, and the debt is the liability side, and if the liability goes up but the assets go up in tandem and with high return assets, then we're a stronger economy. 

Now, since the beginning of the pandemic, our national debt has grown very quickly in an unprecedented way. The debt-GDP ratio this year will be somewhere between 15 and 20 percent. I mean, this has historically never happened before outside of time of war, but most of that debt is being effectively held by the Federal Reserve. That’s a peculiar kind of debt, because the Federal Reserve is really part of the U.S. government. So we are borrowing from the U.S. government. In many countries, we make a big distinction between the gross and the net debt. A lot of people talk about, you know, Japan having a huge debt over 200 percent of GDP, but half of that debt is held by the Bank of Japan, and so the net debt is much, much less. So right now, the first order is getting our economy, keeping our economy working, and then getting it back to normal. And if in that process we have to undertake some debt, we will. That's less important than, less worrisome than not doing anything. So in my mind, unambiguous, we should undertake more debt to manage the pandemic. We have to think about afterwards how to manage that debt, but there are well-established ways of handling it. 

Miklaucic: Thank you, sir. Two questions related to the Belt and Road Initiative: the first coming from CSIS student Bakshad Suleimonov, asking if you can speculate on the negative consequences of China's Belt and Road Initiative to Central Asian states, and what measures should those states take to avoid those negative consequences?

Stiglitz: Well, there are three, at least three, concerns that I have. The first is that some of the initiatives of Belt and Road are not high productivity initiatives. The country is undertaking debt, but not getting productive assets, so this actually is parallel to answer the previous question. If you undertake debt, and you make good investments, and with returns well in excess of interest you have to pay, it's a good investment. But some of the debt that is being undertaken in the BRI Initiative are not good investments, so the [inaudible] advice is be very careful what you use the money for. 

And what the second, related, is in some of the projects, there's been a high level corruption, lack of transparency. Country that I was following closely the debt was – they had the debt, and they started looking at where were the assets corresponding, and they weren't there. A lot of the money went not to make the real investments, but got siphoned off. So obviously if there's this kind of corruption, whether it's to in the private-public sector, you're going to be poorly off. So you need transparency. There needs to be where you have democracy to legislate, the parliaments have to be involved in making sure where the money is going.

Finally, even good loans can turn sour when economic circumstances change. The pandemic has illustrated that even countries that were not overly indebted have turned out to be overly indebted. Nobody could have anticipated the magnitude of the economic downturn associated with the pandemic. So the question is, what happens when you wind up overly indebted? And there is a great – the Sri Lanka example I mentioned, very briefly in my talk illustrates the dangers that in the case of Sri Lanka, China took over one of the two ports of the country, and you don't want to lose key assets. You need an agreement for debt restructuring, and right now, there's no global framework for debt restructuring, and some concern that even when the G20 agreed, that because of the pandemic, the official sector, that is to say, government lending, would have a stay on servicing debt. China claimed that its export-import bank was not part of the official sector, was not a government institution, it was a private, as if it were a private institution. So I think [inaudible] because of the ambiguity of what is top and private, I think there needs to be a clear framework of what happens if the country winds up not paying a debt, and making sure that this basic principles that were established by the UN, clarified by the UN in 2015, that talk about the importance of sovereign immunity, the importance of having funds for basic needs of the country trumping debt obligations abroad. 

Miklaucic: Thank you sir. A related question on the Belt and Road Initiative from the Institute for National Strategic Studies: question is, how can the United States compete for influence with the Belt and Road Initiative?

Stiglitz: Well, I think the answer is we need to have a more expansive foreign assistance program. That's what I was quite explicit about, I'm actually very strongly, you may have seen by now, I'm very strongly. We have multilateral institutions. I think they help leverage what we do. You might say I’m a little prejudiced because I did serve as Chief Economist of the World Bank. I was very critical in some ways of what it did, but I work to try to improve it. I think it's a – the IMF and the multilateral institutions are better today than they were 25 years ago, and they, you know, you watch what the IMF has been doing in helping countries in the midst of the pandemic has been really impressive.

What I would say is very strongly we need to realize how important foreign assistance is as part of our national security. And it has to be well-designed, obviously, it has to be, you know, thoroughly thought through. Some kinds of assistance are more effective than others, but I think the real answer is we have to support that now. I also think that good trade policy can help, but as I emphasized in my talk, much of what we've been doing in our trade policy has been a corporate agenda that advances the special interest of a number of corporate interests, not our national interest, and so we have to reorient our trade policies to reflect our national interest, not corporate interest.

Miklaucic: Thank you sir. From Frank Hoffman on the INSS faculty: Dr. Stiglitz, based on your experience in Washington, do you believe that our current national security structure, the NSC structure specifically, adequately integrates international and domestic economic issues in the formulation and implementation of long-term U.S. national security?

Stiglitz: No, I really do think that, you know, I was the one economist on the national security NSC and I thought there were many more dimensions to economics that, you know, needed to be reflected in NSC policies. You know, when I was on, there were a lot of tension between Treasury and State on policies towards the former Soviet Union, and that illustrates one of the concerns that I just expressed a minute ago. Treasury tenders reflect Wall Street's view, and State Department was trying to reflect a broader national interest view. 

I want to say that Defense Department was actually very good in the beginning. Les Aspin was the Secretary of Defense. He was a classmate of mine at MIT in getting a PhD, and so he was very well aware of economic concerns, but he was unusual, to have somebody who's that good of an economist as Secretary of Defense. But he was succeeded by Perry, who was also very good, but what I want to emphasize is that there were many issues where more economic analysis would have, I think, a broader national security. 

Let me just give you two examples where I think, from my experience, having the voice of economists louder. One of them was on the issue of nuclear proliferation and the incentives involved in the privatization, USIC, the U.S. enrichment corporation, the risks that were engendered by having a private American company be the recipient of the de-enriched uranium from Ukraine and Russia's nuclear warheads, from Ukraine's nuclear warheads. I think that was a mistake. And China policy, obviously the economics is at the center of the China policy, but it was also a national security issue. So I think that there needs to be a larger voice of economics in the NSC.

Miklaucic: Great, thanks. Two questions on, first coming from Colonel Mohammed of the College for International Security Affairs. Dr. Stiglitz, in your opinion, did [inaudible] long-term impacts of the U.S. from the TTIP and the TTTP on the U.S. economy and on U.S. security?

Stiglitz: Well, the TPP brings things – let me talk about that, because that was well further formulated. At the time we reduced, withdrew from TPP, it shows both sides. We almost spoke very forcefully about the importance of TPP for bringing countries in Asia within a stronger orbit of the United States. 

So that intention was, I think, correct, but it made two critical mistakes. It had, in the tone in which it was set, it had a tone of American colonialism as opposed to cooperation. In one of his State of the Union speeches, President Obama said who is going to be writing the rules for Asia, will it be the United States or China? Well, obviously if you're talking about who's writing the rules for trade in Asia in the 21st century, you have to think of that being Asians. We would work with them, but the idea that we – you know, you have to remember that when we say something, other people listen to the words we use. And if we say we are writing the rules for Asia, that's not going to be well received. So you have to pay attention very sensitively to the reality of the 21st century, and that means Asia is going to be writing those rules. But we don't want it to be, it's going to be done cooperatively, and when you do that, you have to realize that many of the rules that we were trying to foist were not good rules for Asia. They were rules that were good for our corporations, and that is reflected.

I said before that our trade agreements were often more a reflection of corporate interests. A good example of that was the provisions in TPP dealing with health. Access to generic medicines is extraordinarily important for poor countries. Important for rich countries too, but for them, it's a matter of life and death, so there were provisions in that agreement that made access to life-saving medicines more difficult, access to generic medicines more difficult. And interesting thing was that in the aftermath of U.S. withdrawing from TPP, the other countries agreed to go ahead with TPP, but they took out these noxious provisions dealing with intellectual property and with drugs in particular. 

You know, this also speaks a little bit to what I said before, about the importance of science and health and listening. I met with all the health negotiators of all the TPP countries over this issue, about how you write a good agreement that would maintain access to health, generic medicines. All of the countries except for one agreed to talk and engaged in, you know, a good discussion. That one country was the United States. So it shows that in a sense, the lack of cooperation, that we weren't seeing this as a cooperative enterprise, and I think that when you do that, it undermines our soft power.

Miklaucic: Thank you sir. Related to that question, coming from a European colleague, Carl Lalerstadt from the Confederation of Swedish Industry in Stockholm asks how do you see the longer term prospects of reviving the TTIP negotiations or reaching some form of significant trade agreement that would strengthen the transatlantic link?

Stiglitz: So here, the hardest issue in expanding trade between the United States and Europe are the non-tariff barriers, the regulations. Right now, the tariffs between the United States and Europe on each side are on average three percent. That's not a big barrier, and you think about what the fluctuations in exchange rate: they can be 15-20 percent, far more than that 3 percent barrier, so that I don't view the tariffs as a big barrier. 

The non-tariff barriers can be a significant barrier. The problem is, to a very large extent, the non-tariff barriers represent differences in views of our societies about different values, different concerns of our citizens. So for instance, when it comes to the technology companies, Europe, I think, I happen to be on Europe’s side, more concerned about privacy than the United States, and so they've devised a whole set of regulations concerning privacy. In agriculture, Europe is much more concerned about GMO than the United States. And you go down area by area. In many of the non-tariff barriers, there are fundamental differences in values that should trump trade. 

Now, in the end I do think that if we can get a trade agreement in which corporate interests understand that the limits, that we are not gonna take down all the non-tariff barriers, but there are lots of them that we can take down, then I think we can get a meaningful agreement that will expand our integration, and that would be a good thing.

Miklaucic: Thank you Professor. On the question of industrial policy – I'm sorry, not industrial policy, on managing globalization, we have a question from Mark Bucknam from the National War College faculty: how does one manage globalization, and who should do that managing?

Stiglitz: Oh, that's a really hard question. In the end, there are two levels of managing globalization. The first is the global rules that are set by institutions like the WTO, the trade agreements that we've just been talking about, and the multilateral institutions that play a very big role in managing globalization. And the second one is managing it domestically. So when it comes to managing domestically, what I mean by that is managing some of the consequences of globalization. If opening of trade leads to some parts of our country having a loss of jobs, we have to have active labor market policies and industrial policies which can help them get new jobs. You know, it's not – one of the basics of globalization, in the early days, there was a view that, oh, don't worry about the loss of jobs, new jobs will be created. Well, we know that that doesn't happen automatically, and sometimes the new jobs don't get created as fast as the old jobs get destroyed, so you need active policies to to manage the adverse effects of globalization.

So that’s our first responsibility as a country, to manage those adverse effects. But in the global architecture, the United States in the past has played a very constructive role and has played a key role in writing those international rules, but unfortunately, quite often those rules have been reflected, as I said before, corporate interests. And so when I say managing them, managing them from broader international and national perspectives as opposed to corporate interest.

And I think part of that will happen the more we democratize the process. The problem is that much of the rule making in globalization has been done behind closed doors. In the case of TPP, even the chair of the Finance Community Committee in the Senate initially was told he couldn't get access to what the U.S. bargaining position was in TPP. And of course, he exploded at that point and eventually got it, but the point is that it's been viewed as the purview of the administration, done in secret, with many people in industry groups having access to the position of the USTR – the U.S. Trade Representative – but people in civil society and even people in Congress not having access and therefore not having influence. So to me, part of managing globalization better is democratizing the process of managing globalization.

Miklaucic: Thank you sir. You mentioned before that one of the responses to the Belt and Road Initiative should be a more robust U.S. assistance program, so I have a question coming from Rob Garverick from the Eisenhower School. Dr. Stiglitz, you – I'm sorry, this is from Melissa Patsalidis of the Eisenhower School. What do you think of the potential of the new U.S. international development finance corporation as an extension of U.S. soft power? Is there a focus it should take? 

Stiglitz: Well, I think that the focus of assistance that is going to be successful has to be on what can most help the development of the countries that we're providing assistance to, and what is key in that is that we not project our particular view of the world on ideology. By that, I mean, of course we believe in market economies, but the particular mix between the market and the government will differ from different countries. It differs across the countries in Europe, across advanced countries, and we should not take a very narrow view of what we think their development strategy ought to be. So in other words, I think it's very important that not be extensive conditionality, that there should be a much more cooperative stance, and a much more deeper interaction, not just with the government in the countries, but with the people in the countries, working with civil society, working with the NGOs, working with a variety of kinds of of institutions. So, the basic thing is that we shouldn't have too strong of an agenda beyond the agenda of broadly advancing, you might say, democracy, human rights, kinds of market economy, but a very broad view of what that entails.

Miklaucic: Thank you sir. I'm sorry these are shifting around so much, but it'll keep us young. This question is from Rob Garverick of the Eisenhower School. Dr. Stiglitz, you spoke about industrial policy. Beijing introduced Made in China ‘25 with a focus on high technology and advanced manufacturing. How should we respond?

Stiglitz: Well, I think that we need to recognize that the countries that are behind are inevitably going to try to catch up. Japan really pioneered in the use of industrial policy. I mean, you could say the United States pioneered: we used the U.S. government agricultural extension policy; it was what closed enormous impact in increasing productivity in agriculture. We've engaged in industrial policy throughout our last 150 years, but in terms of development, Japan's very successful industrial policy. Korea. So it's not a surprise that China would want to do that. 

So I don't think our objection should be to their trying to close the knowledge gap between them and us. That's a reality that we're going to have to realize, and that it's going to happen. Their per capita income is about a fourth, a fifth of the United States. That's a huge gap. And given access to knowledge that's global, unless we can get global cooperation with Europe, with all the other advanced countries, we have very limited ability to stop their closing that gap. 

But there are a few areas where we may want to think more strategically, but that there will be a cost of doing that. And so I raised this issue. I'm not sure what view I have. I think it's something that really needs a lot of thought. There is a key area, there is a gap. They don't have the advanced chips that we do, and those advanced chips are essential to their AI and many of their other key areas. Now, if we take a strong action and reduce their access to our chips, those advanced chips and significantly, there are two questions we have to ask. One of them is, will they get them somewhere else? Can we really enforce a significant reduction? And the second one is, it will accelerate their efforts to begin to advance their technology, which probably on their own, at least most people think they could do, but it will take them several years, so the question is that, you know, are the net benefits of doing that worth it? It is something, you know, it goes beyond the kinds of measures that we've taken, which have been really very, very limited. Like Huawei, you know, limiting sales to Huawei. What we're talking about is access to chips that we control now. We have the monopoly on them, or at least just on them now. Should we take actions to impede in a significant way their closing the gap.

Miklaucic: Thank you sir. Next question coming from Phil Saunders of the Institute for National Strategic Studies. To what extent can the U.S. force others to decouple from the Chinese economy, and what are the costs of trying to force them to choose between us?

Stiglitz: Well, first let me say that that's why I emphasized over and over again the need for cooperation. It's a lot better if they see the world in the same way that we see the world so our interests are aligned, and we aren't making them choose between us and them. So that highlights one of the main themes in my talk, which has been trust and cooperation, soft power. I was at the Munich Security Council conference this year, marked last thing before the pandemic, the last trip I took, and that was the issue that was being talked about over and over again. The Europeans were being, at that moment, were feeling very strongly being asked to choose between China on the one hand and the United States on the other. Obviously their normal, their affinity is towards democracy, towards the United States, but their economic interests, say Germany, are very closely still aligned with China. And so I could, you know, conversations I had, you could feel the tension that they felt over this issue. 

I do think that the more we can explain well why it is that we think decoupling, delinking is important, or the more carefully we tailor the delinking – I say it's not an on-off switch, it's a direction in which things are going to be moved – but the more carefully we tailor it, and the more we can give rationale for why we are doing it in the way we're doing it, the more likely we are going to be successful. I don't think we want the world – goods and flows so extensively that it will be very difficult, and for us to force other countries. I don't think we will, at least in the short run, be able to do it, unless we get their cooperation voluntarily.

Miklaucic: Thank you sir. A question from Mark Phillips from National Defense University. What impact do you see the emergence of central bank digital currencies, such as the digital yuan, having, and do you see the U.S. dollar continuing to be the world reserve currency in the future?

Stiglitz: Yes, I do think the U.S. dollar is going to be the reserve currency. I think there are two aspects of digitalization. There's gonna be a lot of digitalization going on, I mean, in a sense, paper money is a little bit arcane. In the same way people don't carry around gold bars anymore; they went to paper, and paper is becoming arcane; we're going to have a digital currency. Some countries are very, very digitalized. We would be much more digitalized if we didn't have monopolistic power in the financial sector. Other countries have digitalized much more than we have, countries that have a more innovative financial system. So I think that digitalization itself is not an issue that will affect the U.S. standing as a reserve currency.

What is of concern is the non-transparent digital currencies, like bitcoins, and that undermines the functioning of the global financial system. You know, for 20 years we've been trying to create a more transparent global financial system, and these cryptocurrencies are moving in exactly the wrong way. There are instruments which we can use to circumscribe these cryptocurrencies, and I believe if they grow to any significant extent, we will undertake those instruments. And so that's why I'm not particularly worried about even the digital cryptocurrencies.

Miklaucic: Great, thank you sir. A question from Jodi Vittori, former College of International Study Affairs faculty, now with the Transfer International. Dr. Stiglitz, there's been a good deal of discussion about the role corruption is playing degrading security in two ways: first, how some countries use corruption as a foreign policy tool to undermine the U.S. and the West; and second, the role of illicit financial flows in undermining the U.S. economy. Do you think these concerns are valid, and what might the U.S. be doing about these things?

Stiglitz: Yes, I think they are valid concerns. You know, I've been engaged in this fight on corruption for a long time. I was at one critical meeting of the OECD where we discussed corruption. I was a representative of the United States, and it was at a critical moment. Several of our allies argued that you weren't bribes a legitimate business expense, and shouldn't they be tax deductible? And they were very resistant to not making them tax deductible, let alone banning them. I think things have changed since then, and England has a stronger poor and corrupt practices act than the United States. I think that it is important that the United States maintain a strong anti-corruption stance. It is important that we be seen, in contrast to some others, as a country that doesn't tolerate corruption. And I can tell you, talking to many American businesses actually think it's a strength, because when the government or some other official in another country tries to get a bribe, they can say look, you know I'd love to bribe you if I could, but I'll go to jail for it. So, and of course it makes doing business a lot easier if you don't have to give bribes. So it actually is even a good business practice.

I think, you know, I've talked about inequality in the United States and around the world. The tax havens are major vehicles or places which contribute to global inequality. Money gets siphoned off. People aren't paying the taxes they should. Not maybe as bad vis-a-vis the United States as it is for some other countries, but the Panama Papers and the subsequent investigative journalists’ reports have made it absolutely clear the adverse role that these secrecy havens, because they’re more than tax havens, secrecy havens have on our societies. So to me, maintaining pressure on these is very important.

Now, one problem the United States has in this is that several of the states within the United States have become major secrecy havens, major places where bad money hides, and that was made very forcefully to me by some Swiss bankers, who were of course furious that we had put a lot of pressure on their role as a secrecy haven tax avoidance. And they said well, you know where a lot of the people from Latin America took their accounts when they went out of Switzerland? They went to the United States. And real estate has been an even worse way for money laundering. A lot of money laundering going on through real estate in the United States. So, and this is undermining our society and our economy.

Miklaucic: Thank you sir. I hope you have time for one last question. We have many more, but I want to be very respectful of your time. This comes from Colonel J.R. Daimle from the National War College, and it refers back to your comments on managing globalization. He asks you: Dr. Stiglitz, you assert that mismanaged globalization has resulted in domestic economic disparity. What policies should we undertake to better manage our engagement with the global economy?

Stiglitz: Yeah, so this goes back to this issue of inequality, and I want to make it clear that globalization is not the only and maybe not even the most important force giving rise to inequality. There are others: changes in technology – de-industrialization would be going on in many parts of the United States just because of the advances in technology. Globally, employment and manufacturing is declining. And so we would be facing a challenge even in the absence of globalization, but globalization has made it even more difficult. It has contributed to the problems, so one of the key aspects of this is that demand for labor in certain sectors, in particular, manufacturing and particularly of unskilled workers, has declined, and that has led to lower wages. A lot of manufacturing jobs 50 years ago were viewed as high-paying jobs. We've retained the manufacturing sector, but only by converting it into low-paid jobs, or not well-paid jobs. So there in my mind is we're not going to be able to maintain manufacturing. It'll still be a part of our economy, I don't mean, but it's only about 9 percent of employment. 

The objective should be to help people move to other sectors of the economy, and there are a lot of important growing sectors. The service sector is the part of the economy that's growing. Some parts of the sectors that will be growing, we're going to require people to move from one place to another to get new skills. Solar panels, we're going to need a lot of labor as we go for the green transition. There are a lot of jobs in the caring sector that we need. They need to be higher paid. So overall, what I said before is we need active labor market policies and industrial policies to help people move from the old sectors to the new sectors and to make sure that the new sectors are well paid, productive sectors of our economy. That should be a natural part of the dynamics of change. You know, as we move to the mid-21st century, it's a different economy than the mid-19th, 20th century. Markets don't make these big structural transformations easily well on their own, and there is an important role to manage that process of transformation.

Well, thank you very much. I really enjoyed this. Great questions.

Miklaucic:  Professor, thank you very much. Before we adjourn, let me just say you've been very generous with your time, and agile with your responses. I just want to thank National War College for co-sponsoring and the INSS team of Brett Swaney and Kira McFadden for supporting us. You have opened our aperture and we're all deeply appreciative. Thank you so much. And to everybody, stay safe, stay healthy, stay strong, and stay in touch. Miklaucic over and out.