GLOBAL CRISIS REPRESENTS "FAILURE OF US CAPITALISM"

       Nobel laureate Stiglitz calls for new global reserve system
       Nobel laureate Joseph Stiglitz yesterday advocated the creation of a new global reserve system that would provide a viable venue for countries to invest surplus funds.
       Speaking at an international seminar in Bangkok hosted by the Nation Multimedia Group, he said Asian economies would recover if they were successful in decoupling their dependence on export-led growth to Western economies.
       "Developing edication and closing the knowledge and IT gaps will allow Asian economies to sustain future high growth rates," Stiglitz said.
       Prie Minister Abhisit Vejjajiva, presided over the opening ceremony of the seminar, entitled "Asia: Road to a New Economy", said economic decoupling would be a big challenge for Asia.
       On the US dollar, Stiglitz said the currency's role as a good store of value was now "questionable".
       "The current system of using the US dollar as a reserve is in the process of fraying," sais the Nobel laureate.
       A new global reserve system should result in more stable, stronger and equitable global growth.
       Speaking before a packed house in the Plaza Athenee Hotel, Stiglitz also said the present global economic crisis represented a colossal failure of the unregulated US free market system.
       "The current crisis, which is the worst since the Great Depression, represents a failure of American-style capitalism," he said, adding that no one in the West really learned from the 1997 Asian economic crisis, because it did not spread to the developed countries.
       He said that most people mistakenly believed that freemarket policies advanced by the Western economies were a success despite the terrible effects they had on countries in the region.
       "It reinforced the overall view that the overall system was working," Stiglitz said.
       He said in reality, the largely unregulated free-market financial system was working only because of repeated government bail-outs.
       The financial markets were repeatedly saved from their failure to allocate capital and manage risk properly.
       The present global financial crisis and failure of US-style market capitalism, Stiglitz said, highlights the critical need to rebalance market, state and other stakeholders' roles in society.
       "It points out that the basic self-regulation Base II framework was an oxymoron," he said.
       Self-regulation simply can not work because oftenuncontrollable "externalities" were pervasive.
       "The financial markets have shown thay have enormous external feefects on the rest of the economy,' he said.
       The inordinate risks undertaken by a few US banks and insurance companies did not affect only their shareholders.
       "Their bad behaviour has devastated our home-owners and taxpayers, costing billions of dollars," he said.
       Moreover, their actions have caused often-lethal external effects. Globalisation has led to closer integration, which requires more collective action at the global level.
       "However, we don't have the institutions or mindsets to address these problems. We have been building a global economy with out constructing an appropriate legal and institutional framework," Stiglitz said.
       He said no organisations had misallocated capital resources as much as the US private sector in the past decade.
       "Although innovations are largely good for an economy, the US financial-sector innovations in the past decade did not enhance the economy," he said.
       Instruments like creditdefault swaps that were supposed to mitigate risk instead become "financial weapons of mass destruction". As a result, the US now has economic and social problems.
       "Almost 2 million Americans have lost their homes," he said.
       The financial crisis has highlighted the growing inequality in many nations and the reduction in aggregate demand.
       To address the crisis, Stiglitz said national policies must be reformulated.
       "We con't say that this has been a once-in-a-100 year storm, because this has been a man-made crisis caused by flawed economic policies," he said.
       Governments must begin understanding that materialistic societies based on maximising consumption are not viable.
       "Wasting resources to increase consumption is not a sustainable economic model," he said.
       Stiglitz praised Thai adn Bhutanese initiatives to develop new ways of measuring economic progress.
       "GDP may not be good for measuring economic wellbeing from a broader societal view," he said.