STRATEGY

Those Weren't the Days?

Clinton economist Joseph E. Stiglitz ponders his legacy.
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The economy flourished in the 1990s, but former Clinton adviser Joseph E. Stiglitz suggests that business leaders and policymakers supported or allowed changes in the economy--bank consolidation, rampant deregulation, lax accounting--that are now hindering entrepreneurs. He makes his case in The Roaring Nineties, due out next month. The 2001 Nobel laureate recently spoke with Inc. senior editor Mike Hofman.

You write that one of the worst developments for entrepreneurs in the '90s was bank consolidation. Why?

Historically, the U.S. essentially mandated that there be different banks in different states [because] we wanted a flow of funds to small and medium-size enterprises. If we had a banking system dominated by a few big national banks, the worry was that the flow of funds would be diverted to a few big national enterprises. It's not a deep idea, but it has profound consequences.

But as one of Clinton's advisers, surely you supported some deregulation?

The problem was that deregulation became the mantra. Instead, we should have been looking for the right regulatory framework for industries that were changing rapidly because of technology and other factors. In some cases, we got the balance wrong because the world was changing quickly. In others, people were just acting in the commercial interest.

Do small-business concerns factor in the government's economic agenda?

Small business can be ignored, and it's a problem. Look at the secretaries of the Treasury under Bush--the heads of a railroad and a major global aluminum company. Of course, under Clinton, [the secretary] was for a long time the former head of Goldman Sachs--and the clients of Goldman Sachs are not the small businesses of the world either. But I think Democrats were more sensitive in trying to deal with small business. The Small Business Administration was very strongly nurtured under Clinton.

In what tangible ways does the big-business bias affect small companies?

Currently you clearly see it in contracting, with Bechtel and Halliburton. But think about research and development. Small entrepreneurs who do not have large labs, like DuPont, depend on the flow of government-funded research from universities and think tanks. To a large extent, small-company innovation involves taking these ideas and making them marketable. The huge deficit is creating pressure on these kinds of investments because they are the easiest to cut. Politicians can't cut Medicaid too much because we'll see people suffering. But if you cut research, you don't see the consequences for 20 years.

Have you had occasion to tell President Bush your views on his tax cut?

At a White House reception for Nobel laureates, a friend expressed my feeling that the tax cut was not very well designed. He said, "Mr. President, Joe is very concerned." And Bush said, "Tell Joe to get over it."

Last updated: Oct 1, 2003




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