Economists at war: how a difference of opinion over globalisation turned personal

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An ugly spat between a Nobel prize-winning economist and a senior figure at the International Monetary Fund has exposed a deep rift over the role of an institution that has already attracted widespread hatred.

The financial community has been taken aback by the level of personal abuse being traded between two such high-powered intellectuals.

The row began last week when Professor Joseph Stiglitz set out on the lecture circuit to promote his latest book, Globalisation and Its Discontents. The book is an attack on the IMF but written in a style to make it accessible to non-economists.

The document was always likely to cause controversy. For three years Professor Stiglitz was chief economist at the World Bank, the sister organisation to the IMF, which channels Western money to the poorest nations. He quit in 2000 to take a job in academia and immediately began to pen attacks on the IMF's work.

His new book takes the fund to task over its role in the financial crises in Asia in 1997, Russia in 1998, Brazil in 1999 and again this year and Argentina in 2001.

But the remark that has triggered the anger of Kenneth Rogoff, the head of research at the IMF, is an accusation of "venality" against Stanley Fischer, formerly deputy head of the fund. Professor Stiglitz notes that Mr Fischer went from the IMF to the banking giant Citigroup, where the former US treasury secretary Robert Rubin was chairman.

"[Rubin] had a central role in IMF policies," Professor Stiglitz wrote. "One could only ask, was Fischer being richly rewarded for having faithfully executed what he was told [by the US Government] to do?"

He added that one "need not look for venality" to mount a critique of the fund's policies.

This drew the sharpest barb from Mr Rogoff. He used a lunchtime debate last week to launch his rival's book to unleash a fierce attack.

"Joe, Stan Fischer is well known to be a person of unimpeachable integrity," he told a gathering of Washington's great and good. "Of all the false inferences and innuendos in this book, this is the most outrageous. I'd suggest you should pull this book off the shelves until this slander is corrected."

Mr Rogoff used fact and sarcasm not only to challenge Professor Stiglitz's critique of the fund but also to undermine his ideas. "You put forth a blueprint for how you believe the IMF can radically improve its advice on macroeconomic policy. Your ideas are at best highly controversial, at worst, snake oil," the IMF official said.

Professor Stiglitz defended his book and accused the IMF chief of simply "reading out a prepared diatribe. Instead the IMF once again showed its reluctance to engage in substantive debate, confirming in a way one of the main concerns of my book," he said.

The IMF is already loathed by the anti-globalisation pro-testers, who have engaged in violent clashes in cities such as Seattle, Stockholm, London, Genoa, Ottawa and Washington. While they accuse the IMF simply of being an agent of Western capitalism, critics such as Professor Stiglitz build a more intellectual case.

His central point is that throughout the recent crises the IMF insisted on prescribing bitter economic medicine for the emerging market economies. He says that the IMF erred by applying "market fundamentalist" solutions to countries on the brink of collapse – floating the exchange rate, banning capital controls, cutting deficits and raising interest rates.

He advocates a mixed solution, allowing countries to run deficits – as many Western economies do now – greater regulation of banking systems and bankruptcy protection for struggling countries.

Professor Stiglitz has attracted fans within, as well as outside, the financial system. Sheetal Radio, senior economist at Standard & Poor's MMS, said the IMF was a "one-size-fits-all shop that ignores the importance of social, political and cultural factors that drive economic policy". But supporters of globalisation are glad the IMF has finally come out publicly after three years of attacks and believe Mr Rogoff's riposte was carefully planned.

Diane Coyle, the managing director of Enlightenment Economics, said: "The IMF is actually quite open to criticism and have admitted their mistakes and backtracked on some of their policies, such as capital controls for Asia."

The Economic War Of Words

Kenneth Rogoff

"I failed to detect a single instance where you, Joe Stiglitz, admit to having been even slightly wrong about a major world problem ...

"Your book is long on innuendo and short on footnotes ... Your ideas are, at best, controversial and, at worst, snake oil ...

"Do you ever lose a night's sleep thinking that just your impulsive actions might have deepened the downturn ... ?

"Joe, as an academic you are a towering genius. As a policymaker you were just a bit less impressive"

Joeseph Stiglitz

"It was not just that IMF policy might be regarded as inhumane. Even if one cared little for those who faced starvation ... it was simply bad economics ... Ken Rogoff simply read out a prepared personal diatribe ... The IMF, once again, showed its reluctance to engage in substantive debate ... One could ask, was Stan Fischer [the former number two at the IMF] being richly rewarded for having faithfully executed what he was told to do ... ? The IMF felt it had little need to take lessons on board because it knew the answers"