Stiglitz, then with the World Bank, has suggested that Lawrence Summers (then Treasury Secretary) chose to bail out 'private capital' while letting 'social capital' (as represented by entitlements to subsidised food, fuel etc) go hang because Summers was a blind votary of Say's Law and laissez faire policies (the Washington Consensus) who thought that markets would frictionlessly create jobs for poor Indonesians following the 1997 financial crisis.
In his foreword to a reissue of Polanyi's 'Great Transformation', Stiglitz wrote as follows of the
What would have happened if the IMF had let Indonesia default?
Trade and Investment with Indonesia would have suffered permanently.
Every external transaction going forward would have attracted a risk premium.
Some arbitragueurs would have become very rich.
Indonesians would have got poorer.
It turns out the IMF and the Treasury were just doing their jobs.
Why did Summers not let Stiglitz at the World Bank provide soft loans to give the Indonesian working class a soft landing?
The answer is he wanted the dictator, Suharto, and his crony capitalists out.
The Indonesian scholar Leo Suryadinata writes-
So, at leas in this one case, Summers was in the right and Stiglitz was wrong.
Polanyi's embeddedness can mean 'let sleeping dictators lie'.
'Social Capital' can translate to the Divine Right of the Stationary Bandit.
Concern for the poor can mean doing everything possible for their continued oppression.
Self-interest, on the other hand, can catalyse Liberation.
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