Last week, President Obama and Congress committed US taxpayers to a $787 billion economic stimulus program. Alan Greenspan has told the Financial Times of his qualified support for bank nationalizations, and this week, the US "signaled that it was willing to raise its equity stake" in Citigroup. A giant Swiss bank has admitted to "conspiring to defraud" the IRS and is turning some customer data over to Federal regulators. A recent Newsweek cover even declared, "We Are All Socialists Now."

Before the fall of 2008, did anyone think it necessary for government to expand its economic role so dramatically? Some observers did, and one – Nobel Prize winning economist Joseph Stiglitz – believes that socially responsible investment (SRI), in concert with better regulation and corporate governance – is essential to broadly shared, sustainable prosperity.

"If as much effort went into wealth creation as theft," Mr. Stiglitz has said, "we'd have a much more productive society."

This quote is from an address Mr. Stiglitz delivered to an August 2008 symposium organized by the Norwegian Ministry of Finance. (His speech, along with Norwegian Finance Minister Kristin Halvorsen's introduction, can be viewed here.)

As described by Minister Halvorsen, Norway's state pension fund is a world leader in the development and application of SRI. Not only does Norway consider companies' human rights and environmental practices as part of its investment decisions, but it seeks to actively influence corporate policies. Minister Halvorsen explained that through the "silent work" of the state's Norges Bank, "we may convince companies to change their behavior."

In his address, Mr. Stiglitz supported Norway's active use of its sovereign wealth fund to support important social goals. He said that he first met the Finance Minister at Davos, at "the one session every year where the many socially irresponsible investors get together to assuage their guilt, and listen to what they ought to be doing."

Mr. Stiglitz then presented a thorough survey of what "they" have gotten wrong about the global economy. The following is a small sample of his insights:

On the practice of SRI, based on his experience as a trustee of Amherst College:

[SRI depends] on "due processes that look at investments in a careful way. We didn't want to hurt the people we were trying to help. To consider the consequences of our investments entails macroeconomic analysis of companies' impact on local economies."

On the impact of SRI on investment returns:

"Many studies have asked whether, if we exclude companies from consideration for our portfolio, do we do worse? Remarkably, the answer is no. …In many ways, SRI concerns anticipate broader social movements, by excluding stocks due to trends that the entire market will have to respond to. "So SRI is thinking ahead."

He was no less emphatic regarding the role that SRI must play in a healthier global economy:

"As Chief Economist at the World Bank, I saw that foreign direct investment could actually make countries worse off; there was a lot of socially irresponsible investment…. "When firms serve a broader purpose, they may also wind up increasing shareholder value. The notion here is similar to that of efficiency wage theory, which says that paying workers better may increase productivity."

On corporate governance:

"In its simplest form, corporate governance is a statement by shareholders that management shouldn't steal. You would be amazed at how many subtle – or non-subtle – forms of theft occur….If as much effort went into wealth creation as theft, we'd have a much more productive society."

On some causes of the current crisis:

"A big innovation in the 1970s and 1980s was that companies figured out how to cheat the government [out of tax revenue]. The big breakthrough in the early 1990s was that the same process used to cheat the government can also be used to cheat shareholders. "To do these things simultaneously is not easy. You want to tell your shareholders you're doing well, but tell the government you're doing badly."

For more of Mr. Stiglitz on SRI and the global economy, see the Norwegian Ministry of Finance website. Also see his Nobel Prize lecture.