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| Globalization
and its Discontents |
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| Author:
Joseph Stiglitz |
Published
by: Allen Lane, London. |
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Click to Enlarge
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This insider's
account of global economic policy making will
be hailed as much for its courage and honesty
as for its depth and insight. Renowned economist
and Nobel laureate Joseph E. Stiglitz spent seven
years in Washington, serving as chairman of President
Clinton's Council of Economic Advisers and as
chief economist for the World Bank. Particularly
concerned with the plight of the developing nations,
he became increasingly disillusioned as he saw
the International Monetary Fund and other major
institutions put the interests of Wall Street
and the financial community ahead of the poorer
nations. |
Stiglitz had a ringside seat for most of the major
economic events of the last decade, including
the Asian economic crisis and the transition of
the former soviet economies, as well as the administration
of development programs throughout the world.
Repeatedly, he saw policy makers wedded to outdated
economic models and using "Washington Consensus"
doctrines based on them to design policies that
had disastrously bad results. He also discovered
within the major institutions of globalization
a damaging desire for secrecy that exacerbates
mistakes at the same time as it inhibits positive
change.
This book recounts Stiglitz's experiences, opening
a window on previously unseen aspects of global
economic policy. It is designed to provoke a healthy
debate and will succeed in this goal even as it
shows us in poignant terms why developing nations
feel the economic deck is stacked against them.
About the Author
Joseph Stiglitz is a political economist -
in two senses. On the one hand, he is an economist
deeply involved in political debates, even dogfights,
over economic policy - during the 1990s,
as Chairman of Clinton's Council of Economic
Advisors and as Chief Economist (eventually asked
to leave) at the World Bank. But he is also an
exponent of that brand of political economy that
takes full account of the elements of political
power and political values, of confidence and
legitimacy, which modify and 'distort'
market forces and enter crucially into the causal
chains that link one economic phenomenon with
another, one economic policy with its outcomes.
Review by Ronald P. Dore
Cavanazza, Italy.
Globalization and its Discontents is less about
globalization in general, more a sustained attack
on the IMF, on the US Treasury as the biggest
single influence on the IMF's policies, and on
the Washington consensus they propagate. Their
doctrines of fiscal austerity, privatization and
liberalization (especially of capital markets),
forced upon developing countries both in crisis
and out of it, have hindered growth and the reduction
of poverty, and exacerbated discontents - not
just the intellectual, emotional and ideological
discontents of middle-class protestors against
globalization, but the real sufferings of poor
people in countries like Indonesia or Russia which
have seen catastrophic economic decline in the
last decade. The offence is all the greater since
'globalization - the removal of barriers to free
trade and the closer integration of national economies
- can be a force for good and ... has the potential
to enrich everyone in the world, particularly
the poor'.
Stiglitz begins by recalling the origins of the
IMF in the memories of the Great Depression and
the Bretton Woods planning to prevent its recurrence.
Keynes saw the role of the IMF to prevent the
knock-on beggar-my-neighbour effects that had
sent the world's economies spiralling downwards
in the 1930s. Individual countries would use fiscal
and monetary policies to keep up demand in downturns
and so maintain full employment. For countries
that could not manage to do that out of their
own resources, there was a common interest (because
one country's imports are another country's exports)
in helping them out by providing liquidity in
the form of loans. So much for the original mission.
But it has undergone complete reversal. Today
'the IMF typically provides funds only if countries
engage in policies like cutting deficits, raising
taxes or raising interest rates that lead to a
contraction of the economy'.
Floating exchange rates after 1970 complicated
that mission, and merely providing unconditional
liquidity was in fact no solution to the problems
the IMF had to address in Latin America during
the 1980s - the problems of countries with
budgets out of control, loose monetary policies
and rampant inflation. Stiglitz acknowledges that
in such cases some 'contraction of the economy'
had to come before viable growth was possible.
The sin of the IMF was that it applied the same
contractionary recipes in cases where they were
entirely inappropriate, and that not just out
of inertia or miscalculation, but from adherence
to ideological dogma - that inflation was
the greatest of all evils, and that prosperity
was always and everywhere maximized if markets
were as free as ever possible from government
interference, and if all sectors of the economy,
especially the financial, were open to outsiders.
There are interesting chapters on Russia and other
'transitional' economies, but the core of the
book - and the strongest exemplification of the
thesis, the most convincing indictment of folly
- is the chapter on the East Asian crisis. The
strong-arm tactics of the Washington consensualists
which led to financial liberalization in Thailand
and Korea, were a major cause of the triggering
factors like the Thai real estate boom and the
disastrous exposure of all the open countries
to volatile foreign lending. And once the capital
flight began and exchange rates had nose-dived,
the conditions imposed - especially the high interest
rates insisted on - simply made things worse.
Was it just folly? Or predatory chicanery, making
sure that American banks came safely out of the
mess, and that American firms could benefit from
the fire sale of assets that the severity of the
crisis provoked? A bit of both, says Stiglitz,
but mostly bad economics; the IMF did not understand
the theory of capital markets. At the same time,
if not actually conspiratorial, it did 'see the
world through the eyes of the financial community'
from which many of its staff came, and to lucrative
jobs in which many of them would go. An institution
set up to serve 'global economic interests [had
shifted] to serving the interests of global finance'.
In his last chapter he acknowledges recent changes
in rhetoric - more concern for transparency,
poverty and participation-and hopes that
they will have some effect on practice; he mulls
over some of the issues-feasible capital
controls and provisions for sovereign bankruptcy
for instance - that have lately crept on
to the agenda.
Stiglitz is no fiery radical. He is close enough
to the mainstream centre to have got a Nobel prize.
The truly heterodox will find, for example, his
frequently repeated belief in the virtues of competition
a bit underqualified. I, for one, need to be told
a bit more about the consequences of the 1994
aluminium cartel to be convinced that this infringement
of the 'basic principles of economics' was as
deplorable as he says it was. But it is a good
lively read, eloquent, concrete in its anecdotes
and clear in its exposition of complex issues.
It will delight those who are sympathetic to his
concerns with poverty and inequality. Stiglitz
unbound does not pull his punches. |
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| June 5, 2003. |
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