Globalization And Its Discontents
By Joseph E. Stiglitz, Penguin books, ISBN 0-393-05124-2
The author, a noble prize winner
for Economics in 2001, served on
the Council of Economic Advisers
under President Clinton, later
he served as Senior Vice
President, World Bank. With such
academic and administrative
credentials Joseph Stiglitz was
best situated to look at
globalization critically.
He starts by accepting the great
potentialities of globalization,
but is not satisfied with the
way it has been managed. He
argues that the international
trade agreements that have been
imposed upon developing
countries, need serious
rethinking.
He laments that instead of
looking at economic and social
issues dispassionately; the
White House and even the World
Bank took decisions on the basis
of ideological and political
considerations. The process of
decision making was secretive
and open discussion was
discouraged. It was anti-
democratic.
Today emerging markets are
forced open by the use of
economic power. The IMF insists
on a faster pace of
liberalization as a condition
for assistance, and poor
countries have no choice but to
agree. What is even worse is
when the U.S. acts unilaterally
rather than behind the cloak of
IMF. "The U.S. Trade
Representative or the Department
of Commerce, often prodded by
special interest within the
United Sates, brings an
accusation against a foreign
country; there is then a review
process " involving only the
U.S. Government with a decision
made by the United States, after
which sanctions are brought
against the offending country.
The United States sets itself as
prosecutor, judge and jury". (p.
62).
Stiglitz argues that the most
basic mistake of the IMF has
been its failure to be sensitive
to the broader social context,
in developing countries. It has
forced liberalization, before
adequate regulatory framework
was structured, forced policies
that led to job destruction
before the essentials for job
creation were in place and
forced privatization before
there was adequate competition.
The reason being that those
pursuing the "Washington
Consensus" were guided by market
fundamentalism advocated by Adam
Smith, which argues that the
market force are guided by "an
invisible hand". However,
Stiglitz argues, that "whenever
information is imperfect and
market incomplete, which is to
say always, and especially in
developing countries, then the
invisible hand works most
imperfectly". (p. 73).
The economic growth of the East
Asian nations had been lauded as
the "East Asia Miracle". The
author says that these "counties
had been successful not only in
spite of the fact that they had
not followed most of the
dictates of the Washington
Consensus, but because they had
not" (p. 91). Hence, when the
East Asian Crisis broke out the
IMF was quick to condemn the
Asian institutions as rotten,
their governments corrupt. They
immediately called for whole
sale reforms. What the
international institutions did
in East Asia and Russia led to
great discontent against these
institutions.
The
stabilization/liberalization/privatization
programme in Russia was not a
recipe for growth. It was
intended to set the
preconditions for growth.
Instead, it set the
preconditions for decline. The
IMF kept promising that recovery
was round the corner, but it
never came about. In the period
1990-99, Russian industrial
production fell by almost 60%,
even greater than the fall in
GDP (54%). In 1989, only 2% of
Russians were in poverty, by
late 1998, the number had soared
to 23.8%.
The author informs us that the
1998 bailout in Russia was
intended to maintain Yeltsin in
power, though on the basis of
all the principles which should
have guided lending, it made
little sense. He further argues
that the IMF has never justified
why it considers it desirable to
intervene in one particular
market, or why it is undesirable
in other markets.
The answer to all these
problems, according to Stiglitz,
does not lie in abandoning
globalization. It is neither
feasible nor desirable.
Globalization has brought huge
benefits " in terms of
opportunities for trade,
increased access to markets and
technology, better health and an
active global civil society. The
problem is not with
globalization, but with how it
has been managed. The problem
lies with the international
economic institutions, who have
generally served the interests
of rich countries and some
particular interests there,
another important problem is
their narrow mindsets.
Nevertheless, the author
believes that globalization can
be reshaped to realize its
potential for the good. What is
needed is that we start "caring
about the environment, making
sure the poor have a say in
decisions that affect them,
promoting democracy and fair
trade are necessary if the
benefit of globalization are to
be achieved". (p. 216). We need
to promote global collective
action and structure better
systems of global governance. We
need to keep trying and not
loose hope.
In sum, this is an excellent
work focusing on the operational
aspect of globalization, the
role of the international
financial institutions in this
process, and the considerations
which go in the decision-making
in these bodies. It is the
account of an insider, who
sometimes finds it difficult,
despite being an eminent
economist, to understand the way
policies take shape in the U.S.
Treasury, at the World Bank and
the IMF. This book is a must
read for those who want to
understand the phenomenon of
globalization in its proper
perspective.