Globalization and Its Discontents

Rating:
Summary: Sloppiness and equivocation mar an important work
Review: The thesis of this book is important and compelling, so it's worth summarizing before I explain why I can only give it a three-star rating.

The International Monetary Fund (IMF) was the post-war brainchild of John Maynard Keynes, who thought future economic downturns could be reduced by establishing a source of funds to stimulate the economies of countries without the resources to provide stimulus packages from their own reserves. As an international institution, the Fund would provide impartial aid and offset the protectionist beggar-thy-neighbor policies that had made the Great Depression a global phenomenon.

In the 1980's, however, the Fund's mission was derailed by the new brand of market fundamentalism that marked the Reagan/Thatcher years: the market always knows best, and the best thing a government can do is to stay out of it as much as possible. Subsequently, the Fund's loans have come with a number of restrictive conditions, forcing recipient governments to balance their budgets and keep inflation down, quite the opposite of what Keynes had initially intended.

The evidence through the 1990's, particularly with respect to the Asian financial crisis of 1997, and the transition to capitalism of the former Soviet bloc countries, is that the IMF's market fundamentalism has been a terrible mistake. Stiglitz argues convincingly that the IMF has not only failed to prevent the disasters in Asia and Eastern Europe, but that its policies have been a leading cause of the disasters in the first place, and its subsequent actions only made matters worse. Sending huge aid packages to Russia to hold off devaluation of the ruble only meant that the super-rich oligarchs had a little more time to pocket their cash, ship it out of the country and transform it safely into hard currency.

The IMF looks only at the limited set of numbers, like inflation and deficit, that affect the lives of Wall Street financiers, and pays no attention to figures like unemployment that matter to the poorest citizens in the countries the IMF is supposed to be helping. As a result, the rich are getting richer, and the poor are getting angrier. Globalization has unprecedented potential to raise the standard of living of people across the globe, but as it is presently being handled it is ravaging the developing world.

These are all points well worth making, and I'm glad I read the book to come to a clearer understanding of them. Despite its good intent, however, it's hamstrung by poor writing and presentation, and worse, by a vindictive righteousness that leads Stiglitz occasionally to ignore or distort the truth if it will help him to make his argument sound more convincing.

The problems begin with the title. The book isn't really about globalization per se; it focuses on the aspect of globalization with which Stiglitz is intimately familiar: international financial institutions like the World Bank and the IMF. "Globalization and its Discontents" is a catchy title, and I suppose it must have been hard to resist. But to be clear: this book is essentially an invective against the IMF, where Stiglitz stops short of accusing the Fund of outright malice, preferring to emphasize its dogmatism, stupidity, narrowness, and occasional venality.

The misleading title is symptomatic of the uncertain thrust of the book. The style is plodding--a couple of clichéd nautical metaphors hardly lift Stiglitz's style out of the mud--not to mention repetitive. The structure is unclear, so that Stiglitz returns to the same points in several chapters while never fully fleshing out other important points, all the while leaving the reader uncertain of where the argument is going. Besides the soporific style and sloppy structure, there are more than a few typos and inconsistencies in convention (is it the "Washington Consensus" or the "Washington consensus"?)

These shortcomings make for a tiresome read and weaken Stiglitz's argument at many points. What's worse is that Stiglitz seems willing to take a few steps beyond the truth if it helps him make his point. In one controversial passage, he all but claims that Stan Fischer, former deputy managing director of the IMF, was in the pocket of Citigroup and obediently took orders from Citigroup while planning the Fund's policies. He has since denied that he intended to smear Fischer, and I believe him. But sloppy writing is evidence of sloppy thinking: unintentionally accusing a respected economist of criminal venality is no small error.

In a similar vein, Stiglitz falls into equivocation where it serves his purpose. At the beginning of chapter 6, he first points to the number of former communist countries, including Russia, currently governed by former communists as evidence of Eastern Europe's disillusionment with market fundamentalism. In the following paragraphs, he attacks Yeltsin and Putin for the crony capitalism and corruption that's come from allying themselves with Wall Street's interests. Either the Russian leaders represent a rejection of the IMF's market fundamentalism or they don't; you can't have it both ways, certainly not in consecutive paragraphs. Nor can you insist that successful development relies on policies suited to intimate knowledge of the particulars of each individual country and then insist, as Stiglitz does early in the book, that the prime minister of Ethiopia is a responsible leader because Stiglitz chatted with him and he seemed like a nice guy. Stiglitz seems determined to make his point, and he won't let facts or logic get in his way. I want to agree with him, but he doesn't inspire my trust.

It's a shame that Stiglitz makes this book hard to like because I think it's an important one. The same argument could have been made in a shorter, clearer book that didn't stretch the truth in order to sound convincing. As it stands, the book provides plenty of easy targets for those who aren't inclined to agree with Stiglitz, and so it isn't likely to persuade many of the unconverted that the IMF needs to change its approach.

Rating:
Summary: A systematic critique of certain IMF policies
Review: As many reviewers correctly point out, the book is not about globalization per se. It is about the tasks international financial institutions have to deal with *due* to globalization, and a critique of the current policies that concern economic crises, mainly those of the International Monetary Fund (IMF). The book starts with a brief history of the international financial institutions (IMF, World Bank, WTO, etc), and then proceeds with discussions of failed economic policies of the institutions. Specific examples (East Asia, Russia, Latin America) of failures of the IMF-proposed policies are provided in subsequent chapters, followed by what the author regards as the reasons behind IMF's suboptimal policies, and what the author thinks should be implemented.

Some examples of what Stiglitz considers as bad IMF policies: 1) At the onset of the east Asian financial crisis, governments of countries fallen prey held balanced to surplus budgets and faced low inflationary pressures. IMF at this time ordered these governments to maintain balanced budgets. (During recessions tax revenues decrease, thus to keep a balanced budget governments have to cut down expenditures, which would further depress the economies). 2) East Asian governments were asked to build trade surplus without resorting to currency devaluation or tariffs. (According to the author this effectively amounted to asking to cut income to reduce imports because increasing export was close to impossible under the situation.) 3) IMF called for rapid privatization in the midst of the 1998 Russian financial crisis. (At that time the author claims Russia didn't even have an effective tax system, rendering tax collection from the newly privatized companies obsolete).

Some reasons behind IMF's calling for bad policies: 1) "Revolving doors" -- US government officials do favors for companies only to be appointed heads of the very companies they help after end of term/resignation. 2) Inexperience of the economists within the institution -- many according to Stiglitz lack experience dealing with problems specific to developing countries. 3) Conflict of interest -- IMF policies consistently strived to protect creditors to the developing countries foremost. This may be seen in IMF's opposition to currency devaluation during the East Asian and Russian financial crises. 4) Lack of transparency in decision-making -- the developed countries hold majority votes in the institution. In fact only US holds rights to effective veto.

Stiglitz summarizes what is needed in the chapter titled "The Way Ahead." In his own words: Acceptance of dangers of capital market liberalization and short-term capital ("hot money") flows. Bankruptcy reforms and standstills. Less reliance on bailouts. Improved banking regulation under certain circumstances. Improved risk management, safety nets and response to crises.

It is interesting to see reviewers criticizing Stiglitz on a partisan basis. He did not purport nationalization of private companies, nor oppose market liberalization in this book. He simply emphasized the importance of sequencing and pacing of privatization and market liberalization. In fact it is such "market fundamentalists" that he criticizes. To him every financial crisis requires eyes specific to the problem -- unilateralism, and substitution of sound economic reasoning with ideology, are to be shunned.

Having lived in a country that went through a financial crisis that resulted in IMF intervention, I agree with Stiglitz when he says that bad IMF policies may lead the respective country's citizens to hating US. There the managing director Camdessus even had become a household name. Though I did not know whether the suggested policies would prove to be true in the end they certainly looked Draconian. The grievances of the people I felt palpable as well.

For globalization to succeed it seems evident that discussions regarding the practices of financial institutions are required. This book is welcome in that it brings to the table an open invitation for such discussions. Stiglitz' points are well argued and thoroughly researched. However due to his canon-like exposition (he goes back to the same crises over and over again to make only slightly different observations) the book becomes tedious in the later half, and for this reason I would only recommend it to specialists.

Rating:
Summary: Highly Recommended!
Review: Author Joseph E. Stiglitz, a Nobel laureate in Economics, leaves the nebulous subject of globalization pretty quickly, and moves on to his real purpose: a sustained critique of the policies and practices of certain international institutions, especially the International Monetary Fund (IMF). Many of the author's insights will be old news to those experienced in international economic affairs, though not to the general reader, who will appreciate his straightforward, plain language. The author's status - as a Nobelist and as chairman of the Council of Economic Advisors during the Clinton administration - makes his book distinctive and controversial. His prominence is a bully pulpit that he uses to inveigh against the IMF's power, secrecy and authoritarianism. We recommend his case for the prosecution, which is stirring and thought provoking, albeit marred by jabs against his old political and bureaucratic rivals and many variations on the theme "I told you so."

Rating:
Summary: Thought Provoking View of International Economics
Review: Globalization so often evokes pictures of rioters in Seattle, Genoa and Washington DC protesting the World Trade Organization or other economic planning meetings. But while one cannot doubt their fervor, they often are not as effective in explaining *why* they oppose globalization, at least to an extent further than the evening news sound bites. But here, Joseph Stiglitz has weighed in and helped explain at least one view as to why the protesters are right to be upset. He looks at the effect that global economic activity has had over the past decade. Stiglitz is unsparing at naming the root of the problem - the World Bank and the International Monetary Fund. He lays the problems upon the policies and practices of these two organizations and how in his opinion they hinder rather than help especially developing countries. Rather, their "roadmap" of policies only serve to make things worse for these countries, especially when the problems spill over from one country to the next as happened in the Asian economic crisis a few years back.

As a non-economist, I was leery of delving into this book, but found that it was very accessible, and free of too much economic jargon or theory. Stiglitz has written a book for the reader interested in international politics and the world situation today. I may not be the most scintillating thing you read this year, but it can be a very thought provoking read. It's a well argued point of view in a cacophony of world opinions.

Rating:
Summary: Settling Scores with the IMF
Review: Stiglitz has written an angry "insider" critique of the manner in which globalization was managed by the IMF and the US Treasury in the 1990s. In his view, developing countries were forced to privatize state-owned companies, cut government budgets, and open up their economies to imports and capital flows, even when these policies destroyed jobs and lowered national incomes. The result was poverty, inequality, and intensified suspicion of Western -- especially American -- motives.

Thailand, for example, was forced to keep interest rates high in order to reassure foreign investors. All this policy accomplished was to drive hundreds of Thai firms into bankruptcy -- thus scaring off the investors who were supposed to be reassured. In Russia, the government was forced to privatize state-owned firms even though the lack of corporate governance laws ensured that the firms would be looted by their new private owners. In these cases and others, IMF and the Treasury applied crude free-market formulas that ignored local conditions and failed to consider the pace and sequencing of economic reforms.

Stiglitz is not an anti-business crackpot: he is a nobel-prize winning economist who served on the Council of Economic Advisors and at the World Bank in the 1990s. Nonetheless, the reader should be warned: this is not a balanced or scholarly book. Footnotes are almost non-existent, the narrative is disorganized and repetitive, and Stiglitz never goes into the details of decision-making or economic analysis. He makes no attempt to give the viewpoints of Treasury of the IMF. As a result, his book comes off as one half of a two-sided debate.

Stiglitz' attacks on named Treasury and IMF officials suggest that he wrote the book to settle scores with bureaucratic rivals. With his economic expertise and firsthand knowledge of government and international institutions, Stiglitz could have written a great history of the 1990s. Instead he produced this super-polemical book, whose many valid points and insights get lost in the sheer volume of vitriol. A good read, though.

Rating:
Summary: Good critique of globalization
Review: This is a well-argued critique of liberal ideology at the IMF. Stiglitz documents and explains the flaws and the mistakes that happens when ideology replaces proper economic analysis. Stiglitz however at times assumes a self-righteous stance which might be a reflection of his anger at the IMF. Nonetheless, it was a good analysis of present economic situations.

Rating:
Summary: Great Examples, Poor Analysis
Review: The author of this book makes several specific claims. First, free market ideology at the IMF resulted in privatization and deregulation in Asia and Eastern Europe. Second, free market ideology assumes perfect information and perfect competition. Third, markets lack perfection and fail. Fourth, critics of government claim that government policy favors special interests, but this it does not. On page 13 Stiglitz derides the notion that "special interests use tariffs and other protectionist measures to increase their incomes at the expense of others". He claims that those who criticize government for inherent bias towards special interests are ideologues. The rest of his book consists almost entirely of examples of special interests benefiting at the expense of others, thus vindicating these supposed ideologues.

Stiglitz describes how bailouts benefited well-connected financial interests in the US, Asia, and Russia. He describes, in some detail, how special interests made off with fortunes, while ordinary people shouldered the burden of these subsidies. This supports the case for government failure, though the author fails to realize this.

Stiglitz also criticizes the IMF for assuming that it could outguess the market with its' interventions and demands for restructuring. He points to examples of in Russia of private firms being squeezed while cronies of Yeltsin made off with millions. On page 118 Stiglitz complains that the IMF interfered with "nuts-and-bolts decisions: what the firm should produce, how it should produce its' output, and how it should be organized". On page 128 he complains that the IMF forced bank restructuring on Indonesia. These examples of intervention invalidate his claim that the IMF forced privatization and instead show that it pursued interventionist policies.

The evidence in this book refutes its' arguments. Rather than being driven by 'free market fervor' the IMF intervened in markets routinely. Rather than serving the general public with this intervention, the IMF catered to special interests- a tendency that Stiglitz explicitly ridiculed. Rather than believing in Darwinian competition, the IMF delivered huge bailouts to special interests. The IMF promoted free markets every bit as much as the Pope promoted Atheism.

On page 74 Stiglitz claims that markets require perfect competition and perfect information to work. Short of these ideal conditions, markets fail (to achieve perfection) and government can, in principle, improve resource allocation. A perfect government can improve upon imperfect markets. But the evidence of this book shows that the worst failures come from huge governmental agencies, like the IMF and US Treasury- the primary culprits in this book. Stiglitz is fond of making false comparisons between imperfect markets and ideal notions of government, but this approach is fallacious.

Stiglitz explicitly denies that rapid privatization can work, but ignores instances like Hong Kong and West Germany, where rapid and extreme privatization yielded 'economic miracles'. He speaks fondly of a larger and more open global governing body. But, Stiglitz shows that current global governing agencies cater to special interests and gives the reader no reason to expect anything different from a larger agency of this kind. If anything, a larger and more powerful gobal regulatory agency would be even more corrupt than the IMF.

The proper lesson to learn from this book is that big government caters to narrow special interests, at the expense of the general population. Stiglitz advocates stronger world organizations based on misinterpretation of the facts he presents, and his politically naïve belief that bigger government means better government. We should instead take the politically savvy view that we must choose between large centralized agencies that cater to special interests and dismantling large centralized agencies so that they lose the ability to cater to such interests. Based on its' analysis, this book deserves one star. It misinterprets data and misconstrues theory so badly that one must wonder how Stiglitz got so for in the economics profession. The empirics of this book raise it to two stars, as it provides so many good examples of government failure. Read this book for great examples of how global government operates, but read something by Mancur Olson first so you can approach it with proper theoretical constructs.

Rating:
Summary: A must-read in globalization and international finance
Review: As a consequence of the great advances mankind achieved in the fields of communication and travel; globalization was not a choice anymore as much as an actual reality. It was not a question of whether to accept globalization or not, but rather a question of how to channel its forces to serve the benefits of all those that are involved. Global institutions such as the IMF, the World Bank, and the WTO had to be brought into existence to regulate the process of globalization. Each institute was given a main directive to pursue, and that for the IMF was the difficult task of ensuring global economic stability.

Unfortunately, one does not have to be an economist to realize that the IMF failed miserably in its mission. The East Asian crisis of the late 1990's, the so-far failing conversion of Russia from communism to capitalism, and more recently, the Argentina crisis are exactly what the IMF should have prevented or, at least, significantly minimized.

However, The author tells us in this book that these failures did not happen in despite of the IMF, but , shockingly, because of the IMF. And in the cases that the IMF was not the cause of the failure, it caused that failure to bloat and metastasize.

What makes this book more remarkable is that the author, Joseph E. Stiglitz, is not someone to take lightly, but a Nobel prize co-winner in economics who served on the Council of Economic Advisers under president Bill Clinton and later became the chief economist and senior vice president at the World Bank.

Stiglitz begins the book by explaining the specific roles of the global institutions and especially the role of the IMF. From there he describes how many developing (and few developed) nations were let down by the promises of globalization and its institutions. But, he argues, these failures are not caused by the process of globalization itself, but are products of the policies of the IMF.

You would wonder though, how could the IMF with its access to profound expertise and its possession of vast wealth fail so badly in its job. Stiglitz explains that the problem with the IMF is not caused by poor knowledge or lack of funds. The problem is a fundamental one, which is caused by the fact that the IMF is not accountable to the people that are directly affected by its policies, bur rather to the US treasury who in turn is under immense pressure from the US investors. This unfair accountability lead the IMF to unconsciously replace economic science by an ideology that primarily served the interests of the US investors. This ideology is all about markets liberalization, which became an end to the IMF rather than a mean to accomplish economic stability. This change of goal, accompanied with high levels of secrecy, was the cause behind the IMF's failure.

After explaining this the author delves into the cases of the Asian crisis and the failed Russian transformation. He tells in painstaking details how these crises evolved and what role the IMF played at every stage. He gives interesting insights and intelligent suggestions to more sensible alternatives that the affected countries could have pursued. He also gives account of other countries that did not comply with IMF policies and succeeded because of that. Stiglitz is a very intelligent and knowledgeable economist, so you can be assured that you will have access to invaluable economic analysis of those affairs. His writing style is wonderful as well, so you don't have to worry about incoherence or experiencing boredom going through the book.

Finally, he provides more analysis into what causes the IMF to fail the way it does and extends suggestions to overcome its shortcomings and those of other global institutions as well.

This book is a treasure of economic science and analysis, and of economic history as well. It received a great amount of criticism mainly because it accused many influential bodies and persons of misplacing their priorities. This is a dangerous accusation since it makes the accused blamable for disasters that have affected billions of people and still do until this day.

In my opinion, the fact that Stiglitz was discharged from the World Bank after voicing his views in a World Bank report only proves his integrity and his genius. Some critics accused him of bitterness and are saying that it is the cause of him writing this book. But even if so, his bitterness is over a good cause and he has the knowledge and the experience to defend it better than anyone else.

This is a very valuable and interesting book. If you are interested in globalization and international finance then this is definitely a must-read.

Rating:
Summary: Inside the World of International Finance
Review: Of all people Joseph Stiglitz is eminently qualified to write this book. His experience and background make him a clear authority on the issues at hand, those of course being the extreme ineptitude of the World Bank and IMF in handling international development. A little research reveals that these two organizations have not always chosen the best path but Stiglitz shows these economic actions with the background information that highlights a frightening level of incompetence.

Interestingly, this book points out that these two world powers ultimately only represent the interests of the bankers that control them and have consistently failed to help the poor that they were created to serve. In many cases they have even made bad situations worse using extremely questionable economic prescriptions. Stiglitz gives well referenced examples of spectacular ineptitude that make me surprised these organizations can even exist.

However, as the book wears on it becomes clear that Joseph Stiglitz has had a distinguished career as an economist for a very good reason. He knows what's going on and skillfully gives readers access to the seemingly insane inner workings of the World Bank and IMF. The first three chapters are introductory and bring the reader up to speed. This is where the book doesn't do so well. These chapters are boring and essentially repeat the same thing over and over again for three chapters. While I can see the necessity I don't think they work for their intended purpose. I may not have finished the book if it wasn't the only material available at the time.

While it misses in the beginning this book really picks up towards the end, the chapters on Russia and the East Asia Crisis are particularly good. Most importantly Stiglitz offers rational, straightforward ways to solve the problems that he outlines here. This book is a must read for anyone interested in the way international finance works. You may want to skip the first two or three chapters though...

Rating:
Summary: Memoirs of an irate economist
Review: "A political economist in a rage is an amusing sight," wrote Walter Bagehot; "his violence is so meagre, and he has no rhetoric or eloquence to cover it with, and make it seem decent." Surely, Bagehot did not have Joseph Stiglitz's book in mind when he wrote that, but it could easily have been a review of "Globalization and its Discontents."

Mr. Stiglitz, a Nobel Prize economist and formerly chairman of President Clinton's Council of Economic Advisers and chief economist at the World Bank, is uniquely positioned to offer insight into the workings of globalization. Sadly, he has chosen to focus his energies on a very narrow field (how the IMF and the US Treasury Department handled the Asian Financial Crisis and Russia's transition from communism to capitalism) and write about it in a self-righteous tone, so much so that his message is often diluted.

All the same, Mr. Stiglitz raises some valid concerns, primarily about the narrow focus that plagues many Western economists, who favor some policies (particularly macroeconomics) while not paying attention to others (such as property rights and institutions). Mr. Stiglitz's caution against market fundamentalism should be taken seriously by those who wish to maintain a broader picture of globalization.

But in the end, Mr. Stiglitz's tone and bias undermine his own argument. From the outset, he makes clear that the world is occupied by concerned government leaders who care for their people and by IMF economists who care about statistics and financial interests while disregarding human concerns such as poverty and employment. Perhaps this has something to do with the fact that the former were always more receptive to Mr. Stiglitz's arguments than were the latter.

When Mr. Stiglitz writes about economics, he is clearly at his prime. But maybe he should have waited a few years and produced a more balanced assessment of his years in the World Bank-then, we would have benefited more from the clarity of his thoughts rather than the opacity of his rage.