Globalization and Its Discontents

Rating:
Summary: Balancing Acts
Review: It is always better to hear things from the horse's mouth. Eminent economist (Nobel Prize Winner no less) Joseph Stiglitz has been directly involved with some of the most serious financial crises in recent times. Not limited to academia and economic theory he served in high profile policy positions including as senior VP and chief economist in the World Bank. For me, it's also important that he spent extensive time with people in the affected countries. The description of modern international economic management: "from one's luxury hotel, one can callously impose policies about which one would think twice if one knew the people whose life one was destroying..." (p. 24) does not apply to him. His case studies provide the backdrop for his analysis of globalization as well as concrete evidence for some of his critical contentions. This is not a dry economics book; it is a captivating read that offers a very accessible examination of global economic and financial systems.

To position Stiglitz up-front: he is not against globalization - in his estimation it is quality-neutral as a conception and it is here to stay. The aim of his study is to show what lessons need to be learned and applied to make globalization live up to its potential for the majority of the world's populations. The red thread of the book is the examination of the primarily negative impact that globalization has had on many developing countries and the two billion or so poor who live on less than $2/per day. His reasoning why this has been the case and what is to be done to bring about positive change makes this book an important resource for the critics and the proponents of globalization alike.

Due to its vital role in global economics today, he focuses his criticism on the IMF, fundamentally disagreeing with major policies of the Fund as applied by its senior representatives. But GLOBALIZATION AND ITS DISCONTENTS is much more than a personal rebuke of his former colleagues and associates. Anybody who has worked in and with developing countries, local policy makers and civil societies, will find themselves in tune with many of Stiglitz' salient points. Several times he comments on new strategies being tried out on "powerless" countries like Ecuador and Romania, too weak to resist the IMF and resulting in the experiment's highly negative consequences for the countries. (p. 203) The East Asia crisis (1997 onwards) features prominently in Stiglitz' account. What went wrong and why didn't the prescribed (IMF) medicines bring the ailing economies back to health? Other major examples are the 'economies in transition' - in particular Russia and the former Soviet Bloc countries.

In a summary one cannot do justice to the wealth of information contained in GLOBALIZATION AND ITS DISCONENTS. Stiglitz' analysis follows several major themes. At the core of his arguments stand the dealings of the powerful "Washington Consensus" - the combined economic and financial force of IMF, World Bank and the US Treasury deciding on the "right" policies for developing countries. (p. 16) One of his fundamental criticisms of the IMF is that it is no longer transparent in the pursuit of its objectives and that it moved away from its original mandate: "The IMF was founded on the belief that there was a need for collective action at the global level for economic stability." However over time, the Fund has taken to "champion market supremacy with ideological fervour" (p. 12). The IMF was designed to complement the World Bank, whose mandate was "reconstruction and development" following World War II, now the major international agency for the eradication of poverty. By the 1980s the Fund and the World Bank had become increasingly intertwined with each broadening their range of influence. As a result, while the IMF "does not claim expertise in development - yet it does not hesitate to weigh in". (p. 34). Within the Fund's primary focus for macro-economics, Stiglitz argues, "market fundamentalism" has been the economic philosophy of choice with the result that financial institutions and international lenders have usually been the primary winners from each of the major financial crises. Yet, he stresses that the IMF policies are "not conspiracy more a reflection of interest & ideology of western financial institutions". (p. 130)

Another criticism voiced throughout the book is that the IMF prescribed economic remedies tend to be identical whatever the economic and financial crisis encountered: one size fits all. There is hardly any choice for a government in crisis. This approach, combined with the admitted lack of knowledge of the broader development context, can in some cases plunge the country into further recession rather than stimulate recovery. High unemployment in countries without an adequate social safety net is habitually a harmful side effect of the austerity measures imposed on the government by the IMF. Another victim of these policies is the environment. The wider social and political context of a country or region is often overlooked, Stiglitz contends, resulting in social unrest and worse: IMF-inspired riots. (p.77) Recession and civil strife further set back the development agenda and Stiglitz refers to numerous World Bank studies that confirm his assertions.

Stiglitz describes alternative approaches, presenting the evidence based on his own vast experience. His proposals can be subsumed under the term "balance". For example, any privatization of industry and markets should be gradual and sequenced, and must be balanced with strong institutional and legal structures. Rather than using "shock therapy" and forcing rapid privatization of capital markets, the "gradualist" approach ensures better results in the short and longer term (Russia vs. Poland). In the same vein he recognizes the need for balance between market forces and governmental interventions. He reminds the reader that the advanced industrialized economies all went through growth periods when government regulated the markets and capital flows. He asks that developing countries be given a real and honest chance to sit in the driver's seat when developing locally adapted international economic models. (Friederike Knabe, Ottawa Canada)

Rating:
Summary: Commercialization of Everything
Review: This is a very readable book by one of the authors of 'asymmetric information'. The book describes the disastrous consequences of the neo-classical equilibrium rules imposed on the world by the World Bank and IMF, and their reenforcement by the US Treasury and the EU. The book is written in measured, nonideological style by a theorist and practitioneer who understands that the standard model is wrong. That theory, neo-classical equilibrium theory or 'general equilibrium theory', teaches that unregulated free markets are optimal, that they provide the highest efficiency and the best of all possible worlds. When there is a problem then the standard advice (since Friedman-Reagan-thatcher) is to deregulate (even public water supplies are now sold to global industries). But to the contrary, there is not one whit of hard empirical evidence that that viewpoint holds a drop of water. The recent empirical evidence is instead that financial markets in particular, and highly liquid markets in general, are dynamically unstable, do not admit equilibrium of any kind: Adam Smith's regulating Invisible Hand does not exist in liquid markets.

Stiglitz provides us with one practical example after the other of the instability of deregulated markets. That is the value of this book. The author could have begun better by explaining to us just who/what are the supra-national, bureaucratic powers known as the IMF, the World Bank, the World Trade Organization, how are they financed and who holds holds the power. This would have been useful, especially as Americans are now told that their democratically-elected (excepting the current occupant) government should adhere to the nondemocratically-imposed rules of the WTO. And ithe EU, the Agiculture Minister announces to us that EU agriculture policies are in violation of IMF rules. Stiglitz might also have explained to us what exactly is the EU, aside from being just one more globalizing, nondemocratic organization. Most Europeans, safe to say, haven't the faintest idea exactly what is the EU, and apparently the bureaucrats who run it want to keep it exactly that way.

Rating:
Summary: Professor Stiglitz's outstanding contribution
Review: Prof. Stiglitz's contributions to economic theory are outstanding but will take a long time before they may become useful to the common man. But this book has an immediate effect on the progress of the developing countries and therefore the life style of the common man.

So far criticisms of globalisation are, by and large, ideologically biased. This book is perhaps the first one to analyse the problem, if not all of its aspects, some very important aspects, from a very positive angle. Prof. Stiglitz, more than anyone else so far, has articulated his criticisms very well. While his conclusions and recommendations need not be definitive, it shows a useful path to further investigate and research this problem.

One of the main points made by him is the rather thoughtless pressures put by IMF etc. on the need to speed up globalisation although many countries lack the institutions to smoothen the ups and downs caused by rapid development. Thus there is support here to Prof. North's hypothesis and theories about the need for institutional development. Just like it is not possible to transform a tribal society into a liberal democracy within a few decades, institutions need time to develop. Therefore, it is this area that should receive priority in development economics and philosophy.

I sincerely hope Prof. Stiglitz's book will encourage the growth of thinking minds in the developing world.

Rating:
Summary: At last -- a book on economics that makes sense
Review: Well -- there have been a few other books on economics that make sense, books by Adam Smith, Galbraith (pere) & Reich for example. But this one is in that class.
As an old fashioned liberal I had always believed that this is really one world and that each nation should do what it does best, thereby creating more goods to distribute among the entire population. So I was really puzzled by my liberal friends who seem so opposed to globalization.
I borrowed Stiglitz's book expecting a bunch of obscure charts, arcane formulas and incomprehensible tables. To my delight it turned out to be a real page-turner and it made everything clear. I now understand the difference between the IMF (International Monetary Fund) and World Bank (which Stiglitz headed, for example.
Probably, as some of the other reviewers have pointed out, his writing was sharpened by a seething anger at the International Monetary Fund but he really explains this anger very clearly so that it is difficult to understand why everybody isn't angry. He reports how the IMF brought down the economies of many nations, thereby causing great suffering, by adhering to arbitrary bureaucratic rules and by pursuing policies based on their ideology rather than on the definition of their mission or even sound economic principles.
The short answer to my puzzlement is that one cannot create utopia by fiat. One cannot declare that the united world is a utopia and that we can now abolish our police force, our armies, our banks and currency. By the same token we cannot simply declare that the world is global and abolish tariffs, national monetary systems, etc. A global world (economically) would be a desirable goal -- but it can only be achieved by small steps.

Rating:
Summary: I concur with most of the other reviewers
Review: I have no background in economics but found this book very readable. It becomes a tad repetitive as it recounts case after case of the ineptitude of the IMF. The IMF, rather than globalization, is really the subject. The cultural and environmental repurcussions of globalization are all but ignored in favor of strictly economic analysis. The author comes off as very credible. I highly recommend this book to people who want to understand the IMF and World Bank better even if they have little understanding of economic principles.

Rating:
Summary: Mandatory Reading
Review: This book should be read by anyone interested in the impacts of globalization. With that said, not everyone will agree with Dr. Stiglitz's analysis. Nonetheless, to form an educated opinion it is essential to understand both sides of a debate. Stiglitz's provides the reader with a blistering critique on the current state of globalization, and particularly chides the International Monetary Fund (IMF) for their arrogance and cookie-cutter approach to crisis resolution. The East Asian financial crisis, Russia's rocky road to a market economy, and other recent examples are used to illustrate how the IMF's bailout plans are contingent on a country's agreement to rapidly adopt western ideologies (free market economics). This "conditionality" forces the expedient liberalization of capital accounts, imposes restrictions on the government's fiscal policy, and pushes up interest rates in the name of fighting inflation. The result is high unemployment, stunted growth, and an increase in the federal deficit.

Moreover, the probability of a major financial crisis is actually increased because the government is more leveraged and the liberalization of capital flows allows short-term, "hot" money to flow in and out of the county, which makes for more volatile markets. Stiglitz also points out the hypocrisy of U.S. in regards to free trade. In short, we tell countries to drop their tariffs and subsidies to allow free reign for U.S. exports while we keep our tariffs (on steel) and subsidies (for farmers), which restrains a less-developed country's access to our markets. The central theme of the book is that developing countries are adversely affected by the current state of globalization as they incur a disproportionate amount of the costs and long-term risks and well-to-do western bankers and U.S. corporations reap many of the benefits.

This book has opened the eyes of many to the discontents of globalization and in doing so helped Joseph Stiglitz win the 2001 Nobel Prize in Economics. However, it would be a tragedy if this were the only book someone read about globalization. For a less-biased account of recent events and future treads I would recommend reading any publication(s) by Barry Eichengreen or Peter Kenen on the "international financial architecture." They will provide a more balanced account and use a higher degree of technical analysis. Also, "The Commanding Heights" is excellent.

Rating:
Summary: If you want a balanced review
Review: read Kenneth Rogoff's review in the Financial Times. While the IMF is not perfect, Stiglitz neglects or glosses over many important facets that shapes the IMF's policies and ignores much of the institutional detail that prevents it from being some pion of corporations. No surprise since Stiglitz is so notorious for making mistakes that he even gave name to a type of error: "a Stiglitz error" occurs when you solve a math expression that nails the big ideas but is off a couple of minus signs and inverses.

Don't get me wrong, Stiglitz is extraordinarily intelligent, but this book is not quite his best work, and reading Rogoff afterwards kind of spoils it for you. Stiglitz's theoretical work is worthy of the Nobel - the man has contributed incredibly to our knowledge of public economics and market failure, especially if all those ideas really were his (some doubt there...) but your better off reading that stuff - equations and all.

Of course there are some pretty bad ideas going around the IMF, propagated by some stubborn conservative ideologues (just because they're from Cambridge doesn't mean they're liberal) and a few really rotten guys (many also from Cambridge) who are given audience by lots of really nice people who want to make the world a better place and don't always have the sense to cut through the bull. Anyway don't going throwing stones at the IMF when there are many greater and less controversial evils in the world. ... conservative think-tanks and big corporate guys - including the President - who would like to see the IMF and especially the World Bank eliminated...

Rating:
Summary: Straight from the Guru
Review: Bretton Woods - 1944. Keynesian economics was put into action in the form of two new global institutions - The IMF and the World Bank. Markets could no longer be relied upon to correct setbacks to economic growth, employment and development. Governmental intervention was found necessary to rebuild economies devastated by the Second World War. An international system to help governments in their fiscal expansions, employment generation, economic growth and stabilization while steering through rough economic weather was found necessary. While the IMF would concentrate on financing short term needs for governmental spending and also to help balance their foreign exchange positions, the World Bank would focus on developmental projects that would largely benefit people below the poverty line. In theory and in all good intentions, everything was perfect for international co-operation in moving towards economic prosperity.

Take a different route now. The financial community in Wall Street has a different set of priorities. This community aims at short cuts to prosperity in the process of playing with other people's money. This community is well entrenched in the Treasury Department of the world's most powerful nation. The Treasury in turn controls the IMF and the World Bank. Suddenly we have Global Institutions serving private interests of the Wall Street. Would there be a better prescription for disaster for the developing countries? It is this vicious circle that has been brought out clearly by Prof Joseph Stiglitz. Who could be a better person to bring out these facts than a Noble Laureate in economics!

Time and again the IMF dictates a "one size fits all" policy of Liberalization and Privatization, with the assumption that the "markets will do the rest". Growth and poverty are not on their agenda. When the prescription fails, its well trained and over paid staff find fault with the Countries' flaws in implementing these policies. The WTO is no exception to this policy of enriching the developed countries at the cost of the poor. Right from page No 1 of the book, Prof Stiglitz is on target in explaining case after case where the IMF has failed. Meanwhile lot of evidence is presented on how countries that have ignored IMF's advice have done better. Thus, we have Poland on the road to prosperity and Russia in a miserable state. Malaysia is better off than Thailand after the crisis of 1998. IMF led "Bailouts" in many cases were to bailout the foreign private banks to recover local debts and not in the interests of the local economy. IMF also forces nations to maintain currency exchange rates at artificial levels with the same objective. This coupled with high interest rates causes a tight monetary policy, cut in governmental spending, once again a straight dive into further disaster. The IMF for example blamed the East Asian economies for lack of transparency for the sudden melt down. But the fact is that the crisis occurred at higher levels of transparency than a decade before, fuelled by the sudden exit of speculative hot money. The dangers of unbridled liberalization (and speculation) proved more lethal than the gains.

The world's most powerful nation and the self proclaimed champion of market economics ultimately protects its own interests when it comes to free trade. It protects itself through its tacit support to cartels ( as in the case of aluminum and steel) and imposition of "anti dumping duties". Trade is good for this country as long as it serves domestic industries.

The pain of unemployment, increase in poverty and suffering due to the misguided directives of institutions like the IMF has led many to believe that Globalization is bad and that these institutions need to be scrapped. The "shock therapy" of market forces hurts. On the other hand we have also seen the collapse of economies and total denial of personal freedom and economic choice under the totalitarian regimes of the Communists. The best choice for sustained economic growth, freedom and eradication of poverty seems to be a combination of market forces with a paternalistic governmental guidance. Let us exercise this choice and make the world a happier place for all.

An excellent book on economics and a must read for Finance Ministers of all developing countries.

Rating:
Summary: Venomous attack to the IMF
Review: Stiglitz puts on his gloves and go for free-for-all fight against the IMF.

It's important to note that this is not an academic study. Stiglitz makes it clear in his preface. That's the reason there are not footnotes all around, nor graphics, nor tables and tables of data.

Stigltiz is just "exorcizing" himself for his time working at the World Bank, where he reached the conclusion that the IMF is a piece of junk, having lost the original purpose designed by John Keynes back in 1944. The IMF applies the same formula for every nation that goes for him in search of monetary help, without losting one second to learn about the particular problems of that country. It's a shame. Poverty is ALWAYS the final result for those who follow their directives blindly, without fioghting to change some of the rules. THe country I live is one of those countries taken to hell due to the FMI's policies when giving loans.

SO, I enjoyed this book a lot.

Rating:
Summary: THE TRUE FACE OF THE IMF...
Review: Yes, that's what we got here. Slowly, day by day, people alla round the world, even in the developed countries, are discovering whom the International Monetary Fund serves: the rich.

What we must remember is that the Fund, since its inception in 1944, NEVER had the purpose of eliminate global poverty or to develop poor countries. He was created just to maintain the GLOBAL economy stable. Just that.

But, searching this goal, it began to think of themselves as masters of the world (the poor world). It began to say to sovereign countries how to act, what to do or not. He began to destroy whole economies. He began do serve the rich guys like George Soros and others, even if by chance.

Its technical body is filled with bureoucratic economists who don't know nothing about life in poor countries. They're just a bunch of scholars with doctor degrees, but with no touch with truth. They simply do not care for the millions of lives they're suffocating withe their demands and their dirty dollars.

That's what the author wrote about. He's not against globalization. He's against the wayy the powerful are using it to get richer and richer and richer, while the poor become poorer and poorer and poorer. It's not a lie. Statistic data from the World Bank itself shows that!

A great book. Of course, it can be hard to swallow it or understand it if you're living in a rich country, or is part of the elite of a poor country. But if you're on the other side of the coin, you'll see how right Mr. Stiglitz is...