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.