“Globalization and its discontents” – Book review

16 04 2008

I’ve just finished “Globalisation and its discontents” by Joseph Stiglitz and my major regret is that I didn’t read this excellent book when it was published 5 years ago. Stiglitz is a Nobel Prize winning economist who was one of Clinton’s chief economic advisors and then went on to be a senior vice-president at the World Bank. He draws on his experiences at the highest level of economic policy making to write a clear, articulate, balanced and devastating attack on the “Washington Consensus” approach to international development. The IMF comes under particular attack, but the WTO and American Treasury are hardly unscathed by his criticism.

In “Discontents” Stiglitz concentrates on the international response to two main events, the Asian crisis of 1997/98 and the transition of the former Soviet block countries to market capitalism in the 1990s. In both cases he argues (convincingly) that countries which largely ignored IMF advice (e.g. Malaysia and Poland) suffered much less than those that followed it. He claims that the IMF’s ideological fixation with inflation blinds it to other issues. He points out that while the IMF’s official reason for being is to prevent economic crises in fact its policies often make these worse. It’s response to the Asian crisis caused a major downturn in the world economy which in turn helped create the conditions for the Russian crisis in 1998/99. He argues that these institutions blindly believe in the magic of free markets even when there is the absence of the institutions vital to its functioning, such a functioning legal system or bankruptcy laws. A “one size fits all” response to problems ignores local conditions; South East Asia with its high level of private saving and balanced budgets is given the same medicine as deeply indebted, profligate South America.

Stiglitz suggests that the world’s financial bodies in the form of the IMF and World Bank have become too aligned with the interests of the financial sector, being more concerned with protecting Wall Streets creditors than the poor in the countries that are forced to pay back irresponsibly made loans, or indeed with the growth or stability of those countries. Rapid liberalisation of developing countries’ banking systems enables speculators on Wall Street to make fortunes, sometimes betting on the near certainty of an IMF bail out, while businesses in those countries are devastated by the crippling interest rates that the IMF insist on being raised.

The hypocrisy of a paranoiacly secretive organisation with little direct accountability preaching transparency and democracy to countries that it then bullies into ignoring the wishes of their people to implement policies rejected by developed countries is laid bare. Of already wealthy countries insisting that fledgling industries are devastated by being opened to competition in the name of free trade while demanding that their own agriculture is massively protected. The collapse in cotton prices caused by the massive subsidies the American cotton industry receives has devastated African countries that depended on being able to trade their cotton on a fair market, costing them more than the US aid they receive.

Stiglitz firmly believes that globalisation has been and can be a force for good, but that it needs to be focused on the needs of the poorest, ensuring that countries can grow consistently in a socially stable and democratic way, with the world’s institutions accountable to those whose lives they affect intervening in the interests of the global community rather than small elites.

 

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