Globalization and its Discontents
Not really about globalisation per se, Stiglitz instead has some highly rational "Washington Dissent" with the IMF/World Bank and its interventions in East Asia, Russia and Latin America in the late 1990s. Delivered with all the insider authority of a former Chief Economist and Nobel laureate to boot.
This book's main message is that the IMF/WB complex has a one-size-fits-all approach to any crisis, characterised by the shock therapy (a term much later popularised by Naomi Klein) of sudden capital account and trade liberalisation coupled with deeply contractionary monetary policy and fiscal spending cuts with rapid privatisation of state controlled firms. The expected result is intended to be a rush of private, foreign capital, an explosion of competition, and, presumably growth, but all the while safeguarded by control of inflation and reining in of deficits. Except that, it rarely ever worked. Recessions bit deep. Loans ended up bailing out foreign creditors who had previously piled in too recklessly for their own good. Privatisations lined the pockets of oligarchs who then asset stripped and spirited their takings abroad to Swiss accounts. Social cohesion was badly damaged . . . for the worst case of this recall riots in Indonesia in May 1998.
Stiglitz stops well short--as one would certainly expect--of declaring this a conspiracy theory. Staff at the IMF, he says, believed they were doing the right thing. They simply had irreconcilably misaligned incentives, being drawn from Wall Street / The Chicago School (and usually returning there) and being rather influenced by the US Treasury (located a short distance away), added to the fact that the IMF prefers to deliberate more from DC than on the ground . . . the author implies that they simply can not help but represent the interests of all these stakeholders, and this leaves insufficient room to consider real people suffering real poverty. Later in the book we see the same flaw in the WTO, and evidence of myriad unfair trade policies that are stacked towards the west getting access to the developing world's markets, but raising barriers and throwing off "dumping" charges at trade flowing the other way.
Whilst this reviewer does not need or wish to defend the Washington mob, she felt that the critical treatment was valid yet overplayed. This is nowhere more obvious than in the conspicuous omission of why the IMF is "in there" in the first place--namely the demand for a lender/stabiliser of last resort from a nation with nowhere else to turn. This role is rather hard to come away from earning unabashed praise. And the failure of domestic governments is presumably to be quietly taken as a given, since it is not mentioned either. Actually this goes a bit too far. Malaysia and China come off as "the good guys" who told the Fund to go hang its recommendations, and accordingly fared better than the other hapless victims, and this grated somewhat to one who recalls some the pronouncements and actions of those leaders at the time.
And on balance, whilst the conclusions and recommendations are sound they are too one sided. Gradualism not shock therapy, and concern of moving too fast in place of fear of not going fast enough sound like sense. And what resonated stongest with this reviewer was the emphasis on ensuring adequate laws in the realm of competition, and adequate courts to supervise it, and good enough title rights and contract protection. After all, it is a failure of the worst order if the standard attempt to rescue a failing economy most likely just tips it over into a smash-and-grab. But Stiglitz's treatment remains unnecessarily loaded one way here too. Any transition out of extreme poverty and especially central planning is sure to be very difficult and costly, and almost everyone involved is going to represent some interest or other in preservation of a status quo. This book too easily ignores the danger that it stalls and does not happen at all, in order to give voice to criticism of rapid change.
(Written 12 March 2009)