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Book Reviews
Joseph Stiglitz
Globalization and its Discontents
It has become the norm for us to expect vehement criticisms of economic
globalization from the left wing circles of the world, especially in the
developing countries. That has been the most common breeding grounds for
some of the harshest critics of this phenomenon viz. the Marxists, the
environmentalists, the nationalists and even domestic entrepreneurs
striving for subsidies and protection. This book comes from the heart of
the developed world, the USA and from an individual who has not only had a
brilliant academic career, but has also served in the highest strata of
the bureaucracy of the developed world, and the international organization
shaped by the ideas most preached by the same. Joseph Stiglitz has served
in the Council of Economic Advisors to President Clinton, and has also
served as the Chief Economist at the World Bank. Therefore, he has
witnessed first hand events that shape much of the activities of the
global economy and his account of the same is thus so very influential.
This book is also different because of its rooted belief in democracy,
social equity, justice and most importantly, a freely functioning market
economy. Often critiques have offered a wholesale alternative model viz.
either the one with collective ownership of the means of production, or
the one with protection and subsidies. Stiglitz does not offer a different
model: he simply believes that the neo liberal policies of the Washington
Consensus that dominate the international organizations such as the World
Bank and more importantly, the IMF, are detrimental to achieving a
functioning market economy. Ideologically speaking, he sides with Keynes
rather than Hayek, emphasizing demand more than supply.
Stiglitz’s main achievement is to highlight in detail the inequities of
the global order. He argues persuasively that the international
organizations have promised much, but have failed miserably to keep up to
most of them. He identifies the reason for the same as vested interests
that dominate the international agencies. For example, the US being the
largest contributor and the only member with an effective veto at the IMF
often results in overt influence of the Treasury on the Fund, which
pursues the interests of the finance lobbies of Wall Street rather than
poor farmers in Botswana or Ethiopia, or that of the middle classes of the
countries of the erstwhile USSR in transition from a command to a market
economy. He blames the disparity in regulations relating to openness to
foreign trade and subsidies as another example where international
agencies have failed to implement global laws to developed countries, when
all too often they forcibly apply these rules to the developing countries.
The IMF, according to Stiglitz, has not only been plagued with vested
interests of a narrow elite in the western world, but it has also blinded
itself with the spectacles of ideology. The IMF’s belief in the
infallibility of markets is clearly misplaced. Markets when left on their
own manage to distort their own functioning. Stiglitz points to the over
capacity generated by the market in the construction industry of Thailand
as one of the numerous examples of markets behaving badly. He associates
such wastage of resources to the causes of the East Asian crisis in the
late 90s, precipitated further by the callous policies of the IMF. He
believes that market institutions must be in place before liberalization
can be successfully pursued. He cites the disastrous case of Russia to
show how lack of mechanisms, regulations and institutions led the market
to severely distort itself, resulting in capital flight from the country,
massive corruption during privatization and widespread unemployment and
impoverishment.
However, Stiglitz’s most severe attack on the IMF comes because of the
interventions the Fund has made in various economies, in times of crisis
or not, that have managed to worsen the situation many times over. He
cites the severe contractionary monetary policies imposed on the already
severely indebted economies of East Asia, resulting in a bankruptcy spree
and the economy sinking into further depression and unemployment and
poverty soaring. He also condemns the various bailout plans arranged by
the IMF, which have often served the interest of the rich in the country,
at the expense of the middle classes and the poor. For instance, it was
IMF which forced prices to be ‘market set’ in Russia as soon as it opened
up, resulting in hyper inflation wiping off people’s savings. Then,
realizing its folly, it induced a huge bailout package to support the
currency which only managed to help the oligarchs from exporting their
money to unknown Swiss accounts while common people found it harder to
borrow, firms found it harder to export and imports flooded the domestic
market at the expense of Russian products. Thus, Stiglitz manages to
unclothe the IMF’s sermons regarding economic crisis and points out the
mishaps in the Fund’s policies.
A staunch believer in gradual reform, Stiglitz demolishes the edifice of
invincibility that ‘market fundamentalism’ has built for itself. He argues
that markets are inherently embedded in the society, essentially echoing
what Karl Polanyi wrote half a century ago, and if markets are not
overseen by the society, they can be easily manipulated. The Nobel
laureate economist cries out for global action, especially on behalf of
the developed world, to restore faith in the international agencies by
making them more accessible, fair and free from their ideological
shackles. He calls for more flexibility and transparency in the global
bureaucracies that determine the fate of billions behind closed doors.
All in all, a very entertaining read and a sizzling critique, not of the
world market economy in the globalised era, but of the distorting elements
in the same.
– Aruni Mukherjee
December 19, 2004
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