Globalization and its Discontents by Joseph E. Stiglitz - Book Report/Review Example

Critical Book Review Introduction Globalization and its Discontents was ed by Joseph E. Stiglitz and published by W.W. Norton, New York and London in 2003. It is a well document book ideal for people looking for knowledge in public policy and economic development in an era of globalization. It also covers the process of decision making in international organizations with regards to their new areas of operation. According to Joseph E. Stiglitz, globalization and its discontents is a succinct, distressing and inexorable reflection of the global economic policies of the World Bank, International Monetary Fund and the World Trade Organization. He uses personal experience as the chairman of the council of economic advisors under the presidency of bill Clinton from the year 1993 and as the chief economist at the World Bank from 1997 to make his arguments. During this period, Stiglitz became disenchanted with the International Monetary Fund and other international institutions which he regarded as acting against the interests of the poor developing countries in favor of the developed world. He argues that the economic policies of the International Monetary Fund are based on unsound neoliberal assumptions that are only beneficial to the developed economies. The main Argument The main precept of the book is that pro-globalization policies have the potential of benefitting all countries if properly undertaken and properly incorporated into the individual characteristics of each particular country. Otherwise the objectives of globalization will not be realized as it will only continue to serve the interests of the developed world leaving the developing countries lagging behind in all aspects. Globalization should therefore be embraced by all countries on their own unique terms. These countries should consider their own culture, history, and traditions while embracing globalization in order to ensure that it doesn’t work against them. The adoption of poorly designed or emulated pro-globalization policies often has the effect of being costly to the concerned countries. The resultant effect is increase in the levels of instability which renders such countries more susceptible to reduced growth, external shocks and increase in the levels of poverty. He goes on to argue that globalization has not been fairly pushed to benefit all because the policies of liberalization were haphazardly implemented in the wrong order using inadequate and at times wrong economic principles. The consequences of this as he has pointed out is that terrible results are now being felt including increments in the levels of generalized frustration, destitution and social conflicts. The culprits of this mess are the fundamentalists of the free market (The US Treasury and the Washington Consensus) and the International Monetary Fund. Stiglitz argues that using the Washington Consensus in the early 1990s, the United States, International Monetary Fund and the World Bank launched a conspiracy to run economic reforms worldwide in order to achieve their own interests. The three interrelated policy issues against globalization. Through the reform designs of the 1990s, important aspects of sequencing and pace reform were ignored resulting in quick reforms done in wrong order. Secondly, advocating and even at times imposing capital account liberalization was totally wrong. Lastly, the response of the International Monetary Fund in East Asia in particular was a disaster that worsened things. The imposition of fiscal austerity and raising the interest rates were very terrible mistakes that led to severe consequences in terms of economic growth in East Asia. This clearly proves that they have the interests of the region at heart since their actions only led to further losses. He asserts that if a different approach had been taken, the outcomes in terms of the social conditions would have been made relatively better. He makes sense most of the time although some of his arguments are difficult to believe like in the case of the crisis in Argentina (pp 129 and 131). Here he argues that the crisis could have been avoided if a more expansive fiscal policy could have been adopted although this is not entirely true. He argues that for economic liberalization to succeed, it is important that the implementation of reforms be done at the right speed and sequence (pp73-78). I totally agree with him in this since opening the capital accounts too soon is more likely to generate serious dislocations. This is a supposition that was even advocated by Adam Smith and is important because organization levels often determine the probability of success. Politically Correct Misconceptions about the Free Market Economies Although he talks a lot about poverty (especially in the first chapter), Joseph E. Stiglitz refuses to state overtly that globalization has caused poverty in the developing world. Contrary to this (chapter 9), he argues that the origin of all problems is the way globalization has been managed rather than globalization itself. The mainstream economists became the managers of the globalization process and as a result betrayed people especially on the developing world. The policies of globalization and its institutions like the US government and the International Monetary Fund provided shocks that caused majors crises and disasters in the less developed countries. The western globalizers are therefore responsible for this mess because they made lots of empty promises to the less developed countries forcing them to embrace suicidal steps towards liberalization of their economies. He is right in that sense although his refusal to define what he meant by the term globalization means that he was open to all definitions and this was a flaw on his part. This book is therefore an instructive guide to the mistakes of the neoclassical erudition and its alibis to the widespread criminal behaviors. In chapter five, he uses the Russian crisis as an example to justify his assertions. Joseph E. Stiglitz argues that the theories that guide the policies of the International Monetary Fund are empirically flawed. He says that the free markets, neoclassical and neoliberal are euphemisms of the disastrous nature of the 19th century economics. This approach advocates for the minimization of the governments role by arguing that the problem of unemployment can partly be solved through lowering the average wage. It also goes on to assert that reliance on trickle-down economies to address the problem of poverty will ensure that wealth flows down to all the sectors of the economy. Stiglitz regards this argument as baseless because there is no evidence to back up such reasoning and considers the Washington Consensus policy of free markets as a combination of queer ideologies and bad science. He argues that the World Trade Organization, the International Monetary Fund and the World Bank lack accountability and transparency in the way they do their business. They make their decisions freely without the intervention of the government and this makes them resolve trade disputes that engross onerous labor, environment and capital laws in their own secret tribunals. This makes such decisions uncompetitive and at times even hazardous because they normally don’t involve the help of the courts of the concerned nations. Using the example of the financial crisis in East Asia, financial meltdown in Argentina, failed development in sub-Saharan Africa and Russia’s failed conversion to a market economy, Stiglitz argues that these disasters occurred as a result of the inefficiencies of the policies of the International Monetary Fund. They carelessly dished out loans with extensive conditions that sabotaged the growth of local economy, hampered the growth of democracy and enriched the growth of the multinational corporations. In order to get a clear picture of his arguments to assess their validity, it is important for us to asses the cases where development in the third world succeeded. China and South Asia represents the two greatest markets that are emerging. The conditions of the International Monetary Fund were repeatedly resisted especially by Malaysia and South Korea; China on the other hand declined their money completely. According to Stiglitz, the interventions of the International Monetary Fund followed a similar free market formula that strongly advocated for shock therapy in a rush to market economies without the establishment of proper institutions to protect the local commerce and the public in general. The problem with this approach is that it ignored the local economic, social, and political considerations. For instance, privatization without strong competitive policies or proper land reforms resulted in crony capitalism, feudal social structure without a middle class and large businesses managed by organized crime. Stiglitz also says that the International Monetary Fund foisted the capital market liberalization prematurely without institutional regulation of the financial sector. The effect of this was that the entire developing economies were destabilized leading to massive inflows of hot short term investments coupled with spiral inflation. The loans provided by the International Monetary Fund had conditions that imposed dramatically rising interest rates and fiscal austerity. The resultant effect was widespread bankruptcies with no legal protection, prompt withdrawal of foreign capital and massive unemployment without a safety net. The few remaining owners that were solvent with no opportunities for business growth offloaded their assets desperately in order to salvage the little they could. With defaulted loans and nations thrown into economic and social bedlam, the International Monetary Fund rushed bailouts mainly from foreign creditors. This led to speculative runs on currency and the bailout money ended up in Caribbean and Swiss bank accounts. With this in mind, the citizens of the third world carried the costs of the loans and very little benefits resulting in a moral hazard among the financial community. The foreign creditors offered bad loans with the knowledge that the International Monetary Fund would pick up the tab in case the debtors defaulted. The International Monetary Fund on the other hand encouraged the cash stripped countries to privatize further forcing them to sell off their assets for less in order to raise cash quickly. The foreign corporations gained through this dubious means as they were able to buy such stocks at very low prices. Conclusion Joseph E. Stiglitz has managed to illustrate and contribute to the misconceptions of globalization which are built on the premise that it doesn’t identify the economic policies from the neoclassical and Keynesian quarters. The free market globalizers don’t take into consideration the political, social and economic conditions of the affected countries. The criticism on the policy making by the International Monetary Fund in chapter 8 of the book is justified. He says that globalization is about the freedom to opt out of the proposed policies just like it is illustrated by the Russian case. He is very sincere and pained by what he believes are major problems caused by globalization. However, he is also naïve and this is what makes the book less effective, not the method of delivery. His problems lie in the fact that he has a lot of confidence in the ability of governments to get things right and greatly exaggerates market failures. The agenda should instead be on the improvement of institutions and offering incentives to promote efficiency and competition. Policies that enhance productivity should be enacted and corruption be eliminated in order to achieve the objectives of globalization. Works cited Stiglitz E. Joseph. Globalization and Its Discontents. New York: W. W. Norton & Company; 1 edition. 2002. Print Read More