Globalization and Its Discontents, by Joseph E. Stiglitz.
W.W. Norton & Company, 2002

Reading Globalization and Its Discontents, Joseph Stiglitz's book-length critique of the International Monetary Fund's (IMF) failed policies to stem economic crises in East Asia, Latin America, and Russia, is akin to hearing the news about the recent spate of corporate wrongdoings. In both cases, the message is not surprising, but nevertheless it leaves one feeling frustrated. And, worse, in both situations, meaningful change seems unlikely under the present system.

Stiglitz's book has received a great deal of press and generated controversy on all sides of the globalization debate. From counter-arguments levied by economists to praise lavished by critics of globalization, one thing is clear – Globalization and Its Discontents has people talking. But no matter where one falls in the debate, Stiglitz's critique brings to the forefront an issue that those dealing with the intricacies of globalization have to face - how to make it work for everyone.

Inside the IMF
A cabinet member in the Clinton administration and past senior vice president and chief economist at the World Bank, Stiglitz is a former insider who became disillusioned with the real-world applications of free trade policies he helped to launch. In painstaking, and all too often repetitive, detail, Stiglitz outlines what went wrong in the 1990s when countries throughout the world opened their markets and the IMF stepped in to clean up the mess. In case study after case study, Stiglitz shows that IMF policies and actions not only failed to improve the economies of struggling nations, but made the situation worse.

…Stiglitz illustrates that there are promising alternatives in which nations modify globalization to fit their individual circumstances.

Stiglitz goes on to show that even after errors were pointed out, the IMF refused to change its policies. Perhaps most distressing of all, Stiglitz makes the case that the policies were designed to fail because the IMF's stated agenda, to bring failing economies back into balance, is not its true agenda.

" . . . The IMF is pursuing not just the objectives set out in its original mandate, of enhancing global stability and ensuring that there are funds for countries facing a threat of recession to pursue expansionary policies. It is also pursuing the interests of the financial community" (p. 206).

Flawed Policies
It is no surprise, then, to read that according to Stiglitz, globalization, as it has been orchestrated by its most powerful engine, the IMF, is, in most countries, not benefiting the poor. Even worse, Stiglitz argues that opening up markets in most developing countries and in Eastern Europe and Russia has hurt the poor.

"Despite repeated promises of poverty reduction made over the last decade of the twentieth century, the actual number of people living in poverty has actually increased by almost 100 million. This occurred at the same time that total world income actually increased by an average of 2.5 percent annually" (p. 5).

Chief among the IMF's failed policies, according to the author, is the agency's push for rapid capital liberalization before countries have put banking laws and other financial regulatory systems into place. Not surprisingly, he argues, these policies have resulted in everything from wholesale looting of a country's finances, as in Russia, to huge devaluations of currency that have left speculators rich and local businesses bankrupt.

Stiglitz shows that the IMF has a "one size fits all" approach to fixing economic problems, ignoring social, cultural and historic factors that make each country's situation unique. Citing examples of countries, such as China, that have ignored the IMF's advice, followed their own course,
and prospered, Stiglitz illustrates that there are promising alternatives in which
nations modify globalization to fit their individual circumstances.

In particular, Stiglitz argues that the IMF is run by what he calls "market fundamentalists" who believe that markets should be completely open and governments should stay out of the marketplace. Over and over again, Stiglitz's examples point to the conclusion that markets only benefit a select few when allowed to operate freely and the poor suffer even more as a consequence.

The Long Road Ahead
While Stiglitz offers some prescriptions for change, he also makes the point that change will not come easy. Those with financial interests who stand to gain the most from current IMF policies are the same people who run the institution, and who have the most clout at the other major trade agency, the World Trade Organization (WTO). Stiglitz points out that, "Moreover, the IMF's behavior should come as no surprise: it approached the problems from the perspectives and ideology of the financial community, and these naturally were closely (though not perfectly) aligned with its interests. As we have noted before, many of its key personnel came from the financial community, and many of its key personnel, having served these interests well, left to well-paying jobs in the financial community" (p. 207).

Despite repeated promises of poverty reduction made over the last decade of the twentieth century, the actual number of people living in poverty has actually increased by almost 100 million. This occurred at the same time that total world income actually increased by an average of 2.5 percent annually.

While Stiglitz calls for some government regulation, a more gradual pace to market liberalization, and increased transparency in the IMF's secretive decision-making processes, he also makes the case that resistance to such changes will be great. As recent events illustrate - from protests and riots in Latin America, to the ailing U.S. stock market, to calls from American businesses for protectionist trade tariffs - it may be the escalating cries from victims of free markets irresponsibly implemented that will eventually bring about change.

For an in-depth economic underpinning of the failures of globalization, this book is a worthwhile read. And while the book does offer solid answers as to why globalization, in its current manifestation, isn't working, it does not offer much in the way of useful recommendations for change – which perhaps serves to further underscore the fact that, in order to remedy the imbalances of today's globalization, formidable challenges must be overcome.

About the Author (from W.W. Norton & Company)
Joseph E. Stiglitz is a professor of economics at Columbia University whose work has dealt extensively with growth and development in the Third World. Stiglitz was a cabinet member in the Clinton administration and chairman of the Council of Economic Advisers. He also served as senior vice president and chief economist of the World Bank. Stiglitz shared the 2001 Nobel Prize in Economic Science.


Contributed by Patricia Somlo, a freelance writer who has published in numerous magazines and newspapers. Contact her at pattysomlo@aol.com.

To read more Global Envision articles about the challenges of globalization, go to Global Economy in the Library. For a more positive view on free trade by another Columbia University professor, see Bhagwati's Lectures on Economics are Core of His New Release.

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