Wednesday, December 27, 2017

Stiglitz, Joseph: Globalization and its Discontents.

Stiglitz introduces his book as an analysis of "what went wrong" with the Bretton Woods institutions, the IMF and World Bank. Quite frankly, it should be titled "All the reasons I hate the IMF." Stiglitz describes the World Bank and IMF's founding and then tells of a few key changes between then and now. Whereas they were founded with the understanding that the nations of the world must work together for global economic stability, today the U.S. has the only effective veto, giving it the power to call the shots by itself. Whereas the IMF was founded on Keynesian principles with the goal of stimulating demand when the market failed to do so on its own, today it enforces structural adjustment policies that are contractionary. Stiglitz says Keynes would be rolling over in his grave.

He traces the biggest shift to the Reagan and Thatcher era of the 1980s. During this time, the IMF was used as the vehicle to force Washington Consensus policies on poor nations who needed loans and grants. The IMF gave them an offer they could not refuse. It was in this time, the early 1980s, the two institutions, previously distinct, became more intertwined. Stiglitz blames the mistakes of the World Bank and IMF on making decisions based on ideology and politics (often using bad economics that are thinly veiled give aways to special interests) instead of based on good economics.

Stiglitz identifies one problem as the domination of both institutions by the wealthiest nations on earth, and generally by the business and finance sectors within those nations. While the institutions are making decisions that affect the entire world, and greatly affect the poorest nations, and the poorest people within those nations, they are dominated by interests of the world's wealthiest people who may have no understanding at all of poor people or poor nations. One example of how this plays out is that the poorest nations are forced to get rid of trade barriers and subsidies, but the wealthiest nations retain agricultural subsidies. He calls it "taxation without representation" and "global governance without global government" - meaning that a few powerful institutions run by elites make the rules that affect the entire world, but the rest of the world has little to no control over those institutions.

He opposes broad, general protectionist policies but supports developing nations protecting certain fledgling industries until they are globally competitive. When markets are opened to competition from abroad, these industries cannot compete - and at the same time, the nation lacks a social safety net to support those who lose their jobs as a result.

Stiglitz distinguishes between the missions and the characters of the World Bank and the IMF. The former is to eliminate poverty; the latter to promote global economic stability. He dumps on the IMF a lot, basically framing it as the real problem compared to the comparatively innocent World Bank. (Stiglitz worked at the World Bank so I am suspicious about his biases.) One good point he makes is that the World Bank has staff living in the nations around the world where the World Bank works, whereas the IMF generally has a single person in each nation living a comfortable existence in the capital, never coming face to face with the suffering the IMF's policies inflict.

A major critique he makes of the IMF is their confusion of ends with means. That is, when it believes that certain policies (such as a liberalized financial market) are crucial to economic success, it sees those policies as goals in and of themselves. Even when a country is doing OK as it is - Stiglitz gives the example of Ethiopia - and does not need the IMF's "fix" (and the IMF's "fix" will actually hurt it) - the IMF still pushes for its preferred policies as if they are an end in themselves.

To me, it's like if someone is already thin but you believe that the Atkins diet helps you lose weight, this would be like telling the already thin person they must go on the Atkins diet, as if the diet itself is the goal and not the health, fitness, and weight loss goals a person may have.

Works Cited:
Stiglitz, Joseph. 2002. Globalization and its Discontents. New York: W. W. Norton and Co.

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