Stiglitz on Globalization and Development with an Eye to Keynes

Abstract

Joseph Stiglitz has laid out many of the issues central to the debate on globalization in a compelling story in a recent influential book. Globalization has become a contentious issue because the economic policies advocated for and, at times, almost imposed upon developing countries by international organizations such as the International Monetary Fund, the World Bank and the World Trade Organization are based on misconceptions about how market systems work. Market fundamentalism underlies the entire policy framework of the Washington Consensus. The limits of this approach are nowhere clearer than in the examples presented by developing and transition economies. Many policy missteps could have been avoided by adopting the main insights of traditional Keynesian theory, the basic lessons of which remain valid, even if it has been largely excised from the IMF's recipe book. The results of 20 years of market fundamentalism make it clear that globalization and development are distinct issues and that the former does not necessarily entail the latter. In order to understand how they are connected we need to supplement macroeconomic analysis with studies of how international economic integration comes about.

Notes

¹Stiglitz (2002a, p. 91) explains that ‘The East Asian Miracle’ is the title of a World Bank report commissioned in the 1990s under pressure from Japan and ‘after the Japanese had offered to pay for it’.

²Stiglitz seems to think that this is indeed one of the problems: ‘Unfortunately, too often the training of macroeconomists does not prepare them well for the problems they have to confront in developing countries. In some of the universities from which the IMF hires regularly, the core curricula involve models in which there is never any unemployment’ (2002a, pp. 34–35).

³In 1997 the major recipient of foreign direct investment was China with almost one-third of the total. According to The World Development Report (1995), the hourly labor costs in the textile industry were 0.36 dollars in China and 0.56 in India, as compared to 20.50 dollars in Germany and 11.61 in the USA.

⁴Admittedly it is difficult to define rigorously control and ‘the dividing line between some control and no control is arbitrary’ (Hymer, 1976, p.1)