Stiglitz and his discontent

Abstract

Globalization and its Discontents is Joseph Stiglitz's attempt to articulate to a wide audience his trenchant critique of the International Monetary Fund, its vision of globalization and, in effect, the organization of the world capitalist system. This paper argues that while Globalization and its Discontents is deeply flawed, it is ultimately an important book. Stiglitz's critique of IMF-style globalization is rooted in mainstream economic theory, but its conclusions are quite radical. Stiglitz argues that IMF policies favor the rich over the poor, stifle development, undermine democracy, and promote financial instability and crisis. His claims are by no means original. But no economist with comparably impeccable mainstream credentials has asserted so forcefully that globalization's critics are, on many crucial issues, correct. The power of Stiglitz's book lies primarily not in its originality or insight, but in its legitimization of popular criticisms of globalization.

Acknowledgments

I am grateful to Stephanie Seguino and Katherine Joyce for insightful comments on earlier versions of this paper. All errors are, of course, my own.

Notes

¹Ha-Joon Chang (2001) has edited a collection of Stiglitz's most important speeches from this period (1998–2000).

²Unless otherwise indicated, all page numbers in what follows refer to this work.

³See Williamson (2003) for a sympathetic discussion of the Washington Consensus.

⁴Saul (2004, p. 38) argues that neo-liberalism has a pseudo-religious ‘morality’ at its center: ‘It somehow followed that if countries were in financial trouble, they were moral transgressors. They had to discipline themselves. … This was the crucifixion theory of economics: you had to be killed economically and socially in order to be reborn clean and healthy. For a quarter century, under the severe hand of the IMF, this moralizing and emotionally charged approach has been applied to the developing world with absolutely no success.’

⁵The governments of many poor countries have, of course, willingly participated in this project.

⁶See The American Prospect's Special Supplement on Globalism and Poverty (2002), especially the contributions by Weisbrot (2002) and Weller & Hersh (2002). See also Pollin (2003, chapter 5). The assessment of the performance of the IMF and development policy over the past 25 years is, of course, a matter of considerable debate. Defenders of the status quo point out, for example, that per capita incomes and life expectancy in the world's poorest countries have increased over the period in question.

⁷In 1999, Rudi Dornbusch, a staunch and widely respected defender of globalization, called the IMF ‘a toy of the United States to pursue its economic policy offshore’ (as reported in the Journal of Commerce and quoted by Pollin, 2003, p. 7).

⁸ The National Security Strategy of the United States (2002) provides a particularly dramatic case in point. On its opening page, it speaks of ‘a single sustainable model for national success: freedom, democracy and free enterprise.’ While this is a political and politicized document, it articulates the view of the US government and, on economic policy, the views of the US Treasury, the IMF and the WTO. But Chang (2002) argues persuasively that the industrialization of the now rich capitalist countries was not the result of free trade and open capital markets, conventional wisdom notwithstanding. In fact, these countries carefully and extensively ‘managed’ their engagement with the world economy, and this strategic approach to openness was in fact crucial to their success.

⁹This list of critics is, of course, very long. It includes Keynes, Gunnar Myrdal, Paul Baran, Lance Taylor, and many more; see Pollin (2003), Chang & Grabel (2004) and MacEwan (1999) for excellent recent examples.

¹⁰Amartya Sen (1999) and Dani Rodrik (1997, 1999) might reasonably been included in this small club. Jagdish Bhagwati (2004), among many other defenders of globalization, acknowledges that IMF policy has sometimes been problematic. He and many others have, for example, questioned the IMF's enthusiasm for capital market liberalization.

¹¹Gualerzi (2005) provides an insightful discussion of importance of Keynesian theory, old and new, to Stiglitz's argument.

¹²The IMF's insistence on capital market liberalization has been widely criticized, even by advocates of globalization (see Bhagwati, 2004), but the IMF has been reluctant to conclude that its capital market policies may have been a mistake. A recent IMF paper reviews the available evidence and finds no support for the claims that financial market liberalization promotes growth, or reduces macroeconomic volatility (Prasad et al., 2003). The conclusion? Regarding growth: ‘there is as yet no clear and robust empirical proof that the effect is quantitatively significant.’ Regarding reduced volatility: ‘developing countries have not fully attained this potential benefit.’ Deeply held beliefs can be stubborn.

¹³From the perspective of the IMF, disempowering governments in this way is not necessarily a problem, as global capital markets are presumed to allocate capital better than governments.

¹⁴Gualerzi (2005) provides an excellent critical discussion of GID's inadequate treatment of direct foreign investment.