Globalization and Discontents

Joseph Stiglitz (2002). NY:W.W.Norton & Company

Stiglitz mentioned that the IMF and the U.S. Treasury, which emphasized information transparency in East Asia during the global financial crisis in 1997-98, were the least transparent he experienced with. Upon his experience, he asserts that the way international institutions such as the IMF influence the world economies is subtle such that it is a matter of a tone of voice, a meeting behind closed doors or a memo after discussions.(preface. pp. ix-xvi)

A new phenomenon in globalization, according to him, is anti-globalization wave in developed countries, which is based on the prevalent awareness that globalization in many developing countries did not bring the promised economic benefits. He supports this idea from a document of World Bank (Global Economic Prospect and the Developing Countries 2000): for the last decade, the number of people in poverty increased by almost 100 millions. The hypocrisy of the Western countries lie in that they push doors of the poor to eliminate barrier while keeping their own closed--in particular Japan and the U.S. The Uruguay Round (1986-1993 concluded by the agreements of 117 countries on trade liberalization and as a result, WTO was formed.), in particular, put the intellectual property right into fire and protected the interests of the producers, concentrated in the developed countries. He argues premature capital market liberalization caused global instability and destroyed job markets in poor countries such that a sense of job security is heightened, if not loss. Nevertheless, "capital market liberalization has been pushed despite the fact that there is no evidence showing it spurs economic growth"(p. 16). IMF, World Bank and WTo are the major international institutions who he states govern the global markets and it is interesting to how he sees these players in this context: "the application of mistaken economic theories would not be such a problem if the end of first colonialism and then communism had not given the IMF and the World Bank the opportunity to greatly expand their respective original mandate, to vastly extend their reach" (p.17) He also maintains the view that globalization can be good and reshaped as long as it is governed well, but a problem he frequently mentions is the way in which the three major players operate somewhat surreptitiously for their own financial interests--it is irony that IMF is run by taxpayers' money but its representatives are mostly directly from corporations--and there is no voice of developing countries although most activities are in the developing world.[He advocates progressive capitalism with certain governmental intervention to compensate market failure.] (pp.3-22).

Stiglitz calls it the colonial mentality or white man's burden that they know what is the best for developing countries. Furthermore, what they know about is solely based on an ideology--market fundamentalism--and they insist on playing a central role in policy making without consideration of local specifics. He presents two examples, Ethiopia and Botswana: while Ethiopia, who relied on the IMF funds, did not achieve sustainable development, let alone encountering a threat of fund cut, Botswana carefully selected advisers from various private sectors and wend through their way. Despite obvious atmosphere of discontents on the policies that the IMF pushed on Korea in 1997, the reason why government officials kept silent publicly was that they were afraid of being judged as "off track" by the IMF and losing opportunities to get funded from the IMF--also note that other access to funds contingent on IMF approval. One hot topic that the IMF imposed on Korea during the supervisory period is pushing further independence of the Central Bank from the government and having it focused on inflation. He argues that this policy reflects a groundless market fundamentalism that the IMF persists with two empirical evidence: there is a general consent that European Central Bank's independence actually exacerbated an economic downturn and also, even in the U.S., Federal Reserve Bank, U.S. central bank, refused to focus on inflation only and took into account employment and growth as well. [The U.S. doesn't have to listen to the IMF, but smaller countries often have no option, but it is a matter of balancing intellectual power to some degree. The IMF is not the only way to choose.] (pp. 23-52)

Stiglitz maintains his light that there are alternative strategies, for instance, land reform not capital market liberalization, competition policies before privatization, job creation along with trade liberalization. "The essence of freedom is the right to make a choice--and to accept the responsibility that comes with it." (pp.53-88)

Stiglitz says, "it became clear that the IMF policies not only exacerbated the ownturns but were partially responsible for the onset: excessively rapid financial and capital market liberalization was probably the single most important cause of the crisis, though mistaken policies on teh part of the countries themselves played a role as well" (pp.89-90). He recalls moments when the crisis in East Asia was about to break out: the IMF and U.S. Treasury began to criticize the countries about corruption, malfunctions, etc. although they were hardly experts. He defines that Fund aid was at the cost of accepting country's economic sovereignty. Even when the IMF calls the end of recovery, the criteria is given to stabilization of interest or exchange rate, however, he argues that there is no true recovery until workers return to their jobs and wages are restored. He continues to argue governments' role in recovering economic crisis and it is bizarre that he states that Korea is an example of the government's intervention, which not only led fast recovery but also could be more competitive in the near future. He mentions that the unemployment was up fourfold in Korea during the crisis. If the recovery was successful, the unemployment should have been reduced now. I do not have statistics, but considering skyrocket inflation, the wages are far from the restoration, I propose. (pp. 89-132).