Globalization and Its Discontents

Article excerpt

Globalization and Its Discontents. By Joseph Stiglitz. London: Allen Lane/Penguin Press, 2002. Pp. 282.

The story of Joseph Stiglitz is well known to those who follow the activities of the World Bank. After a distinguished career as an academic economist, in which he created the new "economics of information", he joined Bill Clinton's Council of Economic Advisors in 1993. From there he moved to the World Bank where for three highly controversial years he was the chief economist and a senior vice-president. He became an outspoken critic of the policies of the International Monetary Fund (IMF), notably its handling of the Asian financial crisis, and after knocking heads with senior members of that organization, left the bank in 2000 and returned to academia. He then collected the Nobel Prize for Economics and wrote this book about his experiences in Washington.

Those who have followed this story have been right to note that his most significant contribution to world development while at the bank appeared to be his criticism of the IMF. However, he could have done that from the halls of academia. Moreover, the public nature of his feuding with the IMF often did suggest that maybe the distinguished academic was not adjusting well to the rough and tumble of real world policy-making and that he lacked the diplomatic skills needed to win friends and influence people. In large part, this book represents Stiglitz's attempt to explain his position and justify why it was necessary to attack the IMF.

As a result, the title of the book is misleading: it is not an examination of the strengths and failings of globalization. Rather, it is an unrelenting critique of the IMF and its policies; in Asia, during the financial crisis, in Russia and Eastern Europe after the fall of communism, and in Africa and Latin America during twenty years of economic reform and liberalization. If it is an examination of globalization, it addresses the IMF's approach to it, which the author clearly suggests does not lead to economic stability or development.

Of the nine chapters, two are devoted to Russia, one to East Asia, and another to comparing successes and failures between the two regions (notably China and Russia). As such, much of the analysis is about transition, either transitions from state control to market competition or managing the transition between boom and bust. The author's argument is that an economy is best managed by keeping productive factors in use, be they workers, physical assets, capital, or the information held by financial institutions. Thus, trade liberalization will result in the destruction of jobs in weak industries and will only be successful if the government supports the creation of jobs in other industries that are likely to have a competitive advantage. Likewise, the closure of financial institutions will result in the loss of the information capital held about the credit-- worthiness of borrowing businesses and will be hard to rebuild. Thus, the IMF's attempt to contain the Asian financial crisis with tight fiscal policy and high interest rates draws heavy criticism from Stiglitz because the policies reduced the liquidity that businesses needed to maintain production. …