Free market, neoclassical, and neoliberal are all essentially euphemisms for the disastrous laissez-faire economics of the late 19th century. This approach seeks to minimize the role of government—arguing that lower wages solve problems of unemployment, and relying upon trickle-down economics the belief that growth and wealth will trickle down to all segments of society to address poverty. Stiglitz explains that globalization could be either success or failure, depending on its management. There is a success when it is managed by national government by embracing their characteristics of each individual country; however, there is a failure when it is managed by international institutions such as IMF.
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Free market, neoclassical, and neoliberal are all essentially euphemisms for the disastrous laissez-faire economics of the late 19th century. This approach seeks to minimize the role of government—arguing that lower wages solve problems of unemployment, and relying upon trickle-down economics the belief that growth and wealth will trickle down to all segments of society to address poverty.
Stiglitz explains that globalization could be either success or failure, depending on its management. There is a success when it is managed by national government by embracing their characteristics of each individual country; however, there is a failure when it is managed by international institutions such as IMF. Globalization is beneficial under the condition that the economic management operated by national government and the example is East Asian countries.
Those countries especially South Korea and Taiwan were based on exports through which they were able to close technological, capital and knowledge gaps. By managing national pace of change and speed of liberalization on their own, those countries were able to achieve economic growth. The countries who received the benefits from the globalization shared their profits equally.
However, Stiglitz believes that if the national economy regulated by international institutions there could be an adverse effect. It is better to spend more time getting the program right than to lend prematurely. However, none of these were done. According to Stiglitz, IMF interventions all followed a similar free market formula.
The IMF strongly advocated "shock therapy" in a rush to market economies, without first establishing institutions to protect the public and local commerce. Local social, political, and economic considerations were largely ignored. Privatization without land reform or strong competitive policies resulted in crony capitalism , large businesses run by organized crime, and neo-feudalism without a middle class. The consequence will be escalated levels of debt, weakened policy credibility and a lot more difficult task of adjustment in the future.
The IMF also foisted premature capital market liberalization free flow of capital without institutional regulation of the financial sector. This led to widespread bankruptcies without legal protection, massive unemployment without a social safety net , and the prompt withdrawal of foreign capital. The few remaining solvent owners, with zero opportunity for business growth, stripped assets for any value they could. With loans defaulted and entire nations thrown into economic and social chaos, the IMF rushed bailouts directed mainly to foreign creditors.
This fueled speculative runs on currency, and most of the bailout money soon wound up in Swiss and Caribbean bank accounts. As a result, Third World citizens carried much of the costs and few of the benefits of IMF loans, and a moral hazard ensued among the financial community: foreign creditors made bad loans, knowing that if the debtors defaulted, the IMF would pick up the tab see Long Term Capital Management , whose overexposure in Southeast Asia might have brought down international financial markets without a massive bailout.
Meanwhile, the IMF urged cash-strapped countries to further privatize—in effect selling their assets at a fraction of their value to raise cash. Foreign corporations then bought up the assets at rock-bottom prices. Stabilization is on the agenda; job creation is not. Taxation, and its adverse effects, are on the agenda; land reform is off. John Maynard Keynes helped conceive of the IMF as a fund to help developing countries grow at full employment.
So why the consistent and disastrous failure to live up to this mandate? The IMF is pursuing not just the objectives set out in its original mandate, of enhancing global stability and ensuring that there are funds for countries facing a threat of recession to pursue expansionary policies. It is also pursuing the interests of the financial community. This means that the IMF has objectives that are often in conflict with each other . He advocates a gradual, sequential, and selective approach to institutional development, land reform and privatization, capital market liberalization, competition policies, worker safety nets, health infrastructure, and education.
Different countries will need to follow different paths. Selective policies would direct funds to programs and governments which had success in the past. He also points out "global governance without global government," and suggests that we need to recognize the inequities of the "global economic architecture. Lastly, democratic disciplines are needed to ensure that financial institutions serve general interests. Debt forgiveness should be extended, building on the success of the Jubilee Movement.
Since the IMF loans primarily benefited foreigners and government officials, he argues it is unjust and onerous that citizens of developing nations be heavily taxed to pay them off.
Not coincidentally, Stiglitz believes that promoting local and international democracy is fundamental to reforming global economic policy. Democracy aids social stability, empowers the free flow of information, and promotes a decentralized economy upon which efficient and equitable economies rely. For Stiglitz, promoting democracy comes before promoting business. Thus rather than working for equity and extermination of poverty, financial institutions become spokespersons of the financial community.
The procedures and rhetoric of financial institutions widen the gap between developed and developing, which resulted from undemocratic paternalism and lack of accountability, transparency. Undemocratic paternalism is inflicted through ideology, assuming the model IMF presents is universally applicable.
Moreover, lack of accountability and transparency is pronounced in unfair trade agenda, the Uruguay round. The North, EU and US achieved bilateral conventions called Blair House Agreement to circumscribe the regulations imposed on subsidization of agriculture, leading to the failure of Uruguay round and exposing developing countries to greater risk and volatility.
Praise[ edit ] Globalisation and Its Discontents has earned praises from many reviewers. A seminal work that must be read. It certainly stands as the most forceful argument that has yet been made against the IMF and its policies. It is designed to provoke a healthy debate and… shows us in poignant terms why developing nations feel the economic deck is stacked against them. For instance, D. MacKenzie claims in the libertarian journal Public Choice that Stiglitz mischaracterizes government failures as market failures.
Such examples are collective action failures of government through rent seeking. You seem to believe that if a distressed government issues more currency, its citizens will suddenly think it more valuable.
The book blames the East Asian Financial Crisis almost entirely on one factor: capital account liberalisation. In: Journal of Libertarian Studies. Volume 18, No. Griswold : Book Review. In: Cato Journal. MacKenzie: Book Review. In: Public Choice. Volume , Numbers , September , pp.
'Globalization and its Discontents Revisited': Joseph E Stiglitz on the state of the world
Globalization and Its Discontents