Globalization and Its Discontents (2002) by Joseph E. Stiglitz

Imagine you’re sitting at a bar next to some co-worker you barely know who is drinking heavily and droning on about how awful his ex-wife is, a real lying, cheating, disingenuous old bag. After an hour or so you almost start to feel bad for the poor lady. Such is the case, I found, with “Globalization and Its Discontents,” Joseph Stiglitz’s full frontal assault on the IMF and the policies it pursued in the 1990s, especially during Russia’s transition from communism and the response to the East Asian financial crisis.

Stiglitz’s credentials are impressive: a recipient of the Nobel Prize in 2001; a former chairman of President Clinton’s Council of Economic Advisors; and chief economist at The World Bank. He claims that the aim of this book is to stimulate honest and open debate on the policies related to globalization, and a decade after its initial publication it has certainly achieved that objective. However, I can’t help but wonder if, after some sober reflection over the years, the fair professor doesn’t wish he could dial back some of his caustic, occasionally libelous rhetoric against the staff at the IMF.

Stiglitz claims that the IMF economists are a sort of economic shock troop of free market “true believers,” literally in the same league as the ideological zealots who brought us the French Revolution, Paris Commune, Red October and the Great Leap Forward. Stiglitz’s main criticism is that the IMF has an irrational faith in the efficiency of unfettered markets, a messianic belief in the all powerful invisible hand, which was codified by the IMF and its close ally, the US Treasury Department, in the so-called Washington Consensus policy prescription of fiscal austerity, privatization and market liberalization. Stiglitz argues that the IMF takes a knee jerk, one-size-fits-all approach to every problem: eliminate government intervention (i.e. repressive regulation), keep the budget balanced even when reducing taxes, keep inflation as low as possible, and encourage the in-flow of foreign (and usually speculative) capital. Stiglitz writes that these policies have caused as much economic destruction as the Great Depression or World War II. He writes that pursuing a policy of fiscal restraint and anti-inflationary monetary policy in the face of severe financial crisis is “Hooverite” economics, committing the same sins that pushed the United States into Depression in the 1930s. When a similar policy was pushed on Russia by the IMF during their transition from communism in the 1990s, the impact was, according to Stiglitz, worse than the Nazi invasion: “In the period 1940-44 the Soviet Union industrial production fell 24 percent. In the period 1990-98, Russian industrial production fell 42.9 percent – almost equal to the fall in GDP (45%).”

Stiglitz writes over and over again that the same ill-advised medicine is prescribed no matter the patient, whether it’s Argentina or Ethiopia or South Korea. He attributes this blinkered approach to the fact that IMF economists have little to no experience with the countries they work on. Thus, he argues, they have no local context and are shielded from the consequences of their policies, the massive unemployment and social unrest that frequently accompanies IMF market intervention. He says it’s the economic equivalent of Air Force officers in a B-1 bomber dropping an atom bomb through a targeting screen — the horror and destruction of their action remains remote and abstract. Moreover, he stresses that there is no transparency to the IMF’s decision making processes, even though the IMF often faults nations in crisis for a lack of transparency. Stiglitz is especially affronted by how the IMF economists stifle any debate and are impervious to well-informed, well-intended advice — even advice proffered from such an eminent source as Joseph Stiglitz! The temerity!

And why does the IMF act this way? Because the institution has shifted from a core mission of providing global economic stability to global financial stability, which is especially evident in the frequent policy prescription to cut the current accounts deficit in order to build up currency reserves (better for creditors, often foreign banks) but usually lead to stalled growth in domestic markets (worse for the local economy and the workers of the country). If anything, the IMF’s market interventions to prop up the exchange rate (a rare example of the IMF fighting the market) are merely capital transfers to the foreign banks that have made speculative loans in the emerging economy. The IMF efforts are almost never successful, but they boost the exchange rate just long enough for the foreign investors to get their dollars out of the country with a limited loss.

So what policies ought the IMF pursue? Stiglitz is in favor of “timing and sequencing,” a take-it-slow-and-steady approach akin to that pursued (without any “assistance” from the IMF he is quick to add) over the past half century by Japan and the Asian Tigers. He places heavy emphasis on the time consuming but necessary act of building strong and reliable government institutions to regulate the economy. He also advocates protecting and developing certain industries, a theory that I thought went completely out of fashion in the 1970s (Stiglitz hammers the US and other Western countries for their hypocritical free trade rhetoric when they protect and/or subsidize many domestic industries that compete with the developing world, especially agriculture). I found that Stiglitz made a much more convincing case against the IMF than he did for his own preferred policies of action.

Are the multiple charges leveled by Stiglitz against the IMF true? I have no idea, although I suspect there is much truth to his perspective, but I would certainly love to hear the IMF’s side of the story. When the IMF tried to rebut the argument in this book after its initial publication, it led to an “ambush” (Stiglitz’s characterization) at a debate hosted by The World Bank. In the end, despite its personal and often obnoxious tone, I found this book informative in its own way, although I wish it had more sober economics and less shrill settling of bureaucratic and ideological scores.