Globalization and Its Discontents (Hardcover)

I think that there are two main points that Stiglitz makes. The first is that standard IMF policy has tended to approach countries in financial crises with the same rather crude economics as that used on Wall Street, which leads them to think like bank managers rather than economists. If you force a country with a fiscal deficit to reduce government spending, then this will reduce aggregate demand, which will reduce government income, and make the deficit worse, inflicting more pain on the population. The reason that the IMF does this, is that it is meant to restore confidence in the markets, but once a crisis starts, foreign investors tend to bail out anyway, so all it buys you is breathing space. You should accept that the foreign investors are gone, and focus on growth.

The other thing that I got from the book is the hypocrisy of the US administration, which forced policies on emerging markets, which it would not itself accept. In fact, the IMF more or less took instructions from the US Treasury during the 1990s, and certainly my sense at the time was that the actual IMF staffers were very frustrated at the policies that the US government forced them to follow. The point though, is that while the US government was battling the balanced budget amendment at home, on the reasonable grounds that it limited their freedom to manage demand, they were essentially forcing a balanced budget amendment on the emerging markets via IMF conditionalities. I remember attending a Paris Club meeting, where the Fund said that they were aware that budget deficits could be beneficial - this was never reflected in the lending policies that the Treasury forced on them. Other examples are forcing central banks to focus only on inflation, and forcing emerging markets to open their markets, while protecting US farmers from imports.

The above is an oversimplification of the whole book, and others may get a lot more on other subjects, such as the political process of crisis management, and the specifics of the East Asian economies, which are less of a priority for me. When you are a specialist in a subject, you always find that non-specialist books tend to be wrong about your own subject. I certainly found plenty to disagree with in the sections on Russia, which is my special subject. However, the arguments were cogent (he is a Nobel prize winner, after all) and I found myself looking at my own subject in a new way, and it was interesting to read a broad brush view, which helped me to ignore the trees, and look at the wood.

I'm reading Skidelsky's biography of Keynes, and to some extent, Stiglitz's book reads like WWJMKD (What would John Maynard Keynes do?). What this means is that Stiglitz is a virtuoso economist, and this is a set of well-known events, reinterpreted by someone who is really good at it.

One criticism of the book is that I would have liked to have seen more raw data to support Stiglitz's arguments - he tends to just refer to studies supporting his argument, without showing as much data as I would have liked, but there is a decent bibliography. Another criticism is the veiled suggestion that Rubin (US Treasury secretary), Fischer (deputy head of IMF) and Summers (deputy Treasury secretary) were merely serving their masters in Wall Street, and were subsequently rewarded. This is a little ignoble, as these people were following their convictions, however wrong, and the political climate at the time supported them. But these criticisms should not detract from a really excellent book of popular economics.

The International Monetary Fund (IMF) was the post-war brainchild of John Maynard Keynes, who thought future economic downturns could be reduced by establishing a source of funds to stimulate the economies of countries without the resources to provide stimulus packages from their own reserves. As an international institution, the Fund would provide impartial aid and offset the protectionist beggar-thy-neighbor policies that had made the Great Depression a global phenomenon.

In the 1980's, however, the Fund's mission was derailed by the new brand of market fundamentalism that marked the Reagan/Thatcher years: the market always knows best, and the best thing a government can do is to stay out of it as much as possible. Subsequently, the Fund's loans have come with a number of restrictive conditions, forcing recipient governments to balance their budgets and keep inflation down, quite the opposite of what Keynes had initially intended.

The evidence through the 1990's, particularly with respect to the Asian financial crisis of 1997, and the transition to capitalism of the former Soviet bloc countries, is that the IMF's market fundamentalism has been a terrible mistake. Stiglitz argues convincingly that the IMF has not only failed to prevent the disasters in Asia and Eastern Europe, but that its policies have been a leading cause of the disasters in the first place, and its subsequent actions only made matters worse. Sending huge aid packages to Russia to hold off devaluation of the ruble only meant that the super-rich oligarchs had a little more time to pocket their cash, ship it out of the country and transform it safely into hard currency.

The IMF looks only at the limited set of numbers, like inflation and deficit, that affect the lives of Wall Street financiers, and pays no attention to figures like unemployment that matter to the poorest citizens in the countries the IMF is supposed to be helping. As a result, the rich are getting richer, and the poor are getting angrier. Globalization has unprecedented potential to raise the standard of living of people across the globe, but as it is presently being handled it is ravaging the developing world.

These are all points well worth making, and I'm glad I read the book to come to a clearer understanding of them. Despite its good intent, however, it's hamstrung by poor writing and presentation, and worse, by a vindictive righteousness that leads Stiglitz occasionally to ignore or distort the truth if it will help him to make his argument sound more convincing.

The problems begin with the title. The book isn't really about globalization per se; it focuses on the aspect of globalization with which Stiglitz is intimately familiar: international financial institutions like the World Bank and the IMF. "Globalization and its Discontents" is a catchy title, and I suppose it must have been hard to resist. But to be clear: this book is essentially an invective against the IMF, where Stiglitz stops short of accusing the Fund of outright malice, preferring to emphasize its dogmatism, stupidity, narrowness, and occasional venality.

The misleading title is symptomatic of the uncertain thrust of the book. The style is plodding--a couple of clichéd nautical metaphors hardly lift Stiglitz's style out of the mud--not to mention repetitive. The structure is unclear, so that Stiglitz returns to the same points in several chapters while never fully fleshing out other important points, all the while leaving the reader uncertain of where the argument is going. Besides the soporific style and sloppy structure, there are more than a few typos and inconsistencies in convention (is it the "Washington Consensus" or the "Washington consensus"?)

These shortcomings make for a tiresome read and weaken Stiglitz's argument at many points. What's worse is that Stiglitz seems willing to take a few steps beyond the truth if it helps him make his point. In one controversial passage, he all but claims that Stan Fischer, former deputy managing director of the IMF, was in the pocket of Citigroup and obediently took orders from Citigroup while planning the Fund's policies. He has since denied that he intended to smear Fischer, and I believe him. But sloppy writing is evidence of sloppy thinking: unintentionally accusing a respected economist of criminal venality is no small error.

In a similar vein, Stiglitz falls into equivocation where it serves his purpose. At the beginning of chapter 6, he first points to the number of former communist countries, including Russia, currently governed by former communists as evidence of Eastern Europe's disillusionment with market fundamentalism. In the following paragraphs, he attacks Yeltsin and Putin for the crony capitalism and corruption that's come from allying themselves with Wall Street's interests. Either the Russian leaders represent a rejection of the IMF's market fundamentalism or they don't; you can't have it both ways, certainly not in consecutive paragraphs. Nor can you insist that successful development relies on policies suited to intimate knowledge of the particulars of each individual country and then insist, as Stiglitz does early in the book, that the prime minister of Ethiopia is a responsible leader because Stiglitz chatted with him and he seemed like a nice guy. Stiglitz seems determined to make his point, and he won't let facts or logic get in his way. I want to agree with him, but he doesn't inspire my trust.

It's a shame that Stiglitz makes this book hard to like because I think it's an important one. The same argument could have been made in a shorter, clearer book that didn't stretch the truth in order to sound convincing. As it stands, the book provides plenty of easy targets for those who aren't inclined to agree with Stiglitz, and so it isn't likely to persuade many of the unconverted that the IMF needs to change its approach.