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Making Globalization Work Hardcover – September 17, 2006
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Stiglitz's seminal Globalization and Its Discontents (2002) argued that globalization has not benefited as many people as it could, a failure attributable to structural flaws in international financial institutions as well as limited information and imperfect competition. With this selection, the Nobel Prize-winning economist suggests a host of solutions by which globalization can be "saved from its advocates" and made safe and worthwhile for the poor and rich alike. Each chapter examines, in some depth, an obstacle to equitable globalization (the burden of massive national debt, for example) and provides a set of possible solutions (a return to countercyclical lending and development of international bankruptcy laws, for example). Many of Stiglitz's proposals echo the familiar litanies of developing nations in the Doha round of international trade talks, but several, such as those drawing upon East Asia's experiments in contained progress, are innovative enough to warrant books of their own. Fairly accessible for a work of macroeconomics, this is a worthy counterpoint to Thomas Friedman's popular The World Is Flat (2005). Brendan Driscoll
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“A well-written and informative primer on the major global economic problems. ... [Stiglitz] helps his readers understand exactly what is at stake.”
- Jeffry Frieden, New York Times Book Review
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The problem is that the "Washington Consensus" as instituted by the IMF and World Bank has had disastrous results in many countries around the world most notably Russia. As the chief economist of the World Bank from 1997 to 2000, Joseph E. Stiglitz is probably a pretty decent source to go to for on why so many countries AREN'T booming after instituting IMF imposed "structural adjustments". The author offers Argentina as an example of a country which received an A+ rating from the IMF for following the Washington Consensus only to face financial calamity a few short years later.
As the author puts it, one of the main problems is that, "the Washington Consensus prescription is based on a theory of the market economy that assumes perfect information, perfect competition, and perfect risk markets". Mr. Stiglitz writes, "policies have to be designed to be implemented by ordinary mortals". Economists seem to have become so enamored by the blackboard theories behind pure free market economics that they ignore the reality of its results. Even worse, when economies follow the IMF's prescription and fail they're blamed for not adhering CLOSE ENOUGH to the IMF/World Bank dictates.
The other main problem is that the Washington Consensus is being instituted in countries that simply do not have the institutions necessary for a free market economy including strong property rights, an established tax base and the means to enforce the rule of law. The shock treatment in Russia allowed money to flow freely in order to stimulate foreign investment but all it caused was the money to drain right out. The IMF/World Bank are very inflexible for instance they admonish countries for deficit spending, in order to stimulate the economy, even when a country has accrued a considerable amount of savings. At the same time the IMF/World Bank encourages low tax rates meaning that even modest economic stimulants can push a country into deficit spending. The scary thing is that even if a country doesn't currently have loans with the IMF/World Bank they can still fear bucking the Washington Consensus given that a poor report from the IMF/World Bank can potentially scare away foreign investments.
The author wisely points out that economic growth is only real if it is sustainable. American neo-conservatives love to crow about their pro-growth support but growth is pointless if you destroy the environment and rip up all the natural resources in a few decades. Using GDP as the de facto benchmark of a countries economic progress can be very misleading. As a case in point the author offers up oil production. The faster a country can rip oil out of the ground the higher its GDP will rise but in truth the country may well become LESS valuable as its resources are depleted. Compounded that with environmental damage, that isn't being factored into the equation, and a country can become poorer as its GDP rises. This is not just some abstract case but a situation that occurs frequently.
The author discusses a lot more topics including the often anti-democratic nature of the IMF/World Bank, issues of asymmetric globalization between developing and developed nations, the stifling nature of over patenting, subsidies versus tariffs. For an economics book I found it to be very readable and extremely enlightening. Mr. Stiglitz is clearly on the progressive side of the political spectrum which is evident by his concern for the inequity in globalization. Fortunately the IMF and World Bank seem to be adjusting somewhat to the reality that strict adherence to the Washington Consensus isn't the end all be all solution. Hopefully this is a sign that the times are a changin'. Hopefully.
He facetiously points out that a cow in Europe earns more than half of the people on the planet. The $2 a day subsidy of the European cow is equal to the the cut-off line defining poverty, and half of the earth's inhabitants live below this level. This example illustrates the ostensible unfairness of the current system. European, American, and Japanese multinationals, and the trade negotiators who represent them, argue for freer trade yet they refuse to relinquish agricultural subsidies. This is very unfortunate for the developing world since about 80 percent of their economies are agricultural. Nothing would help them more than if the rich countries stopped subsidizing their agriculture and opened their markets to imports. Economically this is a good idea, politically the it is a non-starter. The French will not be importing Brie and the Japanese will not be importing rice.
This seems to be the case with many of Stiglitz's ideas: they sound reasonable and fair, but unfortunately fairness is not a priority for many trade negotiators.
Stiglitz's proposal for a global reserve system is another example of a good idea whose time has not yet come. Today, when countries set aside money for a rainy day, the currency of choice is the US dollar, which for the time being is relatively stable and strong. The only problem is that the US is financing these global reserves at the rate of $2 billion a day - a truly unsustainable trend. Stiglitz's solution, borrowed from John Meynard Keynes, is to create a universal currency. In good times reserves can be held in this currency and in bad times these reserves can be drawn. Sounds eminently reasonable but Uncle Sam is not going to give up the the reins.
What Stiglitz is doing is calling for greater democracy in the global trading system. Currently the global trading system is stacked in favor of the rich nations, especially the US. This is not to say that rich nations don't have their issues - they do. What is important in this book is that the poor countries should be given a better deal. Much has been writtem about bad governance in the developing world, and much of it is true; however, aggravating these problems are unfair trade agreements. Stiglitz is important because he gives a voice to the developing world's vulnerablity. For example, when poor countries are forced to open up their markets to foreign banks, their local banks are put out of business, and, as a consequence, local lending suffers. More democracy in the global trading system would go a long way in alleviating some of these unjustices. The only question is: Are the rich and powerful nations ready for more democracy and a more equitable trading system.