Globalism’s
Discontents
Joseph Stiglitz, Ch. 24, pp. 208 – 215
(Excerpted from Stiglitz, “Globalism’s
Discontents,” The American Prospect,
13:1, January 1-14, 2002)
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Basic argument
 Countries that have managed globalization on
their own, such as in East Asia, reaped
benefits, and ensured they were equitably
shared
 They controlled terms on which they engaged with
global economy
 Countries that have GL managed by IMF and
other international economic institutions did not
perform as well
 They were duped by market fundamentalism
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East Asian countries have
benefited most from GL
 rejected Washington Consensus
 took active roles in managing the economy
 e.g., South Korea steel industry
 only after deregulation, under pressure from
the US Treasury and IMF, did problems occur
 "Asia Financial Crisis" (1997-98) – which was
actually global – was caused by the rapid
liberalization of financial & capital markets
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Adverse effects of GL
caused by financial
liberalization
 Adverse effects of GL trace back to
international financial institutions, esp the IMF
 Most adverse effects caused by liberalization of
financial & capital markets
 "hot money" pours into country  fuels speculative
real estate booms & sudden busts  rapid exit of
foreign investment/capital
  paternalism, new form of old colonial mentality,
"We in the North know best, follow our advice and
you'll prosper"
 Then "blame the victim" if they fail
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Lessons of Crisis
1) Historical pattern: capital inflows & outflows
largely not due to factors inside a country, but
to external/global factors
2) Liberalization of capital markets has not
resulted in growth, only increased volatility

when crisis strikes, the lack of labor mobility – in
contrast to capital mobility – leaves workers to
suffer the consequences of rapid capital outflow
from a country
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(Even Worse) Lessons of
Crisis
3) Cash-strapped countries that must now borrow money
from abroad, must set aside reserves equal to shortterm loans, typically in the form of US Treasury bills,
are essentially forced to lend $ to the US, at low
interest rates
 US dollar is the most widely held reserve currency in world
today, said to have "reserve currency status“
 e.g., today highly-indebted Greece must agree to severe austerity
measures in order to secure necessary short-term loans
4) There’s a high opportunity cost of the reserves: money
could be better spent on national social priorities
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The US Dollar
 All banks, when they lend money, are supposed to set
aside reserves in case the loan goes bad
 US has been the dominant reserve currency since the
post-WWII establishment of Bretton Woods system (the
system that created IMF/World Bank)
 US dollar as reserve currency
 US $ is the most widely held reserve currency in the world today.
 Throughout the last decade, an average of 2/3s of the total allocated
foreign exchange reserves of countries have been in U.S. dollars
 For this reason, the U.S. dollar is said to have "reserve-currency
status," making it somewhat easier for the United States to run higher
trade deficits with greatly postponed economic impact
  Demonstrates advantages to the US economy, but
also how interconnected the US economy is with the
global economy
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Trade liberalization – as
promoted by the IMF
 While the case for trade liberalization – when properly done – is
compelling, the way it's been pushed by the IMF has been "far
more problematic"
 The IMF's structural adjustment programs (designed to reassure
global investors) make job creation almost impossible
 they typically raise interest rates, out of excessive worry about
inflation
 high interest rates discourage job and business creation
 in practice, IMF-managed trade liberalization, rather than moving
workers from low-productivity jobs to high-productivity ones, moves
them from low-productivity jobs to unemployment
 rather than enhanced growth, the effect is increased poverty
 Even worse, the unfair trade-liberalization agenda forces poor
countries to compete with highly subsidized American and
European agriculture
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The Costs of Volatility
 Capital-market liberalization is inevitably accompanied
by huge volatility, and this volatility impedes growth and
increases poverty
 High volatility increases the likelihood of recessions –
and the poor always bear the brunt of such downturns
 And even in rich countries, there's little safety net for the selfemployed and people in the rural sector
 To “balance budgets” and reassure investors there are
typically further cuts to safety nets, since countries are
reluctant to tax capital and risk “capital flight”
 Thus, IMF doctrines inevitably lead to an increase in tax
burdens on the poor and middle classes
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The Governance of
Globalization
 In current process of globalization, we
have a system of "global governance
without global government"
 International institutions like the World Trade
Organization, the IMF, the World Bank, and
others provide an ad hoc system of global
governance, but it entirely lacks democratic
accountability
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Governance through
Ideology
 Contrast between how economic decisions are
made inside the US and how they're made in
the international economic institutions
 US economic officials, including the Treasury
Secretary, are part of an administration that must
face Congress and the democratic electorate
 "In the international arena, only the voices of the
financial community are heard" (213)
 "Ideology enabled IMF officials not only to
ignore the absence of benefits but also to
overlook the evidence of the huge costs
imposed on countries" (213)
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An Unfair Trade Agenda
 The trade liberalization agenda has been
set by the North, or more accurately, by
special interests in the North
 Consequently, disproportionate gains
have accrued to advanced industrialized
countries, and in some cases the lessdeveloped countries have actually been
worse off
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Results of the WTO
Uruguay Round (1994)
 US and Europe gained, but sub-Saharan Africa, the
poorest region, lost by about 2% due to terms-of-trade
effects:
 African markets were opened to manufactured goods from
industrialized countries, but US/European markets were not opened
to the agricultural goods in which poor countries have a comparative
advantage
 Trade agreements did not eliminate US/European subsidies to
agriculture that make it so hard for developing countries to compete
 subsidy: a form of financial assistance paid to a business or economic
sector
 Trade negotiations in service industries prioritized
financial services, industries in which Wall Street and
the U.S. have a comparative advantage, rather than
construction and maritime services
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Uruguay Negotiations on
Intellectual-Property Rights
 Protection of intellectual property rights
was also prioritized, including patent
protections for drug manufacturers, which
make access to life-saving drugs such as
AIDS medicines more difficult
 Encourages "biopiracy," which involves
international drug companies patenting traditional
medicines
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