3.17 – Globalism`s Discontents

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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)
1
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
2
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
3
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
4
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
5
(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
6
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
7
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
8
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
9
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
10
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
12
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
13
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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