Book Review-4
Globalization
and Its Discontents
Joseph E.
Stiglitz
W.W. Norton, New York, 2002
The book Globalization and Its Discontents by Joseph E. Stiglitz,
was published in 2002. He is a Nobel laureate, a Columbia University
economics professor and a ‘Washington insider’. He is the founder of a
reputed economics journal, The Journal of Economic Perspectives.
What the writer has felt in different capacities affected his views,
specially about globalization and development and its effects on the
developing countries.
The book under review studies how to limit the negative fallout of the
capitalist system in order to reap the benefits of globalization. In this
regard, the writer has given many recommendations. He has raised many
important questions e.g., how can globalization be managed differently?
Why have some financial institutions failed? What are the inherent causes
of their failure and how they can be reformed? Answers to such questions
could be helpful for success and useful solution to the problems facing
the developing world—trapped in the economic mire.
However the writer feels that one positive aspect is that,
there is awareness at the political and economic front that something
drastically needs to be done about the problems. Two positive moves in
this regard are the treaty on landmines and the Doha Round of talks on WTO.
The writer perceives that globalization is a force generally for good, but
has to be managed differently. Today, financial institutions like IMF have
been accused of promoting vested interests, focusing on short term goals
rather than long term stability, where the strategy of economic bailouts
has already failed. The writer feels that low wages is not a solution to
unemployment, where high interest rates bankrupt the firms. Today, we feel
that humanity is at a crossroads. Reformation and reshaping of financial
institutions is necessary to make globalization successful in order to
realize its potential. The financial institutions should be reshaped in a
way that may help to ensure that this goal is accomplished. One step in
this regard is to publish the effects of IMF policies on different
countries on varied sectors. There is a need for transparency and
accountability. Besides, there should be an open discussion of alternative
policies; moreover, whereas free access to information and free press can
also ensure a better check. There should be greater participation by the
developing countries in trade talks, whereas policies adopted should also
reflect their participation at WTO. At the World Bank, there should be
greater awareness to target the scourge of poverty.
According to the writer, the phenomenon of globalization cannot be
reversed; what is instead needed is to manage globalization with a more
humane face. As an economist, he comes to the conclusion that the
realistic policies should tackle the problem.
The author believes that so far, globalization has not been managed
properly. It is basically due to excessive capital market liberalization
without any regulatory framework, as illustrated in the case of South East
Asian crisis. An economic boom that collapsed, took the world by shock and
surprise. In Russia, instead of gradual transition, it was the rapid
capitalization from communist to capitalist free market economy that
failed. To the writer, Washington’s policy of stressing on free markets is
a blend of ideology and bad science.
The author has provided many suggestions to correct these inherent
weaknesses. Some of these include improved bankruptcy reforms, greater
reliance on bankruptcies and stand stills, less reliance on bail outs,
improved banking regulations, risk management, safety nets and improved
response to crises. Countries around the world still face exchange rate
risks, which can be remedied to some extent by buying insurance against
these fluctuations in the international capital markets. Safety nets can
be improved by providing employment in such sectors as small scale
businesses and agriculture sectors.
The writer has provided a fair analysis of the situation, specially in the
case of South East Asia. Today, it is acknowledged that excessive
financial liberalization without any regulatory framework runs inherent
risks, specially when the developing countries don’t have strong financial
institutions to absorb the shock e.g., a mature stock market etc. It is
also conceded that capital is pro-cyclical in nature. It flows out of a
country in crisis and flows in when there is an economic boom. A prudent
government can only manage the fallouts when there are riots in a country,
where the situation further deteriorates. There is very less incentive for
investors to invest in a country when there are recessions and long
periods of depression and slumps. Such crises can also spread to other
countries as they did in South East Asia. However in such crises,
sometimes the developed countries benefit in several ways. For instance,
it has also been realized that the real estate business is very risky.
Thailand is an example of this phenomenon, where office buildings and huge
plazas are unoccupied. This is based an the assumption that market is a
monolithic force that works on perfect information and can determine its
way without government intervention detrimental to market and business.
The real estate business is usually a bubble that bursts, when the
capacity limit is exceeded. Hence, it is advisable to spend more in the
manufacturing sector that generates wealth and creates jobs.
The book brings out that there are many countries in the world where per
capita income is comparable to that of the US but there is greater
equitable distribution of wealth, lesser poverty and greater democratic
dispensation than the United States like Norway and Sweden. The
development only benefits a handful of elite, corporate magnates and
industrialists, but is not geared to ensure fair and equitable
distribution of wealth. This would mean education and health facilities
for all, with the goal of ‘sustainable development’ as top of the agenda.
Stiglitz takes a bold step in discussions on IMF and other international
institutions; however, this is not to undermine these institutions or
attribute conspiracy theories but to point out their inherent weaknesses.
He is quite aware that there is a growing realization to rectify the spill
over effects and the negative fallouts of globalization. If, as a result
of this debate, some favourable solution is reached, it would result in
the overall betterment of humanity.
The author has given a reference of Keynes, a well known British
economist, who believed that negative repercussions of capitalism,
entailing depressions and recessions, could be tackled only if the
government could take care of issues like unemployment etc. U.S followed
this strategy and attained high growth rates. The writer holds the view
that today globalization is again at crossroads as it was during the Great
Depression in the 1930’s. Hence a bailout strategy for capitalism to
succeed is required.
The writer echoes the sentiments of many in developing countries who
demand abolition of institutions like the IMF. There is a feeling that if
economic recession occurs in developed countries, aid is provided by
‘design’ only.
However, he believes that such institutions must be reformed. There should
be more transparency and accountability. IMF does not protect vested
interests as it is accused of. There is a state of euphoria about foreign
direct investment but its inherent risks have not been fully realized. A
scientific analysis should be made of the economic policies of the past
decades by studying instances where the market failed and where the
government interventions worsened the situation. Throughout the world,
governments are responsible for health and education. Markets, by
themselves cannot solve every social problem of inequality, unemployment,
pollution etc. The writer has tried to bring a balanced perspective to the
World Bank to resolve difficult problems facing the developing world.
There is always asymmetry of information, demand and supply in the market
together with inherent slumps and depressions associated with capitalism.
The author advocates a gradual transformation of traditional economies to
free market economy to adapt to new challenges.
The author feels that the developing countries must take charge of their
destiny. They have to sort out their problems, chart out a middle path,
make their own choices, design a model according to their needs, and
pursue the goal of sustainable development.
By adopting a bold stance the author has articulated his arguments well.
He deserves appreciation for studying the situation analytically and
logically without getting into conspiracy theories. There is a lot one can
learn from this account. It is an interesting and thoughtful study for
scholars and practitioners interested in globalization, IMF and other
related issues, as well as for general students of political economy.
Nuzhat Khanum
Assistant
Research Officer, IPRI
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