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 / Fourth Quarter 2002 / Issue 29(originally published by Booz & Company)


Best Business Books 2002: Globalization

A recent and more provocative critique is Globalization and Its Discontents (W.W. Norton & Company, 2002), by Joseph E. Stiglitz. A Columbia University economics professor, former World Bank official, and Clinton administration advisor, Stiglitz won the 2001 Nobel Prize in economics for his research on the imperfections of markets. His prominence should ensure that the book gains an audience, and it will
probably be widely quoted by antiglobalists in developing countries.

Although Stiglitz says he believes that globalization “can be a force for good and that it has the potential [author’s emphasis] to enrich everyone in the world, particularly the poor,” he is harshly critical of globalization in practice. His years in Washington, he says, gave him a firsthand view of “the devastating effect that globalization can have on developing countries,” and left him convinced that it needs to be “radically rethought.”

Stiglitz’s main complaints are with the International Monetary Fund (IMF) and the U.S. government, particularly the Department of the Treasury, and the way these institutions have directed international economic policy over the past decade. Much of the book is devoted to this criticism. Its tone is so vituperative that a fitting subtitle for the book would have been How Washington Is Impoverishing the Third World and Why It Must Be Stopped.

Although many economists — from both ends of the political spectrum — have criticized the way the IMF and the U.S. Treasury handled the 1990s economic crises in East Asia and Russia, few in the mainstream of academia are as critical as Stiglitz. He strongly disapproves of the IMF’s and Treasury’s insistence that developing nations keep government budgets under control, reform their financial markets, and open their markets to world trade. A major problem, in his view, is that international economic institutions are dominated “not just by the wealthiest industrial countries but by the commercial and financial interests in those countries, and the policies of the institutions naturally reflect this.”

His attack relies on a straw man he calls “the Washington Consensus.” In Stiglitz’s argument, the problem is a right-wing doctrine of “market fundamentalism,” in which, by assumption, “markets work perfectly” and unemployment can be blamed only on “greedy unions and politicians interfering with the working of free markets.”

But this straw man is flawed. Although there are indeed market fundamentalists who hold such views (the same kind of people who disfavor trade unions and public libraries), few people familiar with the IMF and the Clinton Treasury would agree that these views were reflected at those institutions. The senior economist at the IMF during the Clinton years was Stanley Fischer, a highly respected former professor at the Massachusetts Institute of Technology who is coauthor of one of the standard textbooks on macroeconomics. At the Treasury, the most influential economist was Lawrence Summers, a former Harvard University professor (now the university’s president) who served in senior roles from 1993 onward and was appointed secretary of the Treasury in 1999. Summers is, in fact, a liberal Democrat, and an economist, whose views reflect the collective views of mainstream American economics, perhaps as much as any single individual’s ever have.

Without a straw man, these charges against the Washington establishment lose their force. What really appears to be going on is simple: Stiglitz disagreed fundamentally with the policies of the IMF and Treasury in the 1990s, but his was the minority view, and he lost. He pines for the Keynesian economic policies that held sway in the 1960s, the kind of programs that “emphasized market failures and the role for government in job creation.” Those policies were abandoned because policymakers concluded they had never worked well.

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