Book review: Globalization and Its Discontents

Joseph Stiglitz won the Nobel Prize in 2001, for his work on information asymmetry and screening. However, before winning that prize he was on Bill Clinton's Council of Economic Advisors from 1993 to 1997, the last two years as Chairman. After that, he went to the World Bank to be their senior vice president for development policy. That was just before the Asian Financial Crisis hit. Stiglitz remained at the World Bank until 2000, when he was ousted by US Treasury Secretary Lawrence Summers. Then, he wrote a book about his experiences at the World Bank, Globalization and Its Discontents.

Despite the title, the book isn't a take-down of globalisation in its entirety. As Stiglitz explains:

Globalization itself is neither good nor bad. It has the power to do enormous good, and for the countries of East Asia, who have embraced globalization under their own terms, at their own pace, it has been an enormous benefit, in spite of the setback of the 1997 crisis. But in much of the world it has not brought comparable benefits.

However, Stiglitz is clear about who has benefited the most from globalization, noting that:

...the West has driven the globalization agenda, ensuring that it garners a disproportionate share of the benefits, at the expense of the developing world.

So while globalisation overall doesn't get a roasting from Stiglitz, the same cannot be said of western countries in general, and the International Monetary Fund (IMF) and the US Treasury in particular (so it's no wonder that Summers was displeased). The IMF has rightly come in for a lot of criticism from many quarters over the years for its handling of financial crises, developing country debt, and its single-minded market fundamentalism. Stiglitz doubles down on all of that, and more. For example, here are some key quotes:

But the IMF did not want to take on the mere role of an adviser, competing with others who might be offering their ideas. It wanted a more central role in shaping policy. And it could do this because its position was based on an ideology - market fundamentalism - that required little, if any, consideration of a country's particular circumstances and immediate problems...

The Fund's economists have never laid claim to being great theorists; its claim to expertise lay in its global experience and its mastery of the data. Yet strikingly, not even the data supported the Fund's conclusions...

...the perception throughout the developing world, one I share, is that the IMF itself had become a part of the countries' problem rather than part of the solution...

...intellectual consistency has never been the hallmark of the IMF...

Ouch! Stiglitz draws on examples from several financial crises including the Asian Financial Crisis, Russia, and debt crises in sub-Saharan Africa. The book was an interesting read about a period of global financial turmoil that has since been significantly overshadowed by the Global Financial Crisis of 2008. You would hope that the IMF has reformed its ways in the twenty years since the events in the book. However, they are still being criticised for similar problems.

While Stiglitz clearly has no time for ideology (as I've said before, ideology is the result of lots of people suffering from loss aversion and the endowment effect), he does identify a more important driver of the IMF's focus on markets: the revolving door between the IMF and international banks and other financial institutions. In particular, Stiglitz notes that it is in IMF officials' best interests to ensure policy and bailouts benefit western financial institutions:

Simplistic free market ideology provided the curtain behind which the real business of the "new" mandate could be transacted. The change in mandate and objectives, while it may have been quiet, was hardly subtle: from serving global economic interests to serving the interests of global finance.

By cosying up to global finance, IMF officials could ensure themselves a future high-paying job in the institutions that benefited most from IMF bailouts and the conditionality placed on countries receiving IMF loans. This is a problem that most countries face with politicians as well, unless there are rules to prevent this 'revolving door'.

One other interesting thing struck me in the book, which was the lack of transparency of negotiations between the IMF and countries seeking assistance. This struck me as eerily similar to the negotiation of free trade deals, where the electorate (and even elected representatives) are presented with a finalised deal as a fait accompli, with limited or no opportunity for genuine debate or deliberation. On negotiations with Russia, Stiglitz writes:

These are complicated matters, and in democracies, they need to be debated and discussed. Russia was trying to do that, trying to open up the discussion to different voices. It was Washington - or more accurately, the IMF and the U.S. Treasury - that were afraid of democracy, that wanted to suppress debate. I could not but note, and feel sad about, the irony.

Things have gotten pretty bad when someone makes a comparison in terms of transparency, between your organisation and a country like Russia, and Russia comes off looking better.

This book has aged well, and unfortunately too many of the critiques remain valid. It also provides some great insight into the problems that developing countries face at a macroeconomic level, when dealing with donor nations that have all of the funds and all of the power. That in itself still makes it a relevant read nearly twenty years after it was first published (and interesting, I see that there is a new revised and expanded edition available that revisits the issues, published in 2017).