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I. Summary

Joseph E. Stiglitz’ book Globalization and its Discontents works at the premise that globalization is not an inherently evil concept. However, it is the management of globalization by international institutions such as the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO), that has produced discontents particularly from developing countries.

Stiglitz acknowledges that globalization does have its benefits. He argues that international trade has helped many economies to grow far more quickly than they would have otherwise done without joining the global market. He also stated that globalization has allowed people to live longer and to have better standards of living. Another benefit brought to us by globalization, Stiglitz says, is the increasing access to knowledge. This is particularly beneficial to people from developing countries whose increasing access to information technology has allowed them to become more in tuned with the rest of the world.

Stiglitz focused his analysis on the three main institutions that govern globalization, particularly economic globalization: the IMF, the World Bank and the WTO. According to him, these institutions use the ‘Washington Consensus’ as their blueprint for making policies. The Washington Consensus cites three pillars that should be present in economies to be able to assimilate into the global market– fiscal austerity, privatization and market liberalization. The IMF, for example, provides funds only if countries engage in policies like cutting deficits, raising taxes and raising interest rates. Stiglitz noted that these three pillars produce adverse effects to developing economies if there is a lack of proper management.

Using the East Asian financial crisis of 1998 and Russia’s transition from a communist to a capitalist and globalist economy, Stiglitz described how the IMF’s policies and conditionalities have actually worsened their situation. In East Asia, for example, the rapid capital market liberalization and the influx of short-term loans have been cited as the most important causes of crisis. Russia, on the other hand, has been encouraged by the IMF to open its doors to free capital flow without even having stable financial institutions yet. For many economists, including Stiglitz, this rush to open its doors to globalization has resulted to the Russian economy’s downfall.

Despite Stiglitz criticisms against globalization and its managers, he states that we cannot ignore globalization and that it is here to stay. Although he is pessimistic that institutions such as the IMF can abruptly change its loan policies and how it manages globalization, Stiglitz cites several prescriptions in order for globalization to work, not only for the rich developed countries but more so, for the poor developing ones.

His prescriptions include interventions through tax systems like exit taxes to counter the adverse effects of short-term capital flows. Another recommendation is to allow borrowers who cannot pay creditors to file bankruptcy rather than relying on IMF-financed bailouts. This will decrease the reliance on bailouts, which Stiglitz noted, often fail to work positively for the borrower. Stiglitz also cited the need for improvements in banking regulations, risk management, safety nets and crises responses.

All throughout the book, the author argues that international economic institutions must lessen their focus on macroeconomic factors such as inflation and must shift their attention to factors such as unemployment and poverty. Economies must therefore know the expected poverty and unemployment impacts of IMF programs before adapting them.

II. Review

The author, Joseph E. Stiglitz, used his own experiences as a Chairman of the Council of Economic Advisers under former United States President Bill Clinton and chief economist at the World Bank to write this book about the shortfalls of globalization. His experiences give credibility to the author since he was once a part of the institutions he writes about.

The author can be credited for his knowledge about the real deals in the policy-making process at the IMF and World Bank. His inside stories about the cases of African developing countries like Ethiopia and Botswana and East Asian countries Thailand and South Korea were written like exposes about how the IMF pushed its agenda.

However, as Stiglitz pointed out, most of the transactions between the IMF and the countries to which it doles out money are often made in closed-door meetings and in utmost secrecy. This means that Stiglitz himself is not privy to the minutes of the meetings and how policies are agreed upon.

As a researcher, the challenge is to look for other sources that would say developing countries are actually forced to sign agreements with the IMF and agree with the conditionalities that come with the loans. Common sense would perhaps dictate that this is what is actually happening. However, as a scholar, there lies a bigger challenge to prove accusations such as blackmailing.

The author used individual cases in this book, particularly the experiences during the East Asian financial crisis and the Russian assimilation into the global market. Stiglitz used a micro perspective in his analysis of globalization and its discontents compared to other scholars who use macro perspectives in their studies.

The use of anecdotal evidences gives a fresh view of how institutions work in real settings. One particularly striking anecdote in the book was how the World Bank representatives did their reports before actually visiting a client country. According to Stiglitz, the common practice was to write a draft report wherein paragraphs are usually lifted from previous draft reports.

The book pinpoints that it is the inappropriate governance of globalization by international institutions that has hampered the developing economies from enjoying the benefits of a global market. Even staunch defenders of globalization recognize this and see that there really is a need for the IMF to modify its policies depending on the background of the client country.

Jagdish Bhagwati, a noted economist and defender of globalization who wrote the book In Defense of Globalization, noted that capital market liberalization, one of the pillars of economic globalization pushed by the IMF, is a dangerous thing. Both Stiglitz and Bhagwati agree that capital outflows triggered the East Asian financial crisis in 1998.

While Stiglitz focused on the shortfalls of international institutions, he sometimes failed to consider in the cases mentioned, the reforms needed in domestic institutions like the government, domestic laws and local banking institutions so that globalization can work better.

This gives an impression that globalization makes domestic institutions prisoners to the IMF’s whims, underestimating the role of states to protect their own economies. If as Stiglitz mentioned, countries like China and even a developing country like Malaysia are able to protect their own economies by not adhering to every IMF policy, then other economies can also have their way. But first, reforms must be made in the local institutions. One thing would be fighting off corruption so as to create a stable environment for investors. Another thing would be as the author suggested, creating exit taxes to lessen the burden of rapid capital outflows.

Another point mentioned in the book was the underlying problem of who decides what international economic institutions do. Stiglitz noted that it is often the top economists and the finance and trade managers of states who are sent as representatives at the WTO or in dealings with the IMF and World Bank. It is therefore normal for these individuals to represent the interests of investors or even creditors rather than the general welfare of their people. Stiglitz even went on to say that these representatives are conscious of their actions as finance or trade managers so as not to offend their future employers when they do decide to leave public service. In essence, the argument is correct. We see a lot of these managers going from public service to private corporations. However, we cannot fault them for doing so and we cannot blame the government for hiring the best economists or people from the private sector since more often than not, they are the ones who know best how the international economic institutions work.

A solution to this problem would be more transparency in the dealings with international institutions. One cannot condemn a trade manager just because s/he is an economist or a finance expert. The public should be able to judge whether the manager is doing his or her job of protecting the country’s economy or if s/he is more adept at protecting his or her own selfish interests. More transparency also means greater responsibility for the international institutions to come up with fair deals.

Perhaps, Stiglitz’ most important recommendation to improve globalization is the shifting of focus from macroeconomics to microeconomics. Unemployment and poverty rates often take the backseat when economic stability is at stake but as Stiglitz mentioned in this book, these factors, when taken for granted, often cause instability in the political stream and therefore in the flow of investments. He made a good point here, criticizing the IMF policies as often simplistic solutions to complicated problems.

Overall, Stiglitz strength lies on his experiences while inside the system and the good thing about his book is that focuses on his specific critiques to globalization processes as opposed to stake-wielding groups who would rather make sweeping condemnation against globalization.

III. Recommendations

The book was particularly focused on institutions linked to globalization and not on globalization per se. The discontents discussed referred more to the failures of the IMF, the World Bank and the WTO. But there are also other discontents that are not economic in nature. Globalization discontents also include cultural and social degradation. It would have been interesting also to include these topics in the book aside from the economic side of globalization and see how the author views these discontents.

Another thing that was lacking in the book is that there was not much mention on previous works or studies related to globalization, poverty or unemployment. In Bhagwati’s work, there were several references to scholarly works that helped to prove his arguments. Aside from the anecdotes from Stiglitz, it would have been also helpful to cite some previous works done by scholars.

Lastly, while it was good that Stiglitz had a keen eye in pinpointing the international institutions’ shortfalls and he provided recommendations on how to improve the management of globalization, it would also be helpful for states to know what should be reformed in the local level– what local economies are doing wrong now and how to improve the local system in order to reap the benefits of a global world.