Learning Center
Plans & pricing Sign in
Sign Out

Presentation on Globalization


Presentation on Globalization document sample

More Info
Cristina Carrión
Michele Peregrin
Cynthia E. Freeman
Aaron Samulcek
Rhodes Perry
Professor Kamal

                        BY: JOSEPH E. STIGLITZ
The purpose of this paper is to summarize the book Globalization and its Discontents by Joseph
E. Stiglitz. Stiglitz, as Chairman of the Council of Economic Advisors and chief economist at the
World Bank, had a first hand look at most of the major economic events in the past decade. He
became disillusioned when he witnessed the International Monetary Fund, World Bank, and
other major institutions put the interest of financial institutions in developed countries
(particularly the US) ahead of the developing world. Stiglitz provides no simple formula on how
globalization works; however, he attempts to understand why the IMF and other institutions
have failed in their missions and elucidates a reform agenda to improve international economic
1.0 The Promise of Global Institutions
        1.1 Original Missions of the IMF and the World Bank: The World Bank and the
            IMF originated in World War II as a result of the UN Monetary and Financial
            Conference at Bretton Woods, New Hampshire (July 1944) part of an
            international effort to rebuild Europe and to prevent the world from any
            future economic crisis.
             World Bank originally entitled, The International Bank for Reconstruction and
              Development, was meant to deal with structural issues.
           IMF is a public institution funded by taxpayers around the world, and reports
              directly to central banks of the world. The IMF‟s mission was to ensure global
              economic stability, and specifically dealt with macroeconomics.
           The IMF is controlled through voting based on the economic powers (i.e. The
              US dominates)
2.0 Broken Promises
        2.1 The IMF and the World Bank failed at their original missions. In the 1980s
            there was a dramatic change in the institutions towards free market ideology
            (i.e. The Washington Consensus).
               Today, the IMF provides funding only in if countries cut deficits, raise taxes,
                raise interest rates that lead to a contraction of the economy.
               World Bank went beyond lending projects (structural Loans); did this only with
                IMF approval, and with IMF approval came with IMF „conditions.”
               IMF took an imperialistic role controlling both structural and macroeconomic
                issues; (i.e. Washington dictated).
               IMF projects are ill-suited for countries in early stages of development or
                transition. The IMF pushes for premature capital liberalization contributing to
                global instability, making matters worse especially for the poor
               IMF current system is “taxation without representation.”
               IMF staff members spend insufficient time in countries they are assessing and
                creating appropriate policies.
              IMF suspends assistance if a country does not meet the minimum standards, as
               do other donors such as the World Bank.
              IMF is not rooted in a long held concern about project sustainability
              IMF implements the „one-size- fits- all‟ approach
              IMF regularly hires economists trained in a standard competitive model (i.e. US
              IMF wants a central role in shaping policy, no other voices even if it might be
               more beneficial to have alternative approaches from economists from countries
               asking for assistance. “Monopoly supplier of sound advice.”
              IMF done a good job in convincing that market fundamentalism would help
               developing countries in the long run
              IMF believed interest rates should be freely determined by international market
               forces, “liberalized market force was an end in itself.”
              IMF lending program driven by politics
              IMF lack of greater participation of poorer countries
              Lack of communication between the World Bank and the IMF. IMF kept much
               of the negotiations and agreements a secret form World Bank members even in
               joint projects
              IMF lack of transparency
              IMF rigid timetables imposed on „client‟ countries to force pace of change
       2.2 Step in the right direction
             As a result to the lack of a greater voice from the developing countries, the IMF
              and the World Bank have agreed to conduct “participatory” poverty
              assessments. Though they have not been effectively implemented, it is a step in
              the right direction.
           International institutions need to be graded on their performance, and be held
              accountable for their wrong actions.
3.0 Freedom to Choose?
       3.1 Facing very real problems in Latin American economies in the 1980s and
           1990s, the IMF insisted that - in the name of fiscal discipline - countries
           seeking its loans adopt the “Washington Consensus” doctrine of fiscal
           austerity, privatization, and market liberalization (essentially, free market
           fundamentalism). The rapidity and single-mindedness with which these
           policies were pushed has had disastrous consequences for the poor in Latin
           America, Africa, and parts of Asia that implemented them:
             Trade liberalization was accompanied by high interest rates and destroyed jobs
              and increased unemployment.
           Financial market liberalization was unaccompanied by appropriate regulatory
              structures and caused higher interest rates, making it harder for poor farmers to
              buy the seeds and fertilizer needed for subsistence.
           Privatization was unaccompanied by competition policies and oversight to
              ensure that monopoly powers were not abused, leading to higher, rather than
              lower, prices for customers.
           Fiscal austerity was pursued blindly, leading to high unemployment and the
              shredding of the social contract.
4.0 The East Asia Crisis: How IMF Policies Brought the World to the Verge of a Global
       4.1 East Asia experienced rapid growth from the late 60s until the late 90s. This
           success was due to:
              Government policies requiring E.A. to save and invest heavily.
              Gradual trade liberalization.
     4.2 Rise of Economic Downturn: IMF Policies exacerbated the economic
         downturns of East Asian Countries.
          Push for excessively rapid financial and capital market liberalization.
          IMF/US charges of weak banks deteriorated international investor confidence in
             East Asia, inducing capital investment outflows from the region.
          IMF pushed policies with little evidence that policies promoted
             growth/restoration, imposing huge risks on developing countries in the East
             Asian Region.
          IMF (w/out evidence) claimed capital market controls impeded economic
             efficiency and, as a result, would grow better without such controls.
          IMF pushed for contractionary monetary policy. It recommended that E.A.
             increase the interest rates. The application of this policy combined with East
             Asia‟s high debts created a recipe for disaster.
          Beggar-Thyself Policies imposed by IMF – cut down on exports and buy only
             domestic goods by imposing tariffs and devaluing currency. Cutting down on
             other E.A. countries‟ exports merely spread E.A. recession and deepened it.
          IMF tried to restructure East Asia by closing banks that administered bad loans
             and shut down firms in high debt.
          IMF continued to provide billions and billions in corporate welfare while
             eliminating food subsides for the growing poor in E.A. This policy resulted in
             increased riots and destroyed the gains of creating unified multiethnic societies
             in E.A. countries.
     4.3 Recovery
          The East Asian Crisis was more severe than it should have been, recovery took
             longer than it needed to, and prospects for future growth are not what they
             should be.
          IMF mistakes most likely will be long lasting, and such mistakes have
             permanently depleted high output levels of E.A. countries.
     4.4 Explaining Mistakes
          IMF has not admitted to the mistakes in its monetary policy, nor has it created
             an alternative intellectual framework to prevent similar mistakes.
          IMF reflected the interested and ideology of the Western financial community.
     4.5 An Alternative Strategy
          Maintain expansionary monetary and fiscal policy.
     4.6 Strong Government Intervention
          Conclusion: “The IMF policies in East Asia had exactly the consequences that
             have brought globalization under attack…The East Asia crisis made vivid to
             those in the more developed world some of the dissatisfaction that those in the
             developing world had long felt” (Stiglitz, 132).
5.0 Who Lost Russia?
     5.1 The transition from communism to capitalism is not simply economic; it also
         requires a profound social and political transformation. Ignoring these
         needs, the IMF set in motion                 “shock therapy” liberalization and
         privatization in Russia before crucial institutions such as independent legal
         and regulatory bodies, bank regulation, a private property system, a tax
         collection and enforcement system, and unemployment insurance had been
         put in place. As a result:
          Instant price liberalization of most goods led to high inflation that wiped out
             savings overnight.
          Privatization accompanied by the opening of capital markets led to asset
             stripping: oligarchs who used political influence to garner billions in assets
             poured their money into the U.S. stock market and offshore bank accounts.
              As recession deepened, the IMF feared devaluing the ruble and supported an
               overvalued currency with billions in loans that eventually crushed Russia‟s
               economy and led to its 1998 default, precipitating a global financial crisis.
            Russia‟s GDP in 2000 was more than 30% lower than its GDP in 1989. There
               has been a huge increase in poverty and inequality, and the future also looks
               bleak. “The middle class has been devastated, a system of crony and mafia
               capitalism has been created, and the one achievement, the creation of a
               democracy with meaningful freedoms, including a free press, appears fragile at
6.0 Unfair Fair Trade Laws and Other Mischief
       6.1 The IMF and U.S. Treasury - political institutions
              IMF policies were inextricably linked to the political judgments of the Clinton
               administration‟s Treasury. The Treasury claimed Russian economic policy and
               refused to have open dialogue within government or outside.
       6.2 Problems of the IMF and U.S. Treasury’s Russian reform strategy
              Their policies at best led to stabilization of the Russian economy, but did not
               lead to growth. Russia tried to open the economic policies up to a democratic
               debate, but the IMF and U.S. Treasury wanted to suppress the discussion.
       6.3 What the IMF and U.S. Treasury should have done
              The U.S. should have avoided a few of Russia‟s corrupt leaders, supported the
               younger fair-minded democratic leaders, and backed a broad-based democratic
       6.4 U.S. interests and Russian Reform
              U.S. labor and business interests use the “fair trade laws” (“unfair fair trade
               laws”) to create barriers to imports. U.S. supports fair trade, but often when a
               poor country has a commodity to export, the U.S. domestic protectionist
               interests are galvanized.
       6.5 U.S. special interests interfering in trade
             The Aluminum Case (1994) - price of aluminum plummeted and U.S. aluminum
              producers accused Russia of dumping. The U.S. created a global aluminum
            The privatization of the United States Enrichment Corporation (USEC).
7.0 Better Roads to the Market
       7.1 Poland’s gradualist policy of privatization
              Poland rejected IMF‟s policy of rapid privatization, but instead focused on job
               creation, unemployment benefits, and institutional infrastructure via democratic
       7.2 China’s partial privatization policy (individual responsibility system)
              China deemed it more important both politically and economically to maintain
               social stability during its economic transformation. They focused on the
               creation of jobs and new enterprises before privatization and enterprise
       7.3 Gradualist policies - deeper reforms more rapidly
              China‟s stock market is larger than Russia‟s. China managed the transition of
               the “individual responsibility system” in less than five years, while Russia still
               manages its agriculture system in about the same way.
       7.4 Criticisms of the IMF and U.S. Treasury - vision was to narrow.
              They only focused on economics and implemented just one global model across
               diverse countries. Both lacked policies for attacking poverty and enhancing
        7.5 Recommendations for Russia’s successful “road to the future.”
               Russia must create an investment friendly environment, curtail government
                abuses, and implement a federalist structure that provides compatible incentives.
                Specifically, they need to collect taxes, build up democratic think tanks, and
                support independent media.
        7.6 Democratic accountability and the failures.
               Russia and U.S. must hold its leaders liable for Russia‟s recent history and its
8.0 The IMF’s Other Agenda- The IMF has failed in its original mission as a consequence of
    how it has understood that mission. According to Stiglitz, the IMF seems to believe that
    “what the financial community views as good for the global economy is good for the global
    economy and should be done.” (p. 195)
             The original conception of the IMF and its role incorporated an understanding
                of potential market failure. Today, however, the IMF is dominated by market
             The IMF massively intervenes in the exchange rate market. It has not presented
                a clear explanation for why this market requires intervention over others.
             The Fund argues that it must intervene quickly if it determines that an ongoing
                crisis in one country will spill over to others. However, the lack of a clear theory
                of contagion has resulted in the IMF spreading “the disease” rather than
                containing it.
             Trade deficit is not solely a problem concerning developing countries. Since the
                sum of all deficits in the world must add up to the sum of all surpluses, the
                surplus countries are equally at fault.
             IMF programs provide funds for governments to bailout Western creditors.
                Consequently, creditors have less incentive to ensure that borrowers will be able
                to repay. They neglect to buy insurance, knowing that the IMF will intervene to
                support exchange rates until they are repaid.
             The IMF was insisting that before it lent money to a country in a bailout, the
                private sector would have to “participate” by forgiving debt that was owed. This
                gave creditors enormous leverage: a country would not be able to get funds from
                any source if the private banks did not lend money or agree to a settlement.
        8.1 The IMF’s New Agenda?
             The IMF is not just pursuing its original objectives, but the interests of the
                financial community. Consequently, objectives often conflict and there is a lack
                of coherency in its policies. The IMF argues that problems are not with the
                reforms, but with the weaknesses of the crisis countries. This not only shifts
                blame but pushes the agenda further.
9.0 The Way Ahead- International economic institutions have served the interests of the more
    advanced industrialized countries rather than those of the developing world. The rhetoric
    has changed, but real commitment to reform has not been demonstrated.
        9.1 Interests and Ideology
             Government needs to play a role is mitigating market failures and ensuring social
                justice. Stiglitz advocates a “balanced view of the role of government, one which
                recognizes both the limitations and failure of markets and government, but
                which sees the two as working together, in partnership, with the precise nature
                of the partnership differing among countries, depending on their states of both
                political and economic development” (p. 220).
        9.2 The Need for International Public Institutions
             Systems of global governance are essential in order to deal with issues regarding
                the environments, health, education, humanitarian assistance, etc.
        9.3 Governance
             Stiglitz argues that “the most fundamental change that is required to make
               globalization work in the way that it should is a change in governance.” (p. 226).
               Changes in voting rights and greater participation from developing countries are
        9.4 Transparency
             There needs to be greater openness and transparency. Institutions like the IMF
               and WTO are public, but there is no direct accountability to the public. Secrecy
               undermines the political sustainability of policies and democracy.
        9.5 Reforming the IMF and the Global Financial System
             The IMF should now longer be involved in development of the economies of
               transition, except with regards to managing crisis. What is needed: An
               acceptance of the dangers of capital market liberalization, bankruptcy reforms
               and standstills, less reliance on bailouts, improved banking regulation, improved
               risk management, improved safety nets, improved response to crises, and most
               importantly, a return to basic economic principles.
        9.6 Reforming the World Bank and Development Assistance
                Assistance: Conditionality should be replaced by selectivity (giving aid to
                    countries with a successful track record and allowing them to choose for
                    themselves their own development strategies). Debt forgiveness is needed.
        9.7 Reforming the WTO and Balancing the Trade Agenda
                It needs a more balanced trade agenda; one that considers the interests of
                    the developing countries and concerns beyond trade. Developed countries
                    should open to fair trade and equitable relationships with developing
                    countries. Doing so would benefit both the developing and developed
        9.8 Towards Globalization With a More Human Face
                    The aforementioned reforms would help make globalization fairer and more
                     effective in raising living standards.
                    A more gradual process of globalization would help traditional institutions
                     and norms adapt and respond to new challenges, rather than feel attacked.
                    More still needs to be done, however, to match rhetoric with reality.
                    The free market ideology needs to be replaced with analyses based on
                     economic science, with a more balance view off the role of government.
                    There needs to be more sensitivity towards the role of outside advisors.
                    There must be a “multipronged” strategy of reform. One should look at the
                     reform of international economic arrangements while the other should
                     encourage reforms that each country can take upon themselves.
                     Most important, developing countries need effective governments. What
                     they should ask of the international community is acceptance of their need,
                     and right, to make their own choices.
                    What is needed are policies for sustainable, equitable, and democratic
                     growth. The debate over development must be democratic and incorporate
                     several voices.
         Stiglitz effectively argues that significant reform of the major institutions of globalization
is required. Unfortunately, all of his principle arguments still apply. Developed countries,
especially the U.S., continue to spew rhetoric that seems hypocritical to actions taken. With the
several recent corporate scandals, however, it is becoming increasingly evident- both to the
domestic and international populations- that a liberal capital market system is not always the best
model. This should be taken as yet another lesson that demonstrates the need to consider
multiple development models and how they could be tailored to the unique circumstances of
each individual country.

        Stiglitz demonstrates that international economic institutions, such as the IMF, are no
longer fulfilling their original missions. Instead, they continue to pursue the agenda of the
finance community in developed countries. This strategy is increasingly detrimental to
developing countries and the impoverished within them. It is in the interest of both the
developed and developing countries to reverse the negative trends of globalization by
encouraging democratic decision-making and reform within international economic institutions.
Only then will the world witness improved living standards and global stability.

To top