Stiglitz, Joseph E. Globalization and Its Discontents. New York: W. W. Norton, 2002.
Stiglitz’s main point, which can be deciphered from the title of his book, is that the liberalization sponsored and arguably forced onto developing countries by the IMF has “not been followed by the promised growth, but by increased misery” (17). Stiglitz attacks the IMF for its policies of the 1997 Asian Financial Crisis and the decline of the Russian ruble in its transition to a market economy.
There are many reasons why the IMF screwed up so many economies in the world, the first being an unrealistic emphasis on the ideology of free trade and privatization, including the overwhelming fear of inflation as an ends to itself, rather than a means to an end: “Korea had not had a problem with inflation” yet the IMF’s sponsorship of higher interest rates to decrease inflation exacerbated the Korean won for the next five years.
To Stiglitz, the IMF ignores the recommendations of the individual countries it seeks to “assist”, acting out of the interest of the Western central banks and creditors: “The Western countries pushed trade liberalization for the products they exported, but at the same time continued to protect those sectors in which competition from developing countries might have threatened their economies” (60). Needless to say, the IMF has special interests in the Western economies that are detrimental to the growth of developing nations.
The most infamous blunder of the IMF is its “failure to be sensitive to the broader social context” and to recommend rapid liberalization despite the significant impacts such change would have on the people and market-policies already in place. The policies of the IMF are in fact only “logical if the central objective of a country’s macroeconomic policy were to repay foreign creditors” (107). To say that the powers behind the IMF are these very creditors may be too obvious. The IMF, despite its true intentions, has performed always as if it was in the hands of foreign creditors and the central banks: in focusing on protecting investors, it had forgotten about those in the countries it was supposed to be helping” (109). The alternative, naturally, is to promote bankruptcy and to cancel debts. Furthermore, “while the IMF was a strong advocate of competition in markets, it did not want competition in its own domain, and the Asian Monetary Fund would provide that” (112). The Asian Monetary Fund was the Asian version of the IMF, one that would have acted in their own interests rather than in the interest of Western creditors. Yet even this attempt at competition was shot down by Western powers because it did not form the same ideological formation.
There is further evidence of this bias in the IMF towards the richest countries in the world, like the driving of interest rates up to near twenty-five percent, making foreign imports so cheap that multinational companies had a rare opportunity to implant all of their products into a developing world, while the local products and exports were completely overvalued.
Further evidence for the bias is in the location, owners and workers in the IMF—Washington, naturally, who follow the “Washington Consensus”, the basic guidelines for rapid liberalization of a country’s assets and economy. Though the IMF is a public institution promoting democracy in other regions, as a world power it is itself anti-democratic, and when other agencies such as the Asian Monetary Fund or ASEAN come to claim representation and protection, the ideal of democracy is immediately squelched in favor of a system that attends to Western creditors.
But it gets worse. Stiglitz exposes numerous examples of skeletons in the IMF’s closet—the biggest perhaps being the sponsorship and funding of cartels in Russia and East Asia, where “The State department prized order above all else, and cartels do provide order” (175). While cartels are convenient for Western powers because they make the buying of a commodity extremely cheap and controlled, for Russia, the aluminum cartel sponsored by the IMF made prices soar in its home country, depriving the resource from its own nation.
The IMF, to put it bluntly, is not pursuing the mandates of its father, John Maynard Keynes, but is rather “pursuing the interests of the financial community”, an objective that will always come into conflict with its original mandates to bring global stability. How does the IMF “veil” this mandate so well? “Simplistic, free market ideology provided the curtain behind which the real business of the “new” mandate could be transacted” (207). The IMF focuses far more on getting foreign (Western) creditors repaid than helping domestic businesses remain open” (208). Yet it is the ideology of the free market, of trickle-down theory, of supply-side economics, that attempts to represent the benefits to the creditors and to the domestic businesses as the same thing entirely. Of course, this ideology carries no weight whatsoever in economic or political theory, and has yet to be proven in any significant, real-world example. Certainly, the increased misery produced by the IMF during the Asian and Russian crises are more than enough evidence to the contrary.
Stiglitz gives the IMF the benefit of the doubt, and insists that many factors led to the IMF’s new mandates—foremost being the “triumph of capitalism” and free trade with the fall of the Soviet State in 1989. The ideology of free trade had to be put to its logical extreme, and any “problems” with its performance was not a problem of capitalism, but one of Asian countries and their bad policies.
“The workers who are thrown out of jobs as a result of the IMF programs have no seat at the table; while the bankers, who insist on getting repaid, are well represented through the finance ministers and central bank governors” (225). Stiglitz has many remedies for this, first a total halt to ideological policies, and second to reinstitute bankruptcy as an acceptable alternative. The IMF needs to be reformed into an institution that acknowledges microeconomics as well as macroeconomics, one that foresees trouble in insisting on rapid privatization. Stiglitz says many times in this book that Globalization is a phenomenon that cannot be evaded, and that it has brought the standard of living to degrees never before imagined in places like China, India, Japan and Korea. Yet the arrogance of these successes have led the way for disasters in global trade, and must be reformed.