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A Summary of Globalization and its Discontents: Chapter 9

Erik Moller

Chapter 9 of Joseph Stiglitz's Globalization and its Discontents, "The Way Ahead", is based on a conviction that globalization is a tool - something to be managed for the greater global public good. As it stands, this tool is being used incorrectly, resulting in the degradation of the environment, the neglect (and exploitation) of the poor, and the instability of the global economy. Stiglitz is convinced that the solution lies in reforming the three main international organizations--IMF, WTO, World Bank--"wielding" the tool of globalization.

Five general problems plague the IO's, which can be solved, claims Stiglitz, by applying (interchangeably) several different reform solutions. He then goes on to profile the specific faults and possible changes for each individual institution.

The Problems

1. The IO's are narrowly focused:

They put financial markets or commercial interests above all, which are then seen by the IO's as the "general interest."
Economic models are used to explain and predict in cases where they have no relevance.
IO's are very resistant to modern economic science; their ideology is "resistant to argument and evidence."

2. The IO's reflect the mindset of those to whom they are accountable:

Only trade ministers, finance ministers, or corporate interests hold the positions of power in these institutions; thus, they "set the rules of the game."(224)

3. Market Failures confound the IO's:

Market failures are information failures (areas like research where there is a lack, or pollution where there is a surplus)
Markets simply do not exist for many public goods like defense or student loans.
The government can intervene to correct the failures by redistributing capital and resources, but the IO's see government as an even bigger problem than the failures themselves.

4. Market Fundamentalism is pressed in all cases:

This fails, because different countries have different solutions!
The policy is showcased as "received doctrine", even though there is actually much disagreement.
Narrow view prevents IO's from learning from mistakes in fear of losing credibility.

5. Secrecy:

Secrecy is the norm for IO's, hiding mistakes, resulting in a consequence free atmosphere.
Money laundering, tax evasion, mafia activities, terrorist activities can take place.
Secrecy fuels suspicion, instability, and protest, also corrupting the "flow" of information, which is vital to both markets and democracy.

The Solutions

1. The Gov't and the Market must strike a balance for social cohesion:

Each must recognize their strengths and weaknesses, then form a partnership the balance of which varies according to the level of development.
Gov't must be allowed to intervene where markets are distorted or absent. For example, the East Asian Crisis required stricter regulation of the finance market while the Mafia capitalism of Russia lacked general law and order.

2. Global Collective Action for Global Collective Goods:

Responses to crises must be taken at the appropriate level (following the principle of subsidiarity).
Where the IO's and other, smaller institutions cannot cope, public collective input is required.

3. Changes in Voting Rights and Governance at the IO's:

Developing countries need to be at least more represented, at best given votes.
Inclusion of more interests means more "questioning" science replacing "narrow" ideology.
Until formal governance can change, small changes in practices and procedures are important.

4. Increase Openness and Transparancy

When the process is public, debate and critique results in saner policies.

Key Reforms for the IMF

Stiglitz argues that the IMF has distanced itself from its original mandate to promote global economic stability, leading to inconsistencies and asymetery of information. He recommends that the IMF stay away from development and the economics of transition and concentrate instead on ensuring sufficient global aggregate demand. This way, it would be easier to test just how useful it really is and make it accountable. The monitoring and reviews of countries should be an independent or regional responsibility. Change comes slowly, first with the language which now includes words like "participation" and "poverty reduction," even if there is "more change in what is said than in what is done" (234).

Specific actions for the IMF include:

accepting the "dangers of capital market liberalization"
replacing bailouts with bankruptcies and standstills
improved banking industry regulation
risk management
safety nets
and crisis response.(236-240)

Changes in the World Bank

The Bank has tried to improve in three areas: development, aid, and relationships with countries. It has become apparent that for countries to host successful development, education, technology, equality, domestic savings and investment, and budget restraint must be seriously considered by the Bank. Also, conditional assistance ought to be replaced by selective assistance. Finally, more aid and debt forgiveness need to accompany investment.

The WTO

Three main problems stifle a more "balanced trade agenda":

The North must open their markets and remove restrictions to Southern goods.
Intellectual property rights are weighted too heavily toward the producers. They need to recognize the rights of the users and traditional owners.
The pace of economic growth causes problems which traditional systems have difficulty coping with. (Countries need tools to help.)

Stiglitz reckons that "we cannot go back on globalization... The issue is how to make it work" (222). With the above reforms, perhaps development can be more fair and sustainable.

Some Thoughts on Chapter 9

For those who are not on the inside but still eager to correct the wrongs of globalization, the focus and approach of Stiglitz offers very little in the way of action. Reforming global financial and trade institutions is something ordinary people can ask for, demand, logically argue for and so on, but changing the governance and opening the doors to transparancy is something that can only be actually done by those on the inside. There seems to be a large gap between what needs to be done and the method to accomplish this change.

However, that being said, as noted by Noam Chomsky and Jack Layton (recorded in Vancouver at the March 20, 2004 peace rally) it is through the vigilance and pressure of civil society that socially-conscious lawyers, politicians, and officials can work for change on the inside. By creating a general mood in the public sphere and putting ideas like accountability and fairness and the environment into "good currency," then those on the inside have a favourable climate in which to work for the suggested reforms.

Since his departure from the World Bank in 2001, and the subsequent release of the book under study, Joseph Stiglitz has gone on to act on what he believes is necessary to reform the institutions of globalization. Or, at the least, provide an alternative to them. The ambitious Initiative for Policy Dialogue attempts to implement some of the reforms mentioned above. By providing a venue for broad groups of interested parties to dialogue about their region, more representation and openness has resulted. The IPD also conducts training in economic jargon and concepts so that media and civil society can participate. Interestingly, CIDA is one of the major funders of the IPD.

Stiglitz has also come out with another book, The Roaring Nineties, which details the economic situation in the United States in the 1990's. This book serves to provide more evidence that government intervention is necessary to correct failures in the market.

To read the above analysis and update, it would seem that Stiglitz has been his own best audience and has most enthusiastically embraced his own suggestions. According to Eyal Press, he is among a small but growing group of economists who are slowly changing the classical neo-liberal economic party line which has directed globalization thus far (www.thenation.com/doc.mhtml?I=20020610&s=press). Perhaps Stiglitz's greatest contribution will be to have lifted the fog from around the architects of globalization, enabling a critical and upset public to demand the reforms he recommends.

Works Cited

Chomsky, Noam. Public Speech: Vancouver. March 20, 2004.

Layton, Jack. Public Speech: Vancouver. March 20, 2004.

Press, Eyal. "Rebel With a Cause." The Nation June 10, 2002. (2). www.thenation.com/doc.mhtml?I=20020610&s=press accessed November 7, 2002.

Stiglitz, Joseph. Globalization and it's Discontents New York: WW Norton, 2003.

---. "The Roaring Nineties." The Atlantic 290.3 (October 2002): 75-89.

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