Globalization and Its Discontents Revisited, published November 2017

Friday, December 29, 2017

In this crucial expansion and update of his landmark bestseller, renowned economist and Nobel Prize winner Joseph E. Stiglitz addresses globalization’s new discontents in the United States and Europe. Immediately upon publication, Globalization and Its Discontents became a touchstone in the globalization debate by demonstrating how the International Monetary Fund, other major institutions like the World Bank, and global trade agreements have often harmed the developing nations they are supposedly helping. Yet globalization today continues to be mismanaged, and now the harms -exemplified by the rampant inequality to which it has contributed - have come home to roost in the United States and the rest of the developed world as well, reflected in growing political unrest. With a new introduction, major new chapters on the new discontents, the rise of Donald Trump, and the new protectionist movement, as well as a new afterword on the course of globalization since the book first appeared, Stiglitz’s powerful and prescient messages remain essential reading.

The rise and fall of Joseph Stiglitz is one of the telling parables of our age. One of the world’s great economists - he won the Nobel Prize in 2001 for his elegant demonstrations that markets necessarily work imperfectly, on any reasonable assumption that market participants are not all knowledgeable - he is also not afraid to get his hands dirty in the world of policy-making.

President Clinton made him chair of his Council of Economic Advisers, but not before he had given some wise advice to the Chinese about how to go about liberalising their economy. China, unlike Russia which took a more overtly free-market path, has been chalking up double-digit growth rates ever since.

The development of the world’s poorest countries was always closest to Stiglitz’s heart, so when James Wolfensohn, the president of the World Bank, offered him the job as its chief economist in 1997 - as part of an attempt to carve out a different approach to third-world development - he jumped at the chance.

Wolfensohn wanted to create a more rounded approach - stressing the role of education (particularly of women), disease prevention and good governance in the development process - rather than the so-called Washington consensus of simply privatising, deregulating and instantaneously opening up fragile economies to free trade and free finance. Stiglitz seemed to be the man with the intellectual authority and connections within the Clinton administration to help him.

But it didn’t work out like that. Stiglitz arrived at the bank as the US was moving into what we now know was a phoney boom, but which had made the conservative economic intellectuals, who claimed authorship of it, extraordinarily hubristic. Their market-fundamentalist ideas, they supposed, were wholly right, and they insisted on them being implemented internationally, through what had become an arm of the US treasury - the IMF.

Stiglitz vainly campaigned against what he saw as ridiculous, self-defeating and enormously damaging policies - allowing his feelings to surface too openly in public. Stiglitz was acknowledged, even by his critics, as one of the world’s best economists. But he dared to cross the high priests of conservative international finance in their pomp. He was marginalised and briefed against, and his position was made insupportable. Finally, three years later, he resigned.

Stiglitz’s return to the groves of academia is a salutary lesson about where power lies in today’s world. The kernel of Globalisation and Its Discontents is his account of those years at the World Bank and his arguments with the IMF and US Treasury, and as such is a massively important political as well as economic document.

That Joseph Stiglitz could not survive - even before the arrival of the Bush administration - tells you all you need to know about the chances of a more sane economics re-entering the American discourse. It is also a sharp reproach to the boyish, almost glib optimism of Charles Leadbeater’s Up the Down Escalator - an account of globalisation as naive as Stiglitz’s is sophisticated.

In a sense, Leadbeater epitomises the scale of the opposition that a rational economist like Stiglitz confronts. He is not a man of the right, and for all his neglect of economics, political economy and the realities of international finance and realpolitik that Stiglitz describes, he is a well-intentioned and skilled cultural commentator. I found the first 100 pages of his book, in which he reframes all the current political and cultural arguments as one - at heart - between pessimists and optimists, original and entertaining.

Cultural pessimism does unite, say, a Daily Mail worldview and anti-globalisers alike. And while the rest turns into a relentless, rather dull Panglossian account of why globalisation, technology and science are all good for us, so that all is for the best in this best of all possible worlds - even the anti-globalisation movement, you see, is part of the debate that will make globalisation still better - it is useful to have our very own Pangloss in our midst. It shows the limitations of the creed, while offering a useful counterweight to too much gloom.

Doubtless Leadbeater would categorise Stiglitz as a pessimist - but a useful pessimist, in that his contributions to the debate will only make the world, already very good, even better. Globalisation is creating so much opportunity and wealth, and we are already so far advanced in the creation of an environment that reflects our own wishes and aspirations, that everyone is welcome to take part in the tumultuous exchange of ideas. Leadbeater, a former Marxist, sees everything as part of a benign, Hegelian dialectic in which any contribution only serves the general march of progress.

Yet as Stiglitz would reply, the world is not so benign, nor the march of progress so inevitable. It has to be fought for - with weapons more powerful and fundamental than optimism alone. He watched, largely helpless, as the IMF and US treasury, in a kind of institutional and intellectual lockstep, imposed needless suffering on millions of ordinary people in East Asia and Russia through free-market “shock” programmes, forcing massive economic adjustment, centring on making countries keep their financial systems as open as possible to inflows and outflows of private capital. This was the result not just of bad economics but, as Stiglitz tells it, a redefinition of the IMF’s role.

Its intellectual father was Keynes, who argued for the creation of a global institution that could take global collective action because markets can fail. Its role was to ensure that, unlike in the 1930s when global demand fell away disastrously, there would be a global mechanism to keep demand up by allowing countries an orderly framework in which they could maintain full employment.

They could borrow from the IMF when they needed to, rather than resorting to crash programmes of deflation or beggaring their neighbour through trade protection. The view of international finance - that its interests should come first - was firmly refuted. Instead it had to play by the rules of the game set up to establish a global interest.

But now a new doctrine holds: what the financial community views as good for the global economy is good for the global economy and should be done. The IMF has become the servant of the financial system it used to shape.

Stiglitz explains this change as having essentially three causes. First there is no longer an intellectual belief that markets fail. Secondly, the IMF has been allowed to become poorer as faith in government nationally and internationally has dwindled, so it has had to enlist the support of the great international banks when it lends to countries in trouble - and they have very particular interests.

They want to get their money into and out of all countries as freely as possible, and are thus always advocates of “financial deregulation” - so that this always plays an overwhelming part in any support the IMF provides. And because countries have to borrow in dollars, the interests and preoccupations of American banks and the US Treasury have become paramount - reinforcing the bias to make countries bend the knee to the interests of Wall Street rather than full employment, growth and the maintenance of their social contracts.

There has never been official recognition of this fundamental change of policy, but Stiglitz draws attention to how key personnel switch from Wall Street to the IMF and back again - having served the financial community’s interests well. Stan Fischer, for example, deputy managing director of the IMF, went directly to become a vice-chairman of the vast international bank Citigroup. “One could only ask,” writes Stiglitz, “Was Fischer being richly rewarded for having faithfully executed what he was told to do?”

It’s a pertinent question. If the 1930s were characterised by beggar-my-neighbour policies, the 1990s have been characterised by what Stiglitz describes as beggar-myself policies - all to promote Wall Street and the US Treasury’s aim of creating one single global financial market in which the over-riding concern of every government is to keep its financial system open to international finance, whatever the domestic cost.

Those at the top have benefited hugely, while creating a system that is massively unfair - not to mention its volatility and extraordinary capacity to transmit economic shocks simultaneously across the globe without any check.

Stiglitz finishes his book with seven action points for change. He is not a global pessimist, but a realist - and instead of placing him in a neat box labelled “important contribution to the debate”, we should listen to him urgently. The biggest indictment of Leadbeater, and those like him, is that they make it harder for us to hear, and to act, on what Stiglitz is saying.

Available at Timbooktoo 4494345

Author: Joseph E. Stiglitz