MAKING GLOBALIZATION WORK: THE NEXT STEPS TO GLOBAL JUSTICE
MAKING GLOBALIZATION WORK: THE NEXT STEPS TO GLOBAL JUSTICE
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June 30th, 2010 at 3:20 am
Review by Izaak VanGaalen for MAKING GLOBALIZATION WORK: THE NEXT STEPS TO GLOBAL JUSTICE
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This new book by Joseph Stiglitz discusses many of the issues of his earlier work, “Globalization and Its Discontents.” The previously described discontents have become more pressing in the interim. Stiglitz reminds us again that globalization and economic growth are bypassing a large number of people in the developing world; in fact, some of the so-called developing world is not developing at all.
He facetiously points out that a cow in Europe earns more than half of the people on the planet. The $2 a day subsidy of the European cow is equal to the the cut-off line defining poverty, and half of the earth’s inhabitants live below this level. This example illustrates the ostensible unfairness of the current system. European, American, and Japanese multinationals, and the trade negotiators who represent them, argue for freer trade yet they refuse to relinquish agricultural subsidies. This is very unfortunate for the developing world since about 80 percent of their economies are agricultural. Nothing would help them more than if the rich countries stopped subsidizing their agriculture and opened their markets to imports. Economically this is a good idea, politically the it is a non-starter. The French will not be importing Brie and the Japanese will not be importing rice.
This seems to be the case with many of Stiglitz’s ideas: they sound reasonable and fair, but unfortunately fairness is not a priority for many trade negotiators.
Stiglitz’s proposal for a global reserve system is another example of a good idea whose time has not yet come. Today, when countries set aside money for a rainy day, the currency of choice is the US dollar, which for the time being is relatively stable and strong. The only problem is that the US is financing these global reserves at the rate of $2 billion a day – a truly unsustainable trend. Stiglitz’s solution, borrowed from John Meynard Keynes, is to create a universal currency. In good times reserves can be held in this currency and in bad times these reserves can be drawn. Sounds eminently reasonable but Uncle Sam is not going to give up the the reins.
What Stiglitz is doing is calling for greater democracy in the global trading system. Currently the global trading system is stacked in favor of the rich nations, especially the US. This is not to say that rich nations don’t have their issues – they do. What is important in this book is that the poor countries should be given a better deal. Much has been writtem about bad governance in the developing world, and much of it is true; however, aggravating these problems are unfair trade agreements. Stiglitz is important because he gives a voice to the developing world’s vulnerablity. For example, when poor countries are forced to open up their markets to foreign banks, their local banks are put out of business, and, as a consequence, local lending suffers. More democracy in the global trading system would go a long way in alleviating some of these unjustices. The only question is: Are the rich and powerful nations ready for more democracy and a more equitable trading system.
June 30th, 2010 at 4:13 am
Review by E. David Swan for MAKING GLOBALIZATION WORK: THE NEXT STEPS TO GLOBAL JUSTICE
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There is a breed of economists who have what can only be described as a mystical reverence for the market. To them Adam Smith’s `invisible hand’ is not a merely a literary conceit but an actual force like electromagnetism or gravity. Following the advice of Milton Friedman these economists would privatize literally everything from primary education to road maintenance to social security. The government would act as a modest referee deciding property rights as well as defending borders. This is the mindset under which the IMF and World Bank operate. It’s the “Washington Consensus”, a one-size-fits-all solution to all economic problems and it’s been active for decades using the indefatigable wisdom of the “free market” to solve all the world’s ills.
The problem is that the “Washington Consensus” as instituted by the IMF and World Bank has had disastrous results in many countries around the world most notably Russia. As the chief economist of the World Bank from 1997 to 2000, Joseph E. Stiglitz is probably a pretty decent source to go to for on why so many countries AREN’T booming after instituting IMF imposed “structural adjustments”. The author offers Argentina as an example of a country which received an A+ rating from the IMF for following the Washington Consensus only to face financial calamity a few short years later.
As the author puts it, one of the main problems is that, “the Washington Consensus prescription is based on a theory of the market economy that assumes perfect information, perfect competition, and perfect risk markets”. Mr. Stiglitz writes, “policies have to be designed to be implemented by ordinary mortals”. Economists seem to have become so enamored by the blackboard theories behind pure free market economics that they ignore the reality of its results. Even worse, when economies follow the IMF’s prescription and fail they’re blamed for not adhering CLOSE ENOUGH to the IMF/World Bank dictates.
The other main problem is that the Washington Consensus is being instituted in countries that simply do not have the institutions necessary for a free market economy including strong property rights, an established tax base and the means to enforce the rule of law. The shock treatment in Russia allowed money to flow freely in order to stimulate foreign investment but all it caused was the money to drain right out. The IMF/World Bank are very inflexible for instance they admonish countries for deficit spending, in order to stimulate the economy, even when a country has accrued a considerable amount of savings. At the same time the IMF/World Bank encourages low tax rates meaning that even modest economic stimulants can push a country into deficit spending. The scary thing is that even if a country doesn’t currently have loans with the IMF/World Bank they can still fear bucking the Washington Consensus given that a poor report from the IMF/World Bank can potentially scare away foreign investments.
The author wisely points out that economic growth is only real if it is sustainable. American neo-conservatives love to crow about their pro-growth support but growth is pointless if you destroy the environment and rip up all the natural resources in a few decades. Using GDP as the de facto benchmark of a countries economic progress can be very misleading. As a case in point the author offers up oil production. The faster a country can rip oil out of the ground the higher its GDP will rise but in truth the country may well become LESS valuable as its resources are depleted. Compounded that with environmental damage, that isn’t being factored into the equation, and a country can become poorer as its GDP rises. This is not just some abstract case but a situation that occurs frequently.
The author discusses a lot more topics including the often anti-democratic nature of the IMF/World Bank, issues of asymmetric globalization between developing and developed nations, the stifling nature of over patenting, subsidies versus tariffs. For an economics book I found it to be very readable and extremely enlightening. Mr. Stiglitz is clearly on the progressive side of the political spectrum which is evident by his concern for the inequity in globalization. Fortunately the IMF and World Bank seem to be adjusting somewhat to the reality that strict adherence to the Washington Consensus isn’t the end all be all solution. Hopefully this is a sign that the times are a changin’. Hopefully.
June 30th, 2010 at 4:49 am
Review by Robert C. for MAKING GLOBALIZATION WORK: THE NEXT STEPS TO GLOBAL JUSTICE
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In this book, Stiglitz gave his advices on how to make globalization work for most of the population on earth: how the world – especially the developing countries – can reap the enormous benefits of globalization while containing the equally enormous problems — problems well documented in his previous book “Globalization and Its Discontents” – that globalization creates.
The content of the book is well organized, its opinions well informed, and its ideas thought-provoking.
This book is really written from a high moral ground – putting the interests of the world’s vast poor ahead of the special interests of wealthy Western corporations. Some may feel uncomfortable of this view point, and some may even attack the book. But having met with Stiglitz in person, I have enormous respect for his integrity and his sincerity in genuinely wanting to help make globalization work to benefit most people in this world. Highly recommended!
June 30th, 2010 at 5:13 am
Review by Walid Zafar for MAKING GLOBALIZATION WORK: THE NEXT STEPS TO GLOBAL JUSTICE
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In the preface to The General Theory of Employment, Interest, and Money John Maynard Keynes wrote `The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds”. In his timely and much needed Making Globalization Work Nobel Laureate Joseph Stiglitz attempts to bring the market under control and proposes a myriad of innovative mechanisms which will make `globalization work.’ While I admire Stiglitz’s work and his profound commitment to real social justice, it is crucial to critique his methodology and his idea of fair trade. While most of his remedies are proactive and attainable, his idealism of the market needs to be questioned. In particular, many of his proposed solutions call for using the very market mechanisms that have created this markedly unjust and stratified world.
Coming out boldly against Thomas L. Friedman’s The World is Flat, Stiglitz asserts that `Not only is the world not flat: in many ways it has been getting less flat’(57). All of the issues Stiglitz champions are vital and indeed, some, such as climate change, threaten our very survival as humans. Nevertheless, Stiglitz’s chapters on multinational corporations and the resource curse seem to be the most misguided and lack a complete understanding of the powerful forces that will not allow such `new ideas’ to be accepted. As an internationalist, I believe his recommendations are fair and just. Yet, I see very little hope in core states willingly giving up their hegemony over the periphery, even if it is for their own good.
Stiglitz comes out strongly against multinational corporations, hereafter MNCs. As he puts it, they `have come to symbolize what is wrong with globalization’ as they are seen by many as the `primary cause of the problem’ (187). The problem is not that MNCs are powerful, it is the fact they are often more powerful than nation states. Strong MNCs challenge the autonomy of periphery states, and as is the case, the core states support them in their endeavors. Capitalism, by its very nature, is destructive to those who lack capital. Stiglitz proposes `limiting the power of corporations’ (199) but their power is most dangerous in poor states, which lack the ability to limit MNCs. Yet, he neglects to show how this control will be implemented.
The United States, as chief imperialist after the Second World War, has continually come to the defense of its corporations. No where is this more evident than in Latin America. In 1954, Guatemalan president Jacobo Arbenz sought to limit the power of United Fruit Company, than the largest land owner in the country and was overthrown in a C.I.A orchestrated coup d’état. To escape taxation–another ubiquitous problem with MNCs–United Fruit had declared the land to be forth a little more than half a million dollars. When the Arbenz government sought to buy the land at that price, the company asked for $16 million dollars. Arbenz refused their demand and was ousted and neither the United Nations nor the Organization of American States came to his rescue. In more recent times, the Venezuelan government nationalized it petroleum industry. Because the previous contracts had been negotiated with governments of the past, who lacked the mandate of the people, President Hugo Chavez sought to renegotiate with the MNCs, such as Exxon-Mobile. While some companies took the governments offer, Exxon successfully took the Venezuelan government to court and $12 billion of state assets are currently frozen. What can we make of this? How can corporations such as Exxon be controlled and their power limited? Add to the mix the fact that prominent government officials sit on the board for many of the same MNCs who are accused of having the worst policies, lacking oversight and causing the most economic and social destruction. How do we reconcile this?
Corporate crime inflicts far more damage than corruption or for that matter, anything else. To take one example, the savings and loan fraud – which former Attorney General Dick Thornburgh called “the biggest white collar swindle in the history our nation” – cost us anywhere from $300 billion to $500 billion. That is just one case! Stiglitz understands this, but is hopeful that the corporate social responsibility movement will step in and put pressure on MNCs to reform. While this is certainly possible in some sectors, and many companies have in fact made strides in becoming more socially responsible, what should be done about the Exxons of the world? People are concerned more about the high price of gasoline they must pay than the increased price of milk in the slums of Caracas. Holding these companies accountable is an imperative, but so far, there is no large movement to limits the power that MNCs have on other states. Furthermore, Stiglitz seems to contradict his own argument.
While global warming and its attendant consequences are having a drastic effect on the world’s poor, Stiglitz cannot make the connection that perhaps it is capitalism and MNCs that have produced such conditions. Even if corporations were more socially responsible, they would continue to pollute the environment. To bring in a case from my own research, the example of Bolivia’s water wars perfectly illustrates this contingency. The Bolivian government has argued for years that Western nations should compensate periphery states for the effects of global warming. The Andean nation of Bolivia, which is by far the poorest country in Latin America, has in recent decades seen the melting of its glaciers high in the Andes. These glaciers provide drinking war to much of the countries poor, especially those in La Paz and El Alto. At the same time, efforts have been made, most notably by U.S. firm Bechtel to privatize Bolivia’s drinking war. Even collected rain water! This affront to civility and decency failed not because of a corporate responsibility but rather by protests initiated by poor compesinos who eventually drove the firm out.
In chapter 5, Stiglitz discusses the `paradox of plenty’ where countries `richly endowed with natural resources’ have `lower growth and higher poverty rates than other countries not so endowed’ (134). To Stiglitz, the problem is two fold. First, countries do not get full value for their natural resources. This is a problem inherent in international trade. It is agreed that countries get shafted but the real question is why? As Raul Prebirsh demonstrated in the 50′s, periphery states do not grow when they join the Western economic system because the system is inherently flawed and created in such a way as to make periphery states dependent on core states.
Trade between a core and periphery state invariably benefits the former and despite any short term gains, hurts the latter. Here, he has some of his brightest moments. He writes `Wealth generates power, the power that enables the ruling class to maintain that wealth’ (137). This is true within countries but it is also true at the macro level, where states that have considerable political, economic and most importantly, military power, are able to accumulate even greater wealth. He also laments unfair privatization (which his friend Jeff Sachs contributed to in Russia.) but I don’t believe he sees privatization as inherently unfair. As for his agenda towards solving the situation, Stiglitz misses some important facts. In order to reduce arms control, the biggest arms producers must be reigned in. Unfortunately, these same producers come from the worlds most powerful countries, and are in fact, MNCs. Furthermore, certification has come under a lot of scrutiny. The Kimberly Process essentially gave monopoly power to the world’s largest diamond manufacturers by taking out secondary suppliers. This is anti-competitive, which Stiglitz seems as very harmful. While one can easily constructive examples of certification, who should implement it and how is the issue at hand decided? This seems like another area where the geopolitical goals of unilateral nation states will become more important.
Writing a critique of Stiglitz is no easy feat, and in fact, I do not really hold Stiglitz accountable for the holes in his argument because of the magnitude of the issue he is dealing with. He makes many generalizations and even if 99% of them are correct, critics can point to a single anomaly to try to disprove him. While Stiglitz is a committed socialist, he puts too much trust in the market mechanism which has never proven to be fair.
June 30th, 2010 at 5:47 am
Review by Loyd E. Eskildson for MAKING GLOBALIZATION WORK: THE NEXT STEPS TO GLOBAL JUSTICE
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Most discussion of globalization consists of uninformed opinion that is not worth listening to or reading. Not so with “Making Globalization Work” – the author is a Nobel prize-winner in economics and has worked at the IMF and the White House. He provides an excellent summary of the current problems with globalization, and a number of suggestions for improvement.
Stiglitz tells us that the world is in a race between economic and population growth, and so far population growth is winning – at least in absolute numbers of people, and especially when China is excluded.
The IMF is not democratic – the U.S. has effective veto. Further, it has focused on inflation, rather than wages, environment, unemployment, or poverty (recently it did make poverty reduction a priority). Advanced industrial countries (AIC) have been allowed to levy tariffs on goods produced by developing countries that were, on average, four times those on goods from other AICs. Developing countries were also forced to abandon subsidies for their nascent industries while AIC were allowed to continue their enormous agricultural subsidies. The top 1% of U.S. farms get 25% of the subsidies (averaging over $1 million/), while the bottom 80% get less than $7,000/. Thus, the program is NOT key to saving the family farm, and in fact hurts them more by increasing land prices that in turn require greater use of fertilizer and capital to utilize profitably. Further, the U.S. has used trade agreements to force patent protection for drugs (increasing AIDs deaths) and for eg. Microsoft.
Finally, Stiglitz recognizes that globalization does produce losers within the U.S., especially those with less education. He proposes more progressive taxation to support an improved safety net for those affected. However, my one criticism is that Stiglitz does not offer an estimate of what market equalizing wages would be like in the U.S. I suspect they would be so low and affect so many that it would destabilize our nation.
Free market development can be difficult – eg. firms using plastics or steel are not likely to develop without a local supplier, and those local suppliers look for assured demand before building. Further, banks are often less interested in leading to new industries than financing speculative real estate or lending to the government. Korea and Taiwan believe in the importance of free markets, but both stepped in to create world-class producers of steel (Korea) and plastics (Taiwan); meanwhile, during the early days of these industries they limited undercutting imports. Thus, “free enterprise” is not always the answer.
TIght money and budgets (the IMF prescription) were used to bring down hyperinflation in Russia after the USSR was broken up; this was accompanied by rapid privatization, resulting in a giveaway of its most valuable assets and quick capital flight (partly due to fear privatization would be reversed). Aftrica has fared poorly due to a less educated populace, less infrastructure, and less stability –> making it less attractive to investment. In addition, the Green Revolution did not take hold in Afrca as it had in Asia, and AIDs has ravaged the population. Failures of the conservative approach in Africa, Latin America, and Russia have also weakened democracy in those areas.
One of the main arguments for NAFTA was to close the income gap between Mexico and the U.S., and thereby also reduce illegal immigration. Yet, the disparity grew during the first decade by about 10%, and real growth per capita in Mexico was only 1.8% during the period. Mexican farmers now must compete with highly subsidized U.S. growers –> an increase in illegal immigration.
Exports, not the removal of trade barriers, is the driving force of growth.
GDP measures of an economy do not include sustainability – eg. resource depletion, borrowing from abroad), nor life expectancy.
China’s 11th 5-year plan (3/06) shifted from exports (growing protectionism around the world) to greater domestic demand, as a means of utilizing its over 40% savings rate.
Corruption of campaign contributions by major corporations in the eg. U.S. is greater in magnitude of impact on democratic processes than the petty and pervasive small bribes paid government officials in developing countries.