‘Globalization and its discontents’ is a book written with a sharp wit to provoke the reader into keenly reading and analyzing the whole book. The book is written to illuminate the truth about globalization and the major problems brought about by the whole process of globalization and market liberalization.
The author of the book has vast experience in dealing with world economics having worked at the US economic control body and the IMF. His book appears to draw most of its contents from personal experience while working at the top positions in the institutions.
The main argument of the book revolves around mistakes committed while dealing with globalization. All the three points are tied together by the aspect of pace at which globalization took place. It was too abrupt to allow the developing world to cope up with the pace. This was advantageous to the developed world which benefited a lot at the expense of the developing world. The agenda also overlooked the aspect of implementing the pre-globalization policies which would yield better results if implemented at the correct pace in the correct sequence.
The book critically analyses the globalization process and tries to prove the point that critics of economic globalization hold against the process. In fact, the book portrays the whole globalization process as a disadvantage due to the met overlooked costs. ‘Globalization has reduced the sense of isolation felt in much of the developing world and has given many people in the developing countries access to knowledge well beyond the reach of even the wealthiest in any country a century ago. The anti-globalization protests themselves are a result of this connectedness’ (4).
Coming together with globalization is market liberalization. This process calls for free flow of products across boundaries without or at subsided tariffs. This results in reduced government revenue due to import and export duties and flooding of the market with common products (7). The author takes IMF and its ‘market federalism’ and Washington Consensus as the culprits who are responsible for this catastrophic economic outcome (12)’IMF typically provides funds only if countries engage in policies like cutting deficits, raising taxes, or raising interest rates that lead to a contraction of the economy. Keynes would be rolling over in his grave were he to see what has happened to his child’.
On his explanation about the Washington consensus, the author believes it was a scheme organized by the US government, World Bank and IMF to siphon funds from the developing world. ‘The most dramatic change in these institutions occurred in the 1980s, the era when Ronald Reagan and Margaret Thatcher preached free market ideology in the United States and the United Kingdom. The IMF and the World Bank became the new missionary institutions, through which these ideas were pushed on the reluctant poor countries that often badly needed their loans and grants’ (12).
The author appears to base his main argument on asymmetric analysis of information and the poor economic analysis done by that time. The main argument builds around three mistakes committed in the globalization process. The three main mistakes committed are illustrated below.
1. Ignorance of the global economic reform pace. In the design of reform process, the pace of reform was ignored. On top of that, the liberalization pace was too fast for many economies in the affected countries t put up with. In the end, the individual economies were overwhelmed by the reform pace making them (individual economies) to be adversely affected. Stiglitz calls for a gradual pace that will allow the individual economies to adjust and adapt to the facets of globalization so as to avoid any negative impact on the national economies. The design of implementation was also wrong since it would be overwhelming for the economies to implement liberalization all at once keeping in mind it has its own constraints.
2. By advocating and imposing the capital account liberalization, the Washington Consensus committed a huge mistake. This is because it allowed capital to move freely in the liberalized zone thus countries that lacked a certain capital input would easily acquire it. The country of origin would not benefit in any way from the imported capital thus the capital market would be adversely affected.
3. After learning of the mistake committed, the IMF response was another mistake. He argues that especially in East Asia, the response brought more harm than good the current situation (59) ‘In many developing-and developed-countries, governments all too often spend too much energy doing things they shouldn't do. This distracts them from what they should be doing. The problem is not so much that the government is too big, but that it is not doing the right thing. Governments, by and large, have little business running steel mills, and typically make a mess of it.’
These three ideas are addressed one at a time in the book and recommendations given.
The author believes that if things were done in the correct pace and order, then everything would be fine with globalization.
On the first point, he argues that liberalization should be done at the right speed at the right time. By doing so, the individual economies are given time to adjust and adapt to the changes (76). The sequencing is also an important thing to look at. This idea is well explained and appears persuasive enough to the reader. From a general economic analysis of the argument, it is very important and his emphasis is also very correct (58). On matters pertaining to capital liberalization, the author deals with the issue from a negative perspective without considering its positive part. This makes the reader develop a negative attitude towards capital liberalization but on a further analysis on how it should be done, the reality dawns to the reader making it possible for him/her to comprehend on the point and its sequencing (62).
When on the third point, the author mainly highlights the problem that exists in IMF of financial crisis management. In the particular case of illustration, he addresses how the IMF committed a number of several mistakes in the method they employed in solving the East Asia crisis (4)’ If globalization has not succeeded in reducing poverty, neither has it succeeded in ensuring stability. Crises in Asia and in Latin America have threatened the economies and the stability of all developing countries. There are fears of financial contagion spreading around the world, which the collapse of one emerging market currency will mean that others fall as well. For a while, in 1997 and 1998, the Asian crisis appeared to pose a threat to the entire world economy’.
The mistakes committed by IMF include:
1. Closure of a number of banks in Indonesia in the middle of a financial panic. This was done so as to try and control cash flow in the region. As a result, more inflation hit the region resulting in more disastrous outcome than the initial situation.
2. Bailing out most foreign and private investors in the region. By doing so, the IMF had anticipated top compensate the investors so as to keep them in business but in the eyes of the locality, this was a prejudice affair since only foreign (From US) investors were compensated.
3. Restricting imposition of capital controls on outflows.
4. Imposing very tight fiscal policies and high interest rates on the local economies. This made the economies strain in operation and the high rates reduced the borrowing ability of investors in the locality making the final outcome more disastrous (108).
The book comes to an end with addressing the problem of poverty having been brought by bad policy making. In this argument, he directly links poverty to poor policies and poor policy implementation claiming poor policies promote individualism and lack of equality (218).
Basically the book can be divided into three sections according to the contents of the sections. The first few chapters illustrate the reception and implementation of globalization and market liberalization. The middle part of the book deals exclusively with one aftermath of implementation of globalization and market liberalization. The last part of the book gives explains the solution offered to the Middle East crisis by the IMF and implementers of globalization and its discontents.
Looking at the first part which in some reviews is known as the broken promises, the chapters open with a high expectation in the developing countries on the advantages that will be brought about by globalization. The author writes ‘Why has globalization-a force that has brought so much good-become so controversial? Opening up to international trade has helped many countries grow far more quickly than they would otherwise have done. International trade helps economic development when a country's exports drive its economic growth. Exported growth was the centerpiece of the industrial policy that enriched much of Asia and left millions of people there far better off Globalization has reduced the sense of isolation felt in much of the developing world and has given many people in the developing countries access to knowledge well beyond the reach of even the wealthiest in any country a century ago. The anti globalization protests themselves are a result of this connectedness ’ (page 4) this evidences the high expectations that the people had in the globalization concept. According to the author, globalization comes at a cost and should be done gradually. Comparing the final results of globalization and the pre-globalization period, the author prefers the pre-globalization policies claiming that they would yield more good if implemented in the right order at the correct pace.
Finding evidence of the claims, the author illustrates how globalization was structured to favor some countries. In his argument, he claims that globalization entailed capitalistic economy structure particularly of the American style. This shows that the American economist who came up with the whole idea had some hidden intentions. As a consequence, Russia which is a communist country dropped its GDP to 60% of China’s GDP. Ten years before, the statistics were a reverse indicating that the globalization concept was favoring the capitalistic economies. The concept also favors borrowing and repaying at an interest. This enriched the rich while milking the developing. ‘But even when not guilty of hypocrisy, the West has driven the globalization agenda, ensuring that it garners a disproportionate share of the benefits, at the expense of the developing world the net effect was to lower the prices some of the poorest countries in the world received relative to what they paid for their imports. The result was that some of the poorest countries in the world were actually made worse off’
The section also exposes the conspiracy that the IMF and World Bank had so as to oppress the developing world. The author links the American government to the conspiracy claiming that the American government was the master mind of the agenda.’In the 1980s, the Bank went beyond just lending for projects (like roads and dams) to providing broad-based support, in the form of structural adjustment loans; but it did this only when the IMF gave its approval-and with that approval came IMF-imposed conditions on the country. The IMF was supposed to focus on crises; but developing countries were always in need of help, so the IMF became a permanent part of life in most of the developing world ’ (page 12).
The author also makes the globalization agenda the main drive behind the global governance which is not carried out by a global government but a few institutions. By claiming a few institutions, the author specifically refers to IMF, World Bank and WTO. These institutions are puppets of the G-7 thus the global governance is in disguise carried out by the G-7. ‘Unfortunately, we have no world government, accountable to the people of every country, to oversee the globalization process in a fashion comparable to the way national governments guided the nationalization process. Instead, we have a system that might be called global governance without global government, one in which a few institutions-the World Bank, the IMF, the WTO and a few players-the finance’(Page 21).
The section lastly addresses the concept of privatization which came by globalization. The author attributes this to abrupt transfer of government resources to private people resulting in abrupt changes in revenue generation (Page 54). The last element addressed in this section is market liberalization. The author claims that it came with its advantages as well as disadvantages. To the developed countries, it expanded their market outreach while shrinking the outreach of the less developed and developing countries (pages 58-62).
This section basically deals with the globalization agenda and some of its implications. This section serves the purpose of explaining the main theme of the book and its title. It also makes the reader curios of knowing the validity of the information given or is it just a hit back after lack of recognition of the author by the named institutions. Some critics claim that this is a hit back while others support the ideas of the author.
The middle section gives a case study as an example of the aftermath of globalization. It covers one of the world’s most remembered economic crises in the century. It occurred in Middle East and involved about six countries. The currencies depreciated in value compared to the US dollar. This increased the inflation levels in Middle East making the affected countries run into debts. ‘ when the Thai baht collapsed on July 2, 1997, no one knew that this was the beginning of the greatest economic crisis since the Great Depression-one that would spread from Asia to Russia and Latin America and threaten the entire world. For ten years the baht had traded at around 25 to the dollar; then overnight it fell by about 25 percent. Currency speculation spread and hit Malaysia, Korea, the Philippines, and Indonesia, and by the end of the year what had started as an exchange rate disaster threatened to take down many of the region's banks ’
The Middle East crisis came as a result of globalization. First it was market liberalization which caused abrupt decrease in revenue generation by international trade duties and taxes. Secondly, the free flow of goods affected the individual economies and the western countries which depended on Middle East for oil were getting the product at a cheap price. Lastly, since globalization allowed borrowing of capital from the IMF and other monetary institutions, the borrowed money increased the amount of money in circulation adding to more inflation.
Work cited
Stiglitz, E. J. Globalization and its Discontents. 2003. New York: Norton Paperback Publishers.
