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Joseph E. Stiglitz surely knows a thing or two about International Economics. The Nobel Laureate Columbia University Economics Profe. ssor, who served from 1995 to 1997 under US President Bill Clinton as the Chairman of the Council of Economic Advisers, and then from 1997 to 2000 as the Vice President and Chief Economist at the World Bank, debates in detail, the effect that globalization has had on the world.
Globalization, as a process, is the coming together of countries. It all but eliminates the needs for boundaries, making countries interconnected. The resulting effects are increased trade, better communication, and the decrease of cultural differences. From an economics perspective though, globalization means heightened trade. In essence, globalization allows the less developed countries (developing countries), to boost their economies through trade with developed countries. The process allows increased exposure in international markets, which in turn, helps developing countries carve out niches that they can cater to. Stiglitz though, discusses matters in much more detail. The author not only puts the limelight on globalization as a process, but also the effects that it has had on the world, and the relationship the process maintains with Global Organizations such as the World Bank, the World Trade Organization (WTO), and the International Monetary Fund (IMF). More importantly though, the author debates whether the implementation of free market policies, a trademark of globalization, has had the effect that was needed of it.
During the first three chapters of his book, Stiglitz sheds light on the 1980’s and the development process of the organizations mentioned above. The author argues that while globalization as a concept was coined together to help out struggling economies, the actual truth is a far cry. The author states that it was the 80’s during which the shift from Keynesian policies towards the more Western free market policies took place. The real trouble with the shift was the damaging short term effects it had on developing countries. Since the policy was not tailor made to meet individual requirements of different countries, it failed to solve some key issues. Trade liberalization for instance, had devastating effects on a number of developing countries. The yet to be established industries in such countries simply could not manage to hold their position in the wake of tough international competition, which led to automatic failure of the free market concept. The clear lack of resources, one that was exposed largely when faced with global competition, was too apparent to ignore. Moreover, Stiglitz suggests that the people who hold key positions at financial institutions such as the IMF and World Bank are so powerful, and have such a strong say, that they easily put company policies ahead of the real needs of the people (in the developing countries). The lesson Stiglitz tries to provide the readers with is that free market policies were promoted by developed nations to simply exploit their lesser developed counterparts. Ergo, when free market, capital, and trade liberalization policies were applied in developing nations, they were met with failure. There was simply no way to cope with individual requirements, an issue that was just too serious to overlook.
As the book moves on, Stiglitz then goes on to discuss the economic crises that had parts of East Asia and Russia strongly in its grip. The crisis had a much larger affect as well, one that was global. In this part of his book, the author sheds light on the IMF in particular, and the way in which the institution contributed to the economic disasters in the regions mentioned above. The IMF had a number of political policies that not only led to the eventual downturn, but paved the way for the arrival of the disasters as well. These policies were to be put in effect through economic channels, and the effect that they had on both East Asia and Russia was quite different. In East Asia, IMF policies meant that those who were in need were left without being helped out properly. In Russia, the IMF had a political motive, and that was to strengthen Boris Yeltsin’s administration. However, it was soon clear that the policies were not going to work, and both the IMF and the US government adopted a state of denial, one that meant clear ignorance of the facts. In fact, the situation was so bad the author describes the whole issue as the largest economic crises since the Great Depression, and the subsequent state of denial as the reaction to the outcome of the Vietnam War. It would be unfair to remark though, that Stiglitz was totally against free market policies. Instead, the author simply states that rather than pushing free market policies into developing nations, the process should be much more gradual.
In the concluding chapters of his book, the author proposes methods that would prevent economic crises from happening again. Chief among the reforms Stiglitz proposes is increased transparency within organizations such as the IMF in regards to their decision making policies. The author is harsh towards the IMF in particular, stating that the organization has little social concern. In addition, the author remarks that the poor should be protected, and that powerful financial institutions such as the World Bank should be regulated, so that their policies do not hamper the growth of the economies of developing nations the way they did in the East Asia and Russia. Moreover, the author states that there is nothing wrong with globalization per se. As a concept, globalization is the way to go, but the way the concept has been implemented, especially in regards to developing nations, has backfired. While globalization was originally designed to help out the needy, it has made some countries worse off, which put simply, is due to the pacing of the whole process. Instead of being eased in, some policies such as trade and capital market liberalization and privatization were forced and this lead to economic instability. The author states that the way around this would have been the gradual but steady development of infrastructure. Moving forward, the author goes on to state that government intervention is also necessary. An economy that is free from government intervention does not always function properly, and, therefore, there is a need for limited, but timely government intervention.
Concluding Stiglitz book, it is fair to say that the author is highly critical of powerful financial institutions and economic policies of countries such as the United States. However, instead of merely criticizing and pointing all that is wrong with the policies employed by these bodies, the author provides a way to move forward as well. It is quite understood that the world we live in today is a highly interconnected place and that there is no going back. Globalization has helped many a nation develop and grow, but as a whole, the process remains flawed. However, the damage that has been done can still very much be reversed. The core issue that we suffer from today is that there is an increased focus on the short term, which is totally incorrect. A developing nation that is eased into development with infrastructural growth has a much better chance of sustaining, and increasing its levels of growth. On the other hand, a nation that is shocked with policies will only pan out to be volatile, economically.
Stiglitz piece though, has its flaws as well. The author does not cover globalization as a whole, and even the economic effects covered focus largely on limited instances. The rapid development of India for instance, is not mentioned, while the focus on IMF policies is perhaps a tad too much. Moreover, the text is quite repetitive, with the same message being handed out over and over again. As a whole though, Stiglitz’s book sheds some much needed light on the wrongdoings of global financial institutions. It asks for reforms within the IMF, for increased transparency, and for the West to be clear in its intentions. It is for these reasons that the book did, and continues to receive widespread criticism from those at the financial helm.
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