Globalization and Its Discontents

Although globalization has largely been disastrous for the environment, for the poor, and for the stability of the global economy, in this final chapter, Stiglitz argues that it is still an indispensable part of the future. Globalization can be a power for good: It was at the root of East Asia’s success; allowed for the trade of goods, ideas, and technologies; and built a global civil society eager to fight for social justice.

The chapter begins with a description of the worldwide protests against the IMF. Although critics of the institution wish for its abolition, disbelieving that the institution can change at all given its ties to the financial world, as an economist of the Keynesian school, Stiglitz maintains that abolishing the IMF would only lead to the creation of a replacement because international institutions are essential for regulating economic crises. This is why one of the major themes of the book has to do with the inevitability of globalization as a socioeconomic phenomenon and The Necessity of Regulation to ensure its success. Stiglitz advocates for reforming globalization and the economic institutions that are to uphold it.

Stiglitz does not doubt the success of the market system over the communist system. However, the IMF and the US Treasury have upheld one specific vision of economics that has time and again proven to be flawed: market fundamentalism. Ideology discourages empiricism and has prevented the IMF from seeing that even successful markets can vary in implementation and operation. For example, in Sweden, the government has greater control over welfare, unemployment insurance, and retirement benefits than in the US. Thus, every country’s market operates in slightly different ways. Some of these differences come down to value judgements: For example, people might disagree on how much the environment can be destroyed in favor of greater economic growth or on how much tax people should pay to relieve the poor. Social cohesion also affects the way in which the economy functions.

Stiglitz advocates for a nuanced approach to government intervention. He recognizes that both the market and the government are capable of failing; it is only by working together that they can mitigate economic crises.

In other words, since globalization will not disappear, institutions should be implemented to regulate it. This is what Stiglitz calls “collective action”: It helps steer the economy when markets in themselves do not produce efficient outcomes. Having adequate institutions will also allow for greater cooperation between countries on issues that could affect the international scene, such as global warming and the AIDS crisis. With countries becoming increasingly interdependent comes the need for global public goods and regulatory infrastructure.

Stiglitz believes a change in governance is the key to reshaping globalization. It entails a democratic process whereby voices beyond those of trade ministers and financial tycoons are represented at the WTO and the IMF. Similarly, leadership should come from more than just the US Treasury. China’s presence at the WTO can shift the current pattern in bargaining power, even if it does not always represent the best interests of other developing countries. Although possible, Stiglitz remains pessimistic about the actual implementation of such changes in the short term at the IMF and the World Bank.

If immediate change in governance is impossible, then at least greater transparency could ensure greater accountability in the IMF’s decision-making process. This is because leaders of these international institutions are not elected, so they do not have to be directly accountable to the public, even though they are in place to serve the public.

The IMF and US Treasury’s focus on ideology encourages them to defend their infallibility: They protect their credibility at all costs and argue that their success hinges on this trust. Stiglitz proposes that, should a change from ideological dogmatism to pragmatism be impossible, the IMF’s involvement in development should be limited, and it should return to simply managing crises.

The author allows that some changes have been made: There is more talk on how to deal with issues of transparency and poverty inside the institution. Even senior managers have admitted that shortsightedness—defined as a focus on “hot money,” or short-term capital flows—can cost them in the long run. Despite these efforts, however, the IMF and the World Bank still remain opaquer than government in democracies, and any reform they implement faces strong opposition from financial centers.

Stiglitz proposes the following seven core reforms for the IMF: 1. To recognize the dangers of capital market liberalization; 2. A bankruptcy reform that incentivizes banking and management reforms; 3. A reduction in the distribution of bailout funds; 4. An improvement to banking regulations to mitigate bad lending practices; 5. The establishment of an insurance market to improve risk management from fluctuating exchange rates; 6. The establishment of social safety nets to protect those who are vulnerable and to help absorb risk; and 7. An improved response to crises through conducting more scientific forecasts based on data rather than ideology. In sum, he wishes for globalization to be viewed not as an economic phenomenon but as the inevitable path forward that affects people’s living standards. It should be gradual to mitigate disturbance to traditional customs with which it conflicts or to help smooth market transitions.

Stiglitz remains hopeful for the future of these international organizations because he has witnessed the change in the World Bank, even if it is slow. Similarly, the European Union has already taken a step toward better free-trading policies on all products except “Arms” (246). He wishes that developing countries could have the right to manage their own policies rather than facing imposed templates from the institutions that govern globalization. In the aftermath of the Great Depression, Keynes rose up to correct the idea that markets are always self-regulating; Stiglitz remains optimistic that the same might be taught to make globalization fairer, more sustainable, and more democratic.