Globalization and Its Discontents

Globalization is defined by Stiglitz as an inevitable process that breaks down trade barriers between countries, encourages interdependence, and brings peoples closer together. In theory, this process should allow for greater economic integration; larger reductions in costs of communication and transportation; and better flow of goods, services, and capital across borders. It should also improve the circulation of information through encouraging transparency and knowledge exchange. It should even facilitate, to an extent, the flow of people across borders. Although history has demonstrated that all of this does happen in practice to a certain extent, the flow is not always equally beneficial to all. Globalization is regulated by three institutions: the IMF, the World Bank, and the WTO (10). Although there are other smaller or more regional organizations that also facilitate globalization, Stiglitz’s book focuses mainly on analyzing the actions of the IMF and the World Bank.

Named after John Maynard Keynes (See: Key Figures), Keynesian economics stipulates that market forces are imperfect and therefore not self-regulating. As a result, government intervention is necessary to help markets operate optimally. For example, when people’s trust in the state of the market erodes, overall demand can atrophy, which in turn will affect supply and lead to high unemployment rates. This not only prolongs economic recessions but might also encourage protectionist policies, which affect not only the country in question but also all of its neighbors. Keynesian economics argues that regulating forces, such as governments and international institutions like the IMF, are necessary to stimulate overall demand whenever necessary.

Macrostability is an economic term defined as the state of having balanced macroeconomic indices. It can be achieved by properly balancing budgets, having stable output growth, and maintaining low inflation. The IMF is particularly concerned with maintaining macrostability through controlling the rate of inflation. However, Stiglitz argues throughout the book that its policies often not only fail to promote macrostability but often also exacerbate the problem.

Market fundamentalism is an economic term that defends the idea that the free-market economy is largely self-regulating. By allowing the market to operate freely, the supply rate will meet the demand and operate at the optimal point, which in turn will become the foundation for solving socioeconomic problems such as poverty. It is often an attitude that is symbolized by Adam Smith’s “invisible hand” theory. Stiglitz accuses it of being a rigid ideology that the IMF pursues at the expense of true global economic stability. He finds problems with this focus on ideology because it prevents experts in developed countries from using empirical reasoning. It repeatedly fails to consider—or deliberately ignores—the indices and forces that challenge market fundamentalism, such as unemployment rates and social capital, and instead imposes a one-size-fits-all solution on developing countries, the economic and social circumstances of which often vary greatly from one another.

Social capital is an economic term defined as the forces that glue a society together. It includes intangible factors such as national solidarity, shared values, and mutual trust. Without social capital, people can be unwilling to cooperate or work together toward a common goal. It is not a factor that the IMF considers, even though it has the power to profoundly affect economics: For example, an unsafe country generates mistrust, which in turn can lead to economic and social instability.

Trickle-down economics is the belief that overall growth will eventually be distributed among even the lower classes of society, even though they originally only benefit the upper classes. It proposes that, even though wealth is originally held in the hands of the select few, this capital will eventually be reinvested into wider society to benefit the poor. Stiglitz argues against this mentality throughout his work.