Globalization and Its Discontents

Originally established in 1944 as the result of the UN Monetary and Financial Conference at Bretton Woods, New Hampshire, during World War II, the World Bank is an institution with an original mandate to aid the reconstruction of Europe and its economy. At the time, it was called the International Bank for Reconstruction and Development, and it was mainly concerned with funding and overseeing regional reforms, focusing on Western Europe. It did not initially have an international outlook, as much of the developing world was still under European dominion as subjugated colonies.

After the Fall of the Berlin Wall, the World Bank’s mission shifted to aiding former Communist countries transitioning to market economies toward the end of the 20th century. Theoretically, it is now supposed to be concerned with structural issues, aiding with analysis and management of areas such as a country’s economic plans, trade policies, and financial institutions. In practice, however, its actions sometimes overlap with the IMF’s, the mandate of which is mainly to maintain global economic stability through lending capital and stabilizing overall demand. Joseph Stiglitz acted as its chief economist and senior vice president between 1997 and 2000.

The International Monetary Fund (IMF) was originally founded in 1944 but only started operating after the Bretton Woods Conference of 1945. It is headquartered in Washington, DC and is one of the three international institutions designed to regulate globalization. It acts as the financial branch of the United Nations, and its mission is to maintain global economic stability.

Based on the Keynesian principle of imperfect markets, the IMF seeks to avoid another Great Depression on an international scale. Much of its original framework was influenced by Keynes’s belief in regulatory financial institutions: He argued that economic slumps are mainly caused by a decrease in aggregate demand and that government stimulus of demand can remedy, shorten, or altogether mitigate these downturns. As a result, the IMF is responsible for pressuring countries to maintain an adequate level of global aggregate demand. It can do so either by enticing governments to set preventive measures against economic depressions or by lending liquidity when local resources are insufficient to stimulate demand.

Stiglitz is overall critical of the IMF in Globalization and Its Discontents because it shifted from Keynesian economics to defending market fundamentalism. It prescribes the same ideologically driven solutions to the developing world, disregarding any existing local or regional specificities. Its interventions have therefore often been unproductive or counterproductive.

Stiglitz points out that the IMF is a public institution financed by taxpayers of the global world, but it reports not to the people but to various ministries of finance and central banks around the world. It is governed by a complicated voting system that reflects the relative economic powers of countries after WWII: Thus, only the US holds the effective right to veto its policies. It is spearheaded by affluent people both in policy and in the financial community, thus skewing its outlook to align with the interests of these elite groups, rather than the lower classes of developing countries.

The IMF is theoretically in charge of macroeconomics, such as managing inflation, monetary policies, and aiding in budgeting government deficits. However, the institution has gradually started seeing structural issues as causes of bad macroeconomic management. It thus began involving itself in matters of domestic policy. Stiglitz criticizes it for being opaque, too bent on ideology, and biased in its distribution of resources.