Globalization and Development: Views of Stiglitz

An important factor responsible for the growing interest and concern with Third World development is
the increased globalization of the world economy leading to a greater interdependence between
countries of the world. There have been three major eras of globalization in the last 150 years. The first
was from 1870 to the First World War (1914) which witnessed large scale capital flows and labour
migration from Europe to the American continent and the colonies. The second started after the Second
World War with the freeing of trade. The third phase started in the 1980s based on technological
advances in communications and transport.

Fischer has defined globalization as an “ongoing process of greater economic interdependence among
countries reflected in the increasing amount of cross-border trade in goods and services, the increasing
volume of international financial flows and increasing flows of labour”. As far as the interdependence
between developed and developing countries is concerned, developing countries depend on developed
countries for resource flows and technology, while developed countries depend heavily on developing
countries for raw materials, food and oil, and as markets for industrial goods. The term globalization
refers to all those forces operating in the world economy that increase interdependence and at the
same time make countries more and more dependent on forces outside of their control, as time, space
and borders diminish in importance. Foremost among these forces are:

■ The widening and freeing of trade. Over 20 per cent of the world's output of goods and services is now
traded.

■ The growth of global capital markets and the greater flow of short-term speculative capital: over 2
trillion dollars are exchanged on the world's currency markets every day.

■ More foreign direct investment (FDI) by giant multinational corporations with more power and assets
than many national governments.

■ The growth of global value chains with firms sourcing inputs from the cheapest international markets.

■ The greater movement of people than ever before, breaking down cultural barriers but also leading to
the spread of disease (e. AIDS) and international crime in drugs, prostitution and arms.

■ The spread of information technology (IT) which can exacerbate contagion in financial markets (e. the
1997 financial crisis in South-East Asia).

■ New institutions, such as the World Trade Organization (WTO), with authority over national
governments, and new multilateral agreements on trade, services, intellectual property, etc., which
reduce national autonomy. All these aspects of globalization and interdependence make countries more
vulnerable to shocks such as: world recessions and downturns in world trade and financial crises.

Joseph E. Stiglitz, Nobel laureate in Economics in his work Globalization and Its Discontents published in
2002 expressed his views on globalization.

Stiglitz became disillusioned with the IMF and other international institutions, which he came to believe,
acted against the interests of impoverished developing countries. Stiglitz argues that the policies
pursued by the IMF are based on neoliberal assumptions that are fundamentally unsound.

Stiglitz argues that IMF policies contributed to financial crisis in East Asia and Argentina. Specific policies
criticised by Stiglitz include fiscal austerity, high interest rates, trade liberalization, and the liberalization
of capital markets and insistence on the privatization of state assets.

The theories which guide the IMF's policies are empirically flawed. Free market, neoclassical, and
neoliberal are all essentially euphemisms for the disastrous laissez-faire economics of the late 19th
century. This approach seeks to minimize the role of government—arguing that lower wages solve
problems of unemployment, and relying upon trickle-down economics to address poverty. Stiglitz finds
no evidence to support this belief, and considers the 'Washington Consensus' policy of free markets to
be a blend of ideology and bad science.

Stiglitz explains that globalization could be either success or failure, depending on its management.
There is a success when it is managed by national government by embracing their characteristics of each
individual country; however, there is a failure when it is managed by international institutions such as
IMF.

Globalization is beneficial under the condition that the economic management operated by national
government and the example is East Asian countries. Those countries (especially South Korea and
Taiwan) were based on exports through which they were able to close technological, capital and
knowledge gaps.

Stiglitz believes that if the national economy regulated by international institutions there could be an
adverse effect. It is because the international institutions such as IMF, WTO, and World Bank lack
transparency and accountability. Without government oversight, they reach decisions without public
debate and resolve trade disputes involving "uncompetitive" or "onerous" environmental, labor, and
capital laws in secret tribunals— without appeal to a nation's courts.

According to Stiglitz, IMF interventions all followed a similar free market formula. The IMF strongly
advocated "shock therapy" in a rush to market economies, without first establishing institutions to
protect the public and local commerce. Local social, political, and economic considerations were largely
ignored. Privatization without land reform or strong competitive policies resulted in crony capitalism,
large businesses run by organized crime, and neo-feudalism without a middle class.

Global Governance without global government

Stiglitz argues current procedures for globalization is “global governance without global government.”
Unlike states, which separation of powers exists, International financial institutions, IMF, WTO, and
World Bank, lack any necessary checks and balances. Those international financial institutions are
isolated and sole deciders of financial policies and enforce without hearing any dissenting opinions,
generally developing countries. IMF’s reckless liberalization, privatization, and deregulation violate
developing countries’ sovereignties. Thus rather than working for equity and extermination of poverty,
financial institutions become spokespersons of the financial community. The procedures and rhetoric of
financial institutions widen the gap between developed and developing, which resulted from
undemocratic paternalism and lack of accountability, transparency. Stiglitz dismisses the current global
governance without global government and argue for global social justice, global affinity to exterminate
poverty and create better environment.