Globalization and

Its Discontents
by Joseph Stiglitz

Presented by
Eun Young Chough, Clement
Despres and Caroline Frost
 Outline
 The Foundations of our Global
Institutions and How They Have Failed
 Why the IMF policies are not working
 Case Studies:
East Asian Crisis and Russian
Transition Towards Capitalism
 Alternatives Strategies for
Development
 The IMF’s other Agenda
 Reforming International Economic
Institutions, Reshaping Globalization
 The War on
Globalization
 The Foundations of The
Bretton Woods
Institutions
 IMF was created to ensure global
economic stability
 Founded on the idea that the markets
did not always function as they ought
to
 World Bank was created to finance the
rebuilding of Europe after World War II
 Not concerned with the developing
world
 The Foundations of the
Bretton Woods
Institutions
 Both are Public institutions funded by
money provided by taxpayers from
around the world
 Taxation without representation
 Power structures of both institutions
are based on the economic power of
countries at the end of World War II
 Changes in the
Institutions
 Free market ideology of the 1980’s was
pushed on the developing world through
these institutions
 World Bank’s purpose now goes beyond just
lending for projects to providing broad
“structural adjustment loans”
 These loans required approval of IMF and
brought along IMF conditions
 Though IMF was supposed to be limited to
macroeconomic issues, it could reason that
almost any issue could affect the overall
economy
Why IMF Policies Are Not Working
A One Size Fits All Mentality
 Out of touch with countries for
whom they write economic
conditions
 “Cookie-cutter” economic stimulus
plans
 IMF “Confuses ends with
means”(27).
 Training of IMF macroeconomists
does not prepare them for the
Why IMF Policies Are Not Working
Liberalization and Its Discontents
 Liberalization is the
“removal of government
interference in financial
markets, capital markets
and barriers to trade”
(59)
 Trade liberalization can
hurt more than help
 Hypocrisy from powerful
nations
 Pendulum effect
 Why IMF Policies Are Not
Working
 Squashes out local
Foreign Investment
business and changes
culture of a place
 Some argue that it results
in lower prices which
benefits the poor
 With the absence of
competition laws, the
monopoly power of the
large firm eventually
allows it to raise prices
Why IMF Policies Are Not Working
Sequence and Pacing
 IMF fails to be sensitive to broader social
context of their decisions
 Policies and protections must be set up to ease
transitions
 Extreme changes such as trade liberalization
need to be introduced gradually
Why IMF Policies Are Not Working
Ignoring Social Issues
 IMF would advise a country with
budgetary concerns to charge fees for
children to go to school
 Result: girls are often pulled out of
school
 Countries should not follow such
advice as investing in education now
leads to a stronger economy later
 IMF often makes such blunders and
this is the reason we so little
improvement in the
 From Colonial Civil Servants
to Economic Advisers
 Power Abuse – Ethiopia example
 IMF claims to always negotiate but
IMF has the “Bully pulpit”
 Developing countries are essentially
forced to turn over economic
sovereignty
 IMF even means dictations of what
laws the country’s parliament has to
pass to meet IMF requirements
 IMF pushes certain policies that even
Americans don’t find acceptable for
The Nature of the IMF
in a Photo
 From The East Asian
Miracle to the Crisis
The East Asian Miracle
 East Asian countries did not follow IMF
advices:
Strong intervention of the government in the
economy
 Social Welfare and Education
 High savings and good investments

Roots of the East Asian Crisis

 Thai Real Estate Market Bubble
 Hot Money:
Irrational exuberance
Destabilizing inflow/outflow of speculative
money
 How the IMF
Exacerbated the
Crisis
Market Fundamentalism
Quick Capital Account Liberalization
 1st Mistake:
Contractionary policies, excessive
austerity
-Strangling with high interest rates
 2d Mistake:
Bumbling restructuring of banks and
corporations (identify who really owns the
bank before real restructuring and asset
stripping)
 3d Mistake: Risking political and social
 Russia’s Transition
to Capitalism
Opportunities
 Transfer from military spending
 Education, Resource rich country,
Industries and Know How
 From a controlled economy to free market:
Efficiency-Decentralization-Integration in the
World Economy
 Democracy
Challenges
 Regulations to set up « rule of law »
 Gradualists versus the Shock therapist
Disappointments
 Huge Inequalities, 90-99 54% Fall in GDP
 The establishment of a kleptocracy
 Little Freedom
 The Shock Therapy
Shock therapy « Liberalisation »:
Prices freed overnight =>
Hyperinflation
(except commodities such as oil!)
Perverse effect: rent seeking

Shock therapy « Stabilisation »:

Bringing inflation down=> raising
interest rates
Perverse effect: overvalued currency

Shock therapy « Privatisation »:

No matter how and who. Nepotism.
Perverse effect: Asset Stripping
 Other Grievances
1998 crisis
 Bailout ! $22.6b from IMF-
WB-Japan
 The Ruble appreciated
 Money flowed out of the
country
 Russia defaulted on the loan
3 weeks after !
 Ruble devaluated

Other Mistakes:
Inflation – Privatization - The
social context –Shock
Therapy - The Bolshevik
approach to market reform
 Better Roads to the
Market
 Poland’s strategy  China’s transition
strategy:
Gradual  Partial privatization,
privatization  “individual
Democratic responsibility
system”
support for
 Institutional
reforms, infrastructure
benefits for  Two-tier price
unemployed, system
adjusting  Township and
pensions for village public
enterprises
 Better Roads to the
Market

 Russia must go beyond its focus on

macrostabilizaiton and encourage
economic growth by:
Creating investment-friendly
environment
Establishing a federalist structure
Establishing political and social
stability (to create a good business
climate)
Collecting taxes
 The IMF’s Other
Agenda
 Inconsistency in IMF policies:
 Intervention to sustain exchange rates
 Attempts to quarantine “Contagion”
 Simplistic understanding of balance of
payments deficits
 Bankruptcy and moral hazard
 IMF’s condition approval of loans to
countries on participation by the private
sector
 IMF’s expansion of its role to be “Lender of
Last Resort”
 The IMF’s Other
Agenda

Why the lack of

coherence?

interest in the financial

community vs.
objective of enhancing
global stability
IMF’s pursue of
“sanctity of the credit
contract” over the
“sanctity of the social
 The Way Ahead
 Part of the solution: Reshaping the
three main international organizations
IMF, WTO,World Bank.
 IMF: financial interests have
dominated its original mission
 WTO: Trade interest is over all
 Market fundamentalism pushed over
all others views
 The Way Ahead
Solutions and recommendations:
Balance between the Gov’t and the
market for social cohesion
Global collective action for global
collective goods
Voting rights to developing countries
Fundamental reforms in governance of
IMF
and World Bank
Fund think tank
Increase openness and transparency
Limiting IMF’s role: limit to core area
 The Way Ahead
Reforming the IMF and global financial
system:
Acceptance of the dangers of capital
market liberalization;
Bankruptcy reforms
Less reliance on bailouts
Improvement in banking regulation
Improvement in risk management
Improvement in safety nets: unemploymen
insurance programs in developing countrie
Improvement in response to crisis
 The Way Ahead
 Reforming the the World Bank
“Selectivity” rather than
“Conditionality”
Debt forgiveness is needed in order
for developing countries to grow
 Reforming the WTO
Developing countries should take
steps to open up fair trade with
developing countries outside of WTO
framework:
Europe’s “Everything but Arms ”
More balances in addressing
developing countries’ interests and
 Globalization
with a Human Face
Policies needed for sustainable,
equitable and democratic
growth:

Developed countries must

eliminate their trade barriers

Manage their budgets better

Establish effective regulations

 Globalization
with a Human Face
Set up effective governments with
strong, independent judiciaries and
democratic accountability

Openness and transparency

International community should

accept the needs and rights of
developing
 Analysis and
Conclusion
A book about
Globalization?
Stiglitz tries to cover a
lot, the book is
cluttered with too
many thoughts
Partial to the World
Bank
Sharp insights drawn
from its experience
A Scientific Approach