BAD MEDICINE
Globalization and its discontents by Joseph Stiglitz

BAD MEDICINE

Globalization and its discontents
By Joseph Stiglitz, Penguin paperback, April 2003, ISBN: 0-141-01038-X, 304 Pages.

What, if anything, has changed in the world since the publication a year ago of Joseph Stiglitz’s seminal book Globalization and its discontents, now in its second updated edition? Stiglitz first launched his book at the World Bank, where he was Chief Economist, in June 2002, and it immediately sent shock waves around the world. Here was a Washington Consensus insider — a former chair of President Clinton’s economic advisory panel, a Nobel Prize winner in economics who had advised the Chinese on their market reforms — blowing the whistle on the policy failures of the International Monetary Fund. Only an insider of his impeccable credentials — and an American at that — could write such a book with such authority. The world, and the Consensus triumvirate of the IMF, the World Bank and the US Treasury, had to listen. The IMF especially didn’t like what it heard and initially rushed to its own defence.

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‘Stiglitz argues that the ‘shock therapy’ of IMF’s economic reforms, and the lack of a measured ‘sequencing’ of their implementation, often did more harm than good.’
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Third World countries had long deplored the reform pressures put on them by the IMF, but it was the antiglobalisation protests in Seattle, Genoa and elsewhere which first indicated the depth of public concern in the West too. Stiglitz’s book essentially analyses the impact of the IMF’s three-pronged doctrinaire approach of stabilisation (of inflation), privatisation (of state owned enterprises), and liberalisation (of emerging market economies to international competition). Not bad targets in themselves, especially applied to Latin American countries’ hyperinflation of the 1980s. (Though look at the state of Argentina now, Stiglitz said in London recently). He argues that the ‘shock therapy’ of economic reforms, and the lack of a measured ‘sequencing’ of their implementation, often did more harm than good.

An advocate of ‘gradualist’ policies, Stiglitz bases his argument on his own experience in China which has seen record economic growth, at a time when Russia’s industrial output and GDP declined dramatically by over 50 per cent in the decade following the collapse of communism. Social safety nets and basic market infrastructures were simply not in place in Russia and economic collapse exacerbated poverty, a story repeated in too many developing countries.

Stiglitz is most robust when he says that the IMF refused loans to small corrupt regimes, such as that under Moi in Kenya, but poured billions of wasted dollars into trying to prop up the rouble in a far more corrupt Russia. It took only days for oligarchs to ‘to bleed the money out of the country’ into Cypriot and Swiss bank accounts. "A smiling Viktor Gerashchenko, the chairman of the Central Bank of Russia, told the president of the World Bank and me that it was simply ‘market forces at work’," Stiglitz writes. Within three weeks the rouble was devalued anyway, thus allowing local enterprises to compete with the price of imports.

Indeed, the countries, such as Poland and China, which most resisted the IMF medicine are the ones which have fared best, argues Stiglitz. And Russia itself is now turning a corner with record investments in its oil and natural gas industries by BP ($6.5bn) and Royal Dutch Shell (over $10bn), seen as a vote of confidence in Russia’s long-term prospects.

Stiglitz urges the need for far greater accountability and transparency in the IMF’s decision-making and, he told an audience at St Paul’s Cathedral in London in May 2003, there are signs that the IMF is undergoing a rethink. Its PhD economics graduates, who too often have little or no first hand experience of the countries they are prescribing to, are perhaps beginning to show signs of humility.

Michael Smith is Co-ordinator, UK, Caux Initiatives for Business and Associate Editor, For A Change magazine.

This article originally appeared in the print and online business publication European Business Forum (EBF) - www.ebfonline.com