June 09, 2002

Stiglitz, Globalization and Its Discontents

Joseph Stiglitz (2002), Globalization and Its Discontents (New York: Norton: 0393051242).


I'm reading Joseph Stiglitz's brand-new Globalization and Its Discontents, and having trouble with it. It seems as though Stiglitz switches back and forth between different positions at blinding speed, so I cannot figure out what his critique of IMF policy in the 1990s is--or what policy changes follow from it.

Consider, for example, Stiglitz's critique of IMF policy toward Indonesian dictator Suharto. At one point in the book Stiglitz criticizes the "Washington Consensus" for not talking Indonesia down--for encouraging foreigners to invest in Indonesia. At another point he criticizes the IMF and company for not doing enough to prop up Suharto--on the grounds that order under even a corrupt dictator is better than political and social turmoil. At yet a third point he says that the IMF should have given ample aid to Indonesia without requiring conditions that would impinge on Indonesia's sovereign right to choose its own economic policies. And at a fourth point he says the IMF should have shut down all aid to Indonesia because of Suharto's corruption. The net effect is to make my head spin: I don't know how Stiglitz thinks that the IMF and company should alter their policies to do better in the future.

On page 41, for example, Stiglitz criticizes the IMF for trying to bind Suharto, Indonesia's corrupt dictator, with conditions to ensure that IMF aid will not be stolen or wasted: "... the Fund's approach... had the feel of a colonial ruler. A picture can be worth a thousand words.... The IMF's Managing Director, Michel Camdessus... is standing with a stern face and crossed arms over the seated and humiliated president of Indonesia... [who is] being forced... to turn over economic sovereignty of his country to the IMF in return for the aid his country needed." The policy message appears to be "less conditionality"--never mind fears that the money will be misused and the fact that Suharto is a corrupt dictator, Indonesia has a sovereign right to make its own economic policy and the IMF should lend with no strings attached so that it can carry out its own economic policy.

Yet on page 47, Stiglitz criticizes the IMF for "maintain[ing] a flow of money, billions of dollars, to Russia and Indonesia.... [T]he Fund was overlooking grand larceny" and should have been much tougher. Now the policy message is "no aid to corrupt dictators"--never mind that a cutoff of aid would have little effect on Suharto's standard of living, and done a great deal of destruction to Indonesia's poor; and never mind the complaints six pages earlier that the IMF's attempts to constrain what Suharto would do with the money were infringements on Indonesia's economic sovereignty, hence bad.

By page 127, Stiglitz has switched gears again. Here the criticism of the IMF is that it, through its policies, accelerated the fall of Suharto. He thinks that it would have been good had the IMF paid much more attention to making sure that Suharto could stay in power--corrupt as he was--in order for there to be an "orderly transition." IMF policies were bad because the collapse of the dictator's power produced "political and social turmoil... attributable in no small measure to IMF policies." Here the policy lesson is "let the dictators plunder, for order is better than anarchy or turmoil"--never mind that 51 pages earlier Stiglitz had sharply criticized policy moves which he read as designed to reinforce Suharto's power and let him continue to take his 10%.

Yet back on page 71, Stiglitz criticizes the U.S. (and, implicitly, the IMF) for not discouraging businesses from investing in Indonesia. Under such a corrupt regime as Indonesia had, Stiglitz argues, "... investment often flourishes only because of special privileges extracted from the government... the result of corruption, the bribery of government officials... undermining democratic processes... do not promote growth." Whether foreign investment in a country is more a valuable carrier of new technological capabilities into a country or a way for foreigners and a corrupt elite to plunder the country is an important issue. But Stiglitz appears to have forgotten the particular case in search of the general principle. There is little doubt that in Indonesia since 1965 growth was the primary and plunder the secondary result: standards of living and levels of labor productivity in Indonesia today are three times what they were in 1965, as Indonesia has been one of the fastest-growth economies in the world, and one in which growth has been relatively evenly distributed. The policy lesson here is "don't invest where the government isn't squeaky clean, for it may do more harm than good"--never mind that countries like the U.S. in the late nineteenth century were far from squeaky clean, and yet managed to benefit massively from foreign investment.

By now I have counted four different positions. In the first, Stiglitz believes that the IMF's big problem is that it is a neocolonialist institution that does not give developing country heads of government free reign to draw on IMF resources to run their economies as they see fit. In the second, Stiglitz believes that the IMF's big problem is that it lets corrupt dictators draw on IMF resources. In the third, Stiglitz believes the the IMF's problem in Indonesia is that it abruptly pulled the rug out from under the corrupt dictator. In the fourth, Stiglitz believes that the problem is that the "Washington Consensus" encourages first-world investors to invest in countries with corrupt dictators and technocratic elites.

So which is it? Loose the conditionality strings on governments that are untrustworthy, or stop lending to them completely? Discourage first-world investors from seeking to profit by investing in developing countries, or encourage them to do so--and pay the corrupt dictators their 10%--because to disrupt a working if corrupt order threatens to produce destructive chaos?

Until Stiglitz can figure out which of these four positions is truly his, we won't know in which direction he thinks world economic governance should move. And we won't know what to think of his book.

Posted by DeLong at June 9, 2002 08:22 PM

Comments

pls send me copy of the book on disadvantages of globalisation or text online

Posted by: on August 16, 2002 03:20 AM

I working on globalization issues

Posted by: Hikmatullo on December 25, 2002 12:33 PM
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