Globalization and Its Discontents by Joseph E. Stiglitz
Book Summary
The International Monetary Fund (IMF) needs reform. The IMF has failed to both develop poor countries and provide stability during financial crises. The problem is the IMF’s institutional culture: the organization adheres to free market theories with “ideological fervor” and serves the financial community more than its client countries (Stiglitz 13). IMF practices have fostered the popular (and populist) discontent with globalization.
IMF policies are harmful. Stiglitz shows this through a careful country-by-country analysis of IMF initiatives since the 1980s. Three clear examples:
Argentina, despite studiously following IMF strategies, “has [had] double-digit unemployment for years” (27).
Kenya experienced “fourteen banking failures . . . in 1993 and 1994 alone” (32).
Russia’s transition from communism to capitalism was facilitated by the IMF. Before the
transition, Russia had a 2% poverty rate; “by late 1998, that number had soared to
23.8%” (153).
Countries that “explicitly reject” IMF strategies are often more successful (126). Two clear examples:
Malaysia did so during the East Asian Crisis of 1997 and experienced the shortest downturn.
China “averted” the crisis altogether by following policies “directly opposite” those advocated by the IMF (126).
The IMF has admitted mistakes in several of the situations above.
IMF policies rest upon debatable economic theory. The IMF’s standard policy prescription is the Washington Consensus: “fiscal austerity, privatization, and market liberalization” (53). Fiscal austerity—despite being an appropriate response to hyperinflation—is disastrous during a recession. Privatization and market liberalization are better policies, but the IMF pursues them with “excessive zeal” (64)—i.e., too rapidly. “Shock therapy” privatization leads to corruption and monopolies (141). Similarly, brisk trade liberalization squashes budding domestic firms, and financial market liberalization is destabilizing without a proper regulatory environment in place. (Stiglitz recommends a “gradualist” approach instead (141).)
The IMF reflects the “perspectives and ideology of the financial community” (207). Indeed, many of the IMF’s “key personnel” are alumni of or later recruited by financial firms (207). In addition to “market fundamentalism” (35), the IMF has embraced “Wall Street culture.” The Fund has a “prevailing culture of secrecy” and bullies client countries during loan negotiations (51). (Conditionality terms, for example, require a country to implement IMF political policies in order to receive funds.) In the end, many IMF initiatives—notably financial market liberalization and “bail-ins”—have benefited the financial community more than developing nations.
No wonder opponents of globalization see conspiracy. IMF initiatives since the 1980s have been harmful because they rest upon weak—or at least debatable—economic theory. The Fund has allowed the global financial community to overly influence its decision-making. The IMF needs reform.