Download My reading book is “Globalization and its discontents”

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Wong Wai
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Book: “Globalization and its discontents”
The author: Joseph Stiglitz
Joseph Stiglitz was Columbia University economics professor and a winner of the
Nobel Prize for Economics 2001. In this book, Stiglitz provided me with a unique
insider’s view about the management of globalization. He try to tell the readers that
globalization can be a positive force around the world, particularly for the poor, but
only if the IMF, World Bank, and WTO dramatically alter the way they operate. He
illustrated his point by relating his own experiences that he served for four years on
President Clinton's Council of Economic Advisors and then three years as chief
economist and senior vice president of the World Bank. For example, of his time at
the World Bank, he writes, "Decisions were made on the basis of what seemed a
curious blend of ideology and bad economics, dogma that sometimes seemed to be
thinly veiling special interests.... Open, frank discussion was discouraged--there was
no room for it."
In the beginning of the book, Chapter 1, the author shows the recognition of the
positive side of the Globalization. For example, since 1992, Jamaica market is open to
US, more poor children can get milk cheaply. Besides, Jamaica can learn the new
technology from the US. However, then, Stiglitz states that Globalization is not
working properly. He point out that it’s unrealized potential to eradicate poverty and
promote economic growth. For example, people living on less than $2 per day
increased to 2.8 billion in 1998 from 2.7 billion in 1990.
When reading this book, I know more about the functions and powers of the main
institutions that govern globalization-- from Stiglitz who has seen them at work first
hand. Those powerful organizations include the International Monetary Fund, the
World Bank, and the World Trade Organization. Although these three institutions take
responsibility to promote world financial stability, prosperity and free trade in recent
years, Stiglitz think that these global institutions broke their promises. He
demonstrates it by looking at many cases in the developing countries, such as Ethiopia.
In the Chapter 4 & 5, he also shows that how free market ‘shock therapy’ adopted by
IMF made millions in East Asia and Russia worse off than they were before.
Stiglitz blames the "market fundamentalism" adopted by the IMF that endorses the
view that a "free" market solves all problems flawlessly. It seems quite ridiculous.
Because IMF is established, based on a recognition that markets often did not work
well, there was a need for collective action at the global level for economic stability.
Stiglitz indicates that one-size-fits-all economic policies can damage rather than help
countries with unique financial, governmental and social institutions. Stiglitz writes in
his book that “the contrast between Russia’s transition, as engineered by the
international economic institutions and that of China, designed by itself, could not be
greater”. For example, in 1990, China GDP is 60% of Russia, while, after the decade,
the situation reversed. Russia GDP is only about 60% of China.
Besides, Stiglitz thinks that IMF advocates the capital account liberalization too
quickly without considering the financial system and development stage of
developing countries that partly leads to Asia crisis in 1997. Capital flows sometimes
are pro-cyclical. That is capital flows out of a country in a recession, precisely when
the country need it most, such as the cases on many Asia’s countries in 1997 Asia
crisis, and flows in during a boom, exacerbating inflationary pressures. Besides, he
believes the conditions imposed by IMF make the situation worsen when helping the
East Asia countries to deal with the crisis. These conditions includes: 1) Keep high
interest rates, 2) cutting public spending, 3) raising taxes, 4) require capital adequacy
ratio for bank. All this conditions is not good for the already depressed economy made
by the crisis. As a result, the economic conditions in those Asian countries, which are
assisted by IMF, have been worsening. For example, in order to maintain capital
adequacy ratio of the bank, there are two ways of increasing the ratio of capital to
loans: I) increasing capital (it is difficult during the crisis). II) reducing loans. As for
reducing loan, banks firstly cut back on their finance, leading firms to cut bank on
their production, which in turn leads to lower output and lower incomes. As output
and incomes decrease, profits fall, and some firms are forced into bankruptcy. When
the firms declare bankruptcy, banks’ balance sheet become worsen, and the banks
need to cut bank leading even further, exacerbating the economic downturn.
In Chapter 6, Stiglitz blames Western countries’ hypocrisy that the IMF and WTO
preach fair trade yet impose crippling economic policies on developing countries.
Western countries only care about their own interest but neglecting the benefit of the
developing nations. He said in his book that Western countries, such as USA, had set
up many unfair trade laws to the developing countries. For example, western countries
push poor countries to eliminate trade barriers, but keep their owns.
After reading this book, I agree the author that those global organizations must
increase their transparency and have a greater willingness to examine their own
actions closely. Because every act and policy of these organizations would really
affect our daily life, especially for those developing nation’s people. I think if the
fruitful results of the globalization can be distributed more equally between the
developed countries and developing countries by the management of those global
institutions, the argument about Globalization would be less.