FEATURE Mistakes Were Made The Architects of Globalization BY GABRIELA BOCAGRANDE Globalization and Its Discontents by Joseph E. Stiglitz W.W. Norton & Company 282 pages, $24.95. 0 verall, the world of high finance is a personal and emotional place for Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics. He has been a cabinet member in the Clinton administration, as well as Chairman of the Council of Economic Advisors, and chief economist and senior vice president of the World Bank, and so he is in a position to know the political and economic leaders behind the globalization of corporate capital. And in his book, Globalization and its Discontents, he reports that those people running the International rest of the world, while arrogant, rigid and bloody-minded, are not ill-intentioned or instinctively mean. In detailing the ways in which the IMF has failed so unequivocally to reduce poverty and promote decent employment, or even contribute to a reasonable standard of international economic stability, Mr. Stiglitz reports reluctantly that its staff and management generally meant well, but they are, it turns out, not bright. Mr. Stiglitz takes on the job of explaining how it is that Keynesian institutions, such as the World Bank and the IMF, born in the aftermath of the Great Depression and World War 1 II, have transformed themselves into compulsive international budget cutters, slashing away at public expenditures every time one of their unlucky debtor countries slips into recession. According to Mr. Stiglitz, in the late ’60s, Robert McNamara, the president of the World Bank, assembled a first-class team of economists to eliminate the poverty he had observed throughout the Third World. But in 1981, along came A.W Clausen as the Bank president and with him, Ann Krueger, who saw poverty as a failure of governments rather than a failure of markets. In her view, markets were the solution to poverty in developing countries, and in this climate of ideological fervor, many members of McNamara’s crack economic team left the Bank and the Fund. In Mr. Stiglitz’s analysis of international financial turmoil, certain macro-political factors do crop up, but his emphasis is always on the psychological rather than the institutional. Underlying the problems of the IMP and the other international economic institutions is the problem of governance: who decides what they do. The institutions are dominated not just by the wealthiest industrial countries but by commercial and financial interests in those countries, and the policies of the institutions naturally reflect this. The choice of heads for these institutions symbolizes the institutions’ problem, and too often has contributed to their dysfunction. Globalization chronicles the dysfunction: how the IMF’s economic shock therapies pushed each loan-seeking government facing an economic reversal in the late ’90s over the edge into full-blown catastrophe. For its micro view of macroeconomic policy-making, Globalization is a valuable document. There are few World Bankers willing to talk from the inside out and even fewer IMF’ers. On the outside, we are always trying to guess what the hell they are thinking of over there while they’re dreaming up their Enhanced Structural Adjustment Facilities or Highly Indebted Poor Country Initiatives that somehow always make poor people poorer. And now we know. As the IMF faced the crisis in East Asia in 1997, its economists believed that higher interest rates, devaluation, continued liberalization of capital markets, and cutbacks in government spending would, in the end, revive the economies of Thailand, Malaysia, South Korea, and Indonesia. These measures, together with IMF bailouts, would induce creditors who could not be paid to restructure their loans and encourage speculators to gamble elsewhere. Instead, the opposite occurred. High interest rates only redflagged the risk of holding East Asian currencies and fueled capital flight, while strangling domestic investment. Fiscal austerity depressed demand, then production, then employment, then demand, etc. Devaluation, intended to cheapen exports and build hard currency reserves, simply introduced economic contagion, rapidly spreading the crisis from one country to another as each government adopted “Beggar-thy-Neighbor” trade policies. Alternative monetary policies for East Asia, discussed behind closed doors at the time, are described here and explain the depth of the fear and loathing that the IMF now inspires around the world. During the East Asian crisis, the government of Japan offered to establish a $100-billion fund to finance economic stimuli in the region. The IMF and the U.S. Treasury Department “squelched the idea,” only to accept a scaled-back fund later, so long as the money was used largely to bail out American and other foreign banks and creditors rather than to stimulate the depressed economies. 6 THE TEXAS OBSERVER 1117103
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