The International Monetary Fund (IMF) was the post-war brainchild of John Maynard Keynes, who thought future economic downturns could be reduced by establishing a source of funds to stimulate the economies of countries without the resources to provide stimulus packages from their own reserves. As an international institution, the Fund would provide impartial aid and offset the protectionist beggar-thy-neighbor policies that had made the Great Depression a global phenomenon.
In the 1980's, however, the Fund's mission was derailed by the new brand of market fundamentalism that marked the Reagan/Thatcher years: the market always knows best, and the best thing a government can do is to stay out of it as much as possible. Subsequently, the Fund's loans have come with a number of restrictive conditions, forcing recipient governments to balance their budgets and keep inflation down, quite the opposite of what Keynes had initially intended.
The evidence through the 1990's, particularly with respect to the Asian financial crisis of 1997, and the transition to capitalism of the former Soviet bloc countries, is that the IMF's market fundamentalism has been a terrible mistake. Stiglitz argues convincingly that the IMF has not only failed to prevent the disasters in Asia and Eastern Europe, but that its policies have been a leading cause of the disasters in the first place, and its subsequent actions only made matters worse. Sending huge aid packages to Russia to hold off devaluation of the ruble only meant that the super-rich oligarchs had a little more time to pocket their cash, ship it out of the country and transform it safely into hard currency.
The IMF looks only at the limited set of numbers, like inflation and deficit, that affect the lives of Wall Street financiers, and pays no attention to figures like unemployment that matter to the poorest citizens in the countries the IMF is supposed to be helping. As a result, the rich are getting richer, and the poor are getting angrier. Globalization has unprecedented potential to raise the standard of living of people across the globe, but as it is presently being handled it is ravaging the developing world.
These are all points well worth making, and I'm glad I read the book to come to a clearer understanding of them. Despite its good intent, however, it's hamstrung by poor writing and presentation, and worse, by a vindictive righteousness that leads Stiglitz occasionally to ignore or distort the truth if it will help him to make his argument sound more convincing.
The problems begin with the title. The book isn't really about globalization per se; it focuses on the aspect of globalization with which Stiglitz is intimately familiar: international financial institutions like the World Bank and the IMF. "Globalization and its Discontents" is a catchy title, and I suppose it must have been hard to resist. But to be clear: this book is essentially an invective against the IMF, where Stiglitz stops short of accusing the Fund of outright malice, preferring to emphasize its dogmatism, stupidity, narrowness, and occasional venality.
The misleading title is symptomatic of the uncertain thrust of the book. The style is plodding--a couple of clichéd nautical metaphors hardly lift Stiglitz's style out of the mud--not to mention repetitive. The structure is unclear, so that Stiglitz returns to the same points in several chapters while never fully fleshing out other important points, all the while leaving the reader uncertain of where the argument is going. Besides the soporific style and sloppy structure, there are more than a few typos and inconsistencies in convention (is it the "Washington Consensus" or the "Washington consensus"?)
These shortcomings make for a tiresome read and weaken Stiglitz's argument at many points. What's worse is that Stiglitz seems willing to take a few steps beyond the truth if it helps him make his point. In one controversial passage, he all but claims that Stan Fischer, former deputy managing director of the IMF, was in the pocket of Citigroup and obediently took orders from Citigroup while planning the Fund's policies. He has since denied that he intended to smear Fischer, and I believe him. But sloppy writing is evidence of sloppy thinking: unintentionally accusing a respected economist of criminal venality is no small error.
In a similar vein, Stiglitz falls into equivocation where it serves his purpose. At the beginning of chapter 6, he first points to the number of former communist countries, including Russia, currently governed by former communists as evidence of Eastern Europe's disillusionment with market fundamentalism. In the following paragraphs, he attacks Yeltsin and Putin for the crony capitalism and corruption that's come from allying themselves with Wall Street's interests. Either the Russian leaders represent a rejection of the IMF's market fundamentalism or they don't; you can't have it both ways, certainly not in consecutive paragraphs. Nor can you insist that successful development relies on policies suited to intimate knowledge of the particulars of each individual country and then insist, as Stiglitz does early in the book, that the prime minister of Ethiopia is a responsible leader because Stiglitz chatted with him and he seemed like a nice guy. Stiglitz seems determined to make his point, and he won't let facts or logic get in his way. I want to agree with him, but he doesn't inspire my trust.
It's a shame that Stiglitz makes this book hard to like because I think it's an important one. The same argument could have been made in a shorter, clearer book that didn't stretch the truth in order to sound convincing. As it stands, the book provides plenty of easy targets for those who aren't inclined to agree with Stiglitz, and so it isn't likely to persuade many of the unconverted that the IMF needs to change its approach.
Some examples of what Stiglitz considers as bad IMF policies: 1) At the onset of the east Asian financial crisis, governments of countries fallen prey held balanced to surplus budgets and faced low inflationary pressures. IMF at this time ordered these governments to maintain balanced budgets. (During recessions tax revenues decrease, thus to keep a balanced budget governments have to cut down expenditures, which would further depress the economies). 2) East Asian governments were asked to build trade surplus without resorting to currency devaluation or tariffs. (According to the author this effectively amounted to asking to cut income to reduce imports because increasing export was close to impossible under the situation.) 3) IMF called for rapid privatization in the midst of the 1998 Russian financial crisis. (At that time the author claims Russia didn't even have an effective tax system, rendering tax collection from the newly privatized companies obsolete).
Some reasons behind IMF's calling for bad policies: 1) "Revolving doors" -- US government officials do favors for companies only to be appointed heads of the very companies they help after end of term/resignation. 2) Inexperience of the economists within the institution -- many according to Stiglitz lack experience dealing with problems specific to developing countries. 3) Conflict of interest -- IMF policies consistently strived to protect creditors to the developing countries foremost. This may be seen in IMF's opposition to currency devaluation during the East Asian and Russian financial crises. 4) Lack of transparency in decision-making -- the developed countries hold majority votes in the institution. In fact only US holds rights to effective veto.
Stiglitz summarizes what is needed in the chapter titled "The Way Ahead." In his own words: Acceptance of dangers of capital market liberalization and short-term capital ("hot money") flows. Bankruptcy reforms and standstills. Less reliance on bailouts. Improved banking regulation under certain circumstances. Improved risk management, safety nets and response to crises.
It is interesting to see reviewers criticizing Stiglitz on a partisan basis. He did not purport nationalization of private companies, nor oppose market liberalization in this book. He simply emphasized the importance of sequencing and pacing of privatization and market liberalization. In fact it is such "market fundamentalists" that he criticizes. To him every financial crisis requires eyes specific to the problem -- unilateralism, and substitution of sound economic reasoning with ideology, are to be shunned.
Having lived in a country that went through a financial crisis that resulted in IMF intervention, I agree with Stiglitz when he says that bad IMF policies may lead the respective country's citizens to hating US. There the managing director Camdessus even had become a household name. Though I did not know whether the suggested policies would prove to be true in the end they certainly looked Draconian. The grievances of the people I felt palpable as well.
For globalization to succeed it seems evident that discussions regarding the practices of financial institutions are required. This book is welcome in that it brings to the table an open invitation for such discussions. Stiglitz' points are well argued and thoroughly researched. However due to his canon-like exposition (he goes back to the same crises over and over again to make only slightly different observations) the book becomes tedious in the later half, and for this reason I would only recommend it to specialists.