Globalization and Its Discontents

by Joseph Stiglitz Presented by Eun Young Chough, Clement Despres and Caroline Frost

Outline
The Foundations of our Global Institutions and How They Have Failed Why the IMF policies are not working Case Studies: East Asian Crisis and Russian Transition Towards Capitalism Alternatives Strategies for Development The IMFs other Agenda Reforming International Economic Institutions, Reshaping Globalization

The War on Globalization

The Foundations of The Bretton Woods Institutions

IMF was created to ensure global economic stability Founded on the idea that the markets did not always function as they ought to World Bank was created to finance the rebuilding of Europe after World War II Not concerned with the developing world

The Foundations of the Bretton Woods Institutions

Both are Public institutions funded by money provided by taxpayers from around the world Taxation without representation Power structures of both institutions are based on the economic power of countries at the end of World War II

Changes in the Institutions

Free market ideology of the 1980s was pushed on the developing world through these institutions World Banks purpose now goes beyond just lending for projects to providing broad structural adjustment loans These loans required approval of IMF and brought along IMF conditions Though IMF was supposed to be limited to macroeconomic issues, it could reason that almost any issue could affect the overall economy

Why IMF Policies Are Not Working

A One Size Fits All Mentality
Out of touch with countries for whom they write economic conditions Cookie-cutter economic stimulus plans IMF Confuses ends with means(27). Training of IMF macroeconomists does not prepare them for the

Why IMF Policies Are Not Working Liberalization and Its Discontents
Liberalization is the removal of government interference in financial markets, capital markets and barriers to trade (59) Trade liberalization can hurt more than help Hypocrisy from powerful nations Pendulum effect

 Squashes out local business and changes culture of a place Some argue that it results in lower prices which benefits the poor With the absence of competition laws, the monopoly power of the large firm eventually allows it to raise prices

Why IMF Policies Are Not Working Foreign Investment

Why IMF Policies Are Not Working Sequence and Pacing

IMF fails to be sensitive to broader social context of their decisions Policies and protections must be set up to ease transitions Extreme changes such as trade liberalization need to be introduced gradually

Why IMF Policies Are Not Working Ignoring Social Issues

IMF would advise a country with budgetary concerns to charge fees for children to go to school Result: girls are often pulled out of school Countries should not follow such advice as investing in education now leads to a stronger economy later IMF often makes such blunders and this is the reason we so little improvement in the

 Power Abuse Ethiopia example IMF claims to always negotiate but IMF has the Bully pulpit Developing countries are essentially forced to turn over economic sovereignty IMF even means dictations of what laws the countrys parliament has to pass to meet IMF requirements IMF pushes certain policies that even Americans dont find acceptable for

From Colonial Civil Servants to Economic Advisers

The Nature of the IMF in a Photo

From The East Asian Miracle to the Crisis

The East Asian Miracle East Asian countries did not follow IMF advices: Strong intervention of the government in the economy Social Welfare and Education High savings and good investments Roots of the East Asian Crisis Thai Real Estate Market Bubble Hot Money: Irrational exuberance Destabilizing inflow/outflow of speculative money

How the IMF Exacerbated the Crisis

Market Fundamentalism Quick Capital Account Liberalization 1st Mistake: Contractionary policies, excessive austerity -Strangling with high interest rates 2d Mistake: Bumbling restructuring of banks and corporations (identify who really owns the bank before real restructuring and asset stripping) 3d Mistake: Risking political and social

Russias Transition to Capitalism

Opportunities Transfer from military spending Education, Resource rich country, Industries and Know How From a controlled economy to free market: Efficiency-Decentralization-Integration in the World Economy Democracy Challenges Regulations to set up rule of law Gradualists versus the Shock therapist Disappointments Huge Inequalities, 90-99 54% Fall in GDP The establishment of a kleptocracy Little Freedom

The Shock Therapy

Shock therapy Liberalisation: Prices freed overnight => Hyperinflation (except commodities such as oil!) Perverse effect: rent seeking Shock therapy Stabilisation: Bringing inflation down=> raising interest rates Perverse effect: overvalued currency Shock therapy Privatisation: No matter how and who. Nepotism. Perverse effect: Asset Stripping

Other Grievances
1998 crisis Bailout ! $22.6b from IMF-WBJapan The Ruble appreciated Money flowed out of the country Russia defaulted on the loan 3 weeks after ! Ruble devaluated Other Mistakes: Inflation Privatization - The social context Shock Therapy - The Bolshevik approach to market reform

Better Roads to the Market

Polands strategy Chinas transition strategy: Gradual Partial privatization, privatization individual responsibility Democratic system support for Institutional reforms, infrastructure benefits for Two-tier price unemployed, system Township and village adjusting public enterprises pensions for
Opening to foreign

Better Roads to the Market

Russia must go beyond its focus on macrostabilizaiton and encourage economic growth by: Creating investment-friendly environment Establishing a federalist structure Establishing political and social stability (to create a good business climate) Collecting taxes

The IMFs Other Agenda

Inconsistency in IMF policies: Intervention to sustain exchange rates Attempts to quarantine Contagion Simplistic understanding of balance of payments deficits Bankruptcy and moral hazard IMFs condition approval of loans to countries on participation by the private sector IMFs expansion of its role to be Lender of Last Resort

The IMFs Other Agenda

Why the lack of coherence? interest in the financial community vs. objective of enhancing global stability IMFs pursue of sanctity of the credit contract over the sanctity of the social

The Way Ahead

Part of the solution: Reshaping the three main international organizations IMF, WTO,World Bank. IMF: financial interests have dominated its original mission WTO: Trade interest is over all Market fundamentalism pushed over all others views

The Way Ahead

Solutions and recommendations: Balance between the Govt and the market for social cohesion Global collective action for global collective goods Voting rights to developing countries Fundamental reforms in governance of IMF and World Bank Fund think tank Increase openness and transparency Limiting IMFs role: limit to core area

The Way Ahead

Reforming the IMF and global financial system: Acceptance of the dangers of capital market liberalization; Bankruptcy reforms Less reliance on bailouts Improvement in banking regulation Improvement in risk management Improvement in response to crisis

Improvement in safety nets: unemploymen insurance programs in developing countrie

The Way Ahead

Reforming the the World Bank Selectivity rather than Conditionality Debt forgiveness is needed in order for developing countries to grow Reforming the WTO Developing countries should take steps to open up fair trade with developing countries outside of WTO framework: Europes Everything but Arms More balances in addressing developing countries interests and

Policies needed for sustainable, equitable and democratic growth:

Globalization with a Human Face

Developed countries must eliminate their trade barriers Manage their budgets better Establish effective regulations

Globalization with a Human Face

Set up effective governments with strong, independent judiciaries and democratic accountability Openness and transparency International community should accept the needs and rights of developing

Analysis and Conclusion

A book about Globalization? Stiglitz tries to cover a lot, the book is cluttered with too many thoughts Partial to the World Bank Sharp insights drawn from its experience A Scientific Approach