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Alice Volpe Joseph Stiglitz wrote this book as a logical and chronological sequel of his best-seller “Globalization and His Discontents”. While in the previous book he highlighted the issues concerning globalization, in this one he tries to give some answers and practical proposals to make globalization work for all. What is, then, the main problem of globalization? It's a broken promise. While it was thought that everyone would be better off with the time, only few countries and few people eventually were. The bigger part of the world found itself to be worse off. Not only the wealth of the poorest part of the world did not increase, Stiglitz says, but nations are now facing greater inequality in the distribution of income. This, by and large, gave birth to sentiments against globalization, seen as the cause that triggered those inequalities. Stiglitz suggests that the problem shouldn't be in the process itself, but in the way it has been managed until now. He strongly believes that, if we manage to make globalization work, the results can be reversed, and we can eventually make most of the people and countries better off. Another World is Possible In his analysis of the effects of globalization, Stiglitz uses words like “fair” and “social justice”. His focus is on poverty, and how developed countries have responded to it. “Globalization”, he says, “has played a part both in the biggest successes—and in some of the failures”. And failure means, for instance, more than 300 million of people in Africa living with less than 1$ a day. This leads to diffuse “feelings of insecurity and powerlessness”, and the sensation that who has the means to do the most, the US, is not only doing little, but also in some cases making matters worse. The IMF has pushed in the past for a sort of “americanization” of the developing countries, with some dire consequences. Therefore, Stiglitz's program for making globalization work covers six areas: shifting the main focus on poverty, debt relief and financial aid, a fairer trade regime, an environmentalfriendly development policy, more attention on sustainable development, a reform of the global governance system. The Promise Of Development “The Washington Consensus put little emphasis on equity”. Starting from this point, Stiglitz briefly reviews how did globalization interact with local development in different parts of the world. The starting point is East Asia, so far the brightest example of how globalization can trigger economic development and social wealth. Government in East Asia, though, did not
follow strictly the Washington Consensus; they intervened to shape the development path, and waited for the local economy to be ready before opening their real and financial markets to foreign investments. Moreover, they did not trust in the market's inner capacity of wealth allocation, acting actively to be sure that the wealth would not go only to the richer minority. On the contrary, countries in Latin America and Russia followed the IMF rules, deepening their crises. Africa was totally “bypassed” by globalization. Stiglitz urges us to keep always in mind that, especially in developing countries, unemployment is not only a percentage but means hundreds of people without the basic needs for a living. Making Trade Fair The Washington Consensus has one firm answer to development: opening one country's market to free trade agreements. But “agreements of the past have been neither free nor fair. They have been asymmetric, opening up markets in the developing countries to goods from the advanced industrial countries without full reciprocation.” While The US pushes developing country for a full liberalization, it keeps some important industries in its own market subsidized. For instance, while the Doha Round is trying to reach agreements among the developing world for free trade of agricultural goods, the US and the EU subsidizes their own agricultures (and in the EU, CAP – common agricultural policy – is constantly being debated). A total liberalization of trade would mean, for everyone, a higher likelihood of a much more instable labour market. Moreover, Stiglitz argues, countries have the right and the obligation to protect their “infant industries” until they are ready to compete in the international arena. If something has to be done towards liberalization, it's in the opposite direction: an opening of developed countries to the poorer ones, through the elimination of non-tariff barriers such as subsidies, dumping duties and bilateral agreements, that sometimes have a political rather than economic rationale. Patents, Profits, and People Stiglitz criticizes TRIP, an agreement on Trade-Related Aspects of Intellectual Property Rights, for being too much developed countries-oriented and too little fair. There is a big risk that intellectual property rights end up in protecting some rich lobbies in the developed world instead of being a fair protection of intellectual work and knowledge. Patents create a monopoly. Only the owner of the patent has the right of using that product, and while their advocats argue that intellectual property rights stimulate competition and the invention of new and improved products, and consequently improve efficiency, there is evidence that the current system only generates “static inefficiency and reduced innovation”. The questions are what should be patented, how broad and how long the patent should be. The
answers are not obvious nor easy. But there should be a reduction in patenting life-saving innovations, such as HIV vaccines, for which now developing countries pay very high prices. The first step could be offering them those life-saving medicines at cost. Then find a way to unlink research to drug producers' solely interest; and protect traditional knowledge, which is too often “stolen” from developing countries by companies that then patent it and make profits from it. In brief, basic values should not be at the mercy of corporate interests. The Resource Curse The so-called “paradox of plenty” is another failure of globalization. Some countries are naturally blessed with natural wealth but are helplessly poor. The riches breed bad governance; where there is plenty of resources there's corruption and illegal appropriation of public wealth. Companies have incentives to work in these countries, where the strict anti-corruption law existing in their countries don't apply. Even if their home country's law prohibites bribery in other countries, corporations still have a strong incentive to break the law because the profits they can make are greater than the cost of being caught. The IMF pressures for privatization are another incentive since governments accept unfair agreements to face lower revenues after privatization. The international community must act in order to prevent further exploitation of this situation setting norms that both outlaw bribery at a global level and put incentives not to make it profitable for companies to do so. Saving the Planet Environment has nowadays become one of the most discussed topics of Globalization, for it sums up the characters of this process: everyone affects environmental damage, and everyone will get eventually damaged. It is a widespread example of the public good problem: no one has the particular interest in keeping it safe, where everyone benefits from externalities. It's true, Stiglitz says, we do not have the certainty that global warming is as letal as they are trying to convice us. It is a bet. The point is, we do not have the chance to bet. We do not have another world to live in, if we lose. Therefore we don't have any choice, and we must act now. The Kyoto protocol was an important turning point for global awareness, but it's flawed. The targeting system is not widely approved, and this lead to the refusal to subscribe by the US government. It doesn't set any target for developing countries, leaving out a big portion of highly polluting countries. Some possible reforms in this area, which though can be effective only if all the states comply with it, starting from the world's most polluter – the US, include a protection for Rainforests that avoid the current process of deforestation and subsequent replanting in countries such as Papua New Guinea; and some effective form of “green” taxation. The proposal is a tax in pollution to
affect directly the citizens, in order to improve everyone's awareness of the problem. The revenues from this tax can then lead to decrease in taxes on good things, like savings or work. Multinational Corporation Part of the blame about the wrong path taken by globalization is due to the unfettered power of multinational corporations. Of course they brought benefits, creating jobs in developing countries, but most part of the profits were then brought back home. Moreover, they did not pay for externalities, leaving developing countries to bear the costs of the damage they had provided. According to Stiglitz, the concept of limited liability has been taken to the point where the management thinks he only has to care about shareholders. This means carelessness about, for instance, environment or social costs of their actions. Stiglitz suggests that the concept should be revised in order to include some corporate social responsibility and improving corporate governance. The creation of a system of global laws for companies operating globally could help to limit corporations' power and to reduce the scope for corruption. The Burden of Debt Debt has to be relieved. There is no other solution for these countries that have no real possibility of being able to repay in the foreseeable future. A common argument that blames developing countries is that they “overborrowed”, thus now should bear the costs of their mistakes. But, Stiglitz says, we should not forget that there is a lender on the other side of the contract, usually coming from the developed world, which should be blamed as well. “Why have sophisticated, profit-maximizing lenders so often overlent?” There is a big difference between blaming poor, financially unsophisticated countries for overborrowing and blaming wealthy, financially sophisticated lenders of overlending. The latter means that lenders did not exercise any due diligence in “judging who is creditworthy”. In the end “the poor country's taxpayers paid for the rich country's lending mistakes”. While countries like Argentina were able to negotiate its debt with the IMF, most developing countries cannot. The poorest countries should just be relieved of their debt, which has no possibility to be recovered anyway, and the World Bank, their main lender, should have already considered this in its balance sheet. There should be some “credit sanctions” for the ones that lend to countries that feed terrorism, or war, or are under a regime: these lenders just would have no right to be repaid, thus be incentived not to lend. In general, there has to be a tendency though more lender's culpability, on one side, and a more “conservative borrowing” on the other side. Stiglitz proposes the establishmet of an orderly process of debt restructuring, that poses international rules to protect poor borrowers and prevent creditors from overlending, and set the same rules for all.
Reforming the Global Reserve System In the current reserve system, the US dollar is still the most used reserve currency, and the US has become the consumer of last resort. Countries hold reserves to enhance stability of their currency and their real economy. They form a buffer against unexpected changes in debt interest rates. In the recent years, the amount of reserves has increased dramatically, mostly due to the perception of financial instability in the world, especially after the “Asian crisis”. These reserves represent a very high opportunity cost for developing countries, that could use the money they hold in T-bills for highly profitable projects. And they suggest a problem in the currency reserve country of insufficiency of aggregate demand. Thus a system that was intended to decrease global instability is likely to increase it, without even bringing benefits to anyone. In the worst scenario, this can lead to a global crisis. In the best scenario, Stiglitz warns there is still the need for a reform. He proposes a “global greenbacks system”, a new form of fiat money to act as reserve. In this system this fiat money can be convertible with a pool of currencies, not only the US dollar, in order to improve the stability and reliability of the reserve system. These greenbacks could be, in turn, used for investments, thus breaking the zero-sum logic that has worked until now, and put an end to a system in which poor countries, holding huge amounts of reserves, provide lowinterest loans to developed ones. The funds that this system would provide are a great source of funding. They can become tools of basic development, or finance environment-friendly technologies, and so on. Democratizing Globalization Economic and industrial globalization has outpaced the globalization of democracy. Therefore it has been guided by economists rather than politicians. The process has been led by market fundamentalists, that do not include fairness or social equity in their principles. Thus the world has witnessed growing inequality and exploitation of the poorest by the richest, whereas it should have led to growing equality and broader profit sharing. There has to be a more democratic system, starting from the international institutions like the IMF and the World Bank, that have an undemocratic voting system and representation. There need to be “a change in mind set”, so that “more politicians and less technocrats” are in charge to set the rules, and make the attention shift from unfettered free market to a more aware development. The task will be “long and arduous”, but much is at stake, and we don't have the choice to remain idle waiting for the consequences of our actions to happen.