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GLOBALIZATION. AND ITS. DISCONTENTS. Joseph E. Stiglitz. W. W. NORTON &. COMPANY. NEW YORK. LONDON. Page 2. 52. GLOB

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GLOBALIZATION AND ITS DISCONTENTS

Joseph E. Stiglitz

W. W. NORTON NEW YORK

&

COMPANY

LONDON

52

GLOBALIZATION AND ITS DISCONTENTS

the institutions made it difficult for Congress-or anyone else-to see what was going on. Only because of a leak was the matter discovered, generating outrage even among congressmen and women accustomed to bureaucratic maneuvering. Today, in spite of the repeated discussions of openness and transparency, the IMF still does not formally recognize the citizen's basic "right to know": there is no Freedom of Information Act to which an American, or a citizen of any other country, can appeal to find out what this international public institution is doing. I should be clear: all of these criticisms of how the IMF operates do not mean the IMF's money and time is always wasted. Sometimes ~oney has gone to governments with good policies in place-but not necessarily because the IMF recommended these policies. Then, the money did make a difference for the good. Sometimes, conditionality shifted the debate inside the country in ways that led to better policies. The rigid timetables that the IMF imposed grew partly from a multitude of experiences in which governments promised to make certain reforms, but once they had the money, the reforms were not forthcoming; sometimes, the rigid timetables helped force the pace of change. But all too often, the conditionality did not ensure either that the money was well used or that meaningful, deep, and long-lasting policy changes occurred. Sometimes, conditionality was even counterproductive, either because the policies were not well suited to the country or because the way they were imposed engendered hostility to the reform process. Sometimes, the IMF program left the country just as impoverished but with more debt and an even richer ruling elite. The international institutions have thus escaped the kind of direct accountability that we expect of public institutions in modern democracies. The time has come to "grade" the iriternational economic institution's performance and to look at some of those programs-and how well, or poorly, they did in promoting growth and reducing poverty.

CHAPTER

3

FREEDOM TO CHOOSE?

a "balance

of trade."

( through. ecori;;.rhi~·RCi~ withholding of need;d":~;i;t;rJ2~~'ln·a'!tfm¢'t... .While the World Trade Organization was the forum within which international trade agreements were negotiated, US. trade negotiators and the IMF have often insisted on going further, accelerating the pace of trade liberalization. The IMF insists on this faster pace of liberalization as a condition for assistance-and countries facing a crisis feel they have no choice but to accede to the Fund's dematlds.

FREEDOM TO CHOOSE?

*

-l\4~"t't:(%~'~

erallyratlle. '. . .. . ..~p_ resentative!l?:r.FiB~~'~;~W1ifa)r~~$it'~'{f~~~~~~'often prodCled) by special interests within the United States, brings an accusat{;;n against a foreign country; there is then a review process-involving only the US. government-w~;:a;;$i~qi.*B:~;~$~~;:· . '" ·:~t~J~s, after . country. The which· sanctions are':brought'~g~irist the'o"S United States sets itself up as prosecutor, judge, and jury. There is a quasi-judicial process, but the cards are stacked: both the rules and '"the judges favor a finding of guilty. When this arsenal is brought against other industrial countries, Europe and Japan, they have the resources to defend thelllselv:s;:Wh'm~s..t()J;h:edeV:eloping countries, even largeones.·1Fke~;In:d1ib ;i~?lS"a:n unfair match. The ill will that results is far out of proportion to any possible gain for the United States. The process itself does little to reinforce confidence in a just international trading system. The rhetoric the United States uses to push its position adds to the image of a superpower willing to throw its weight around for its own special interests. Mickey Kantor, when he was the US. Trade Representative in the first Clinton administration, wanted to push China to

i

open its markets faster. The 1994 Uruguay Round negotiations, in which he himself had played a major role, established the WTO and set ground rules for members. The agreement had quite rightly provided a longer adjustment period for developing countries. The World Bank, and every economist, treats China-with its per capita income of$450-not only as a developing country but also as a lowincome developing country. But Kantor is a hard negotiator. He insisted that it was a developed country, and should therefore have a quick transition. Kantor had some leverage because China needed U.S. approval in order to join the WTO. The United States-China agreement that eventually led to China's being admitted to the WTO in November 2001 illustrates two aspects of the contradictions of the US. position. While the United States dragged ~ut the bargaining with its unreasonable insistence that China was re:::::.

'T~~r~e?o~~

of .... '.•.... ,.. ". long-term success, there had to be Or 'ai:'C~tippd'¥ron11.e"r~fb~!!!~'.1 and if there was to be broad support, the benefits had to be "bt6;iWy distributed. We have already called attention to some of these successes: the limited successes in Mrica, for instance, in Uganda, Ethiopia, and Botswana; and the broader successes in East Asia, including China. In chapter 5, we shall take a closer look at some of the successes in transition, such as Poland. The successes show that development and transition are possible; the successes in development are well beyond that

.;

2!il

88

GLOBALIZATION AND

ITs

DISCONTENTS

which almost anyone imagined a half century ago. The fact that so many of the success cases followed strategies that were markedly different from those of the Washington Consensus is telling. ",,;,lliach time and each c01lntry isdiEfe;li¢:t'!!t Would other countries have met the same success if they had followed East Asia's strategy? Would the strategies which worked a quarter of a century ago work in today's global economy? Economists can disagree about the answers to these questions., But countries need to consider the alternatives and, through democratic political processes, make these choices for themselves. It should be-and it should have been-the task of the international economic institutions to provide the countries the wherewithal to make these iriformed choices on their own, with an understanding of the consequences and risks of each. The essence of freedom is the right to make a choice-and to accept the , responsibility that comes with it.

CHAPTER

4

J•

THE EAST ASIA CRISIS How IMP Policies Brought the World to the verge of a Global Meltdown

W

HEN THE HAl baht collapsed on ul 2,1997, none knew that this was the beginning of the g,reates eco, nomic crisis since tj;Je Great DepressiOJ:l.-one that would sprea~Asia to Russia and Latin America and threaten the entire world. For ten years the baht had traded at around 25 to the dollar; then overnight it fell by about 25 percent. Currency speculation spread and hit Malaysia, Korea, the Philippines, and Indonesia, and by the end of the year what had started as an exchange rate disaster threatened to take down many of the region's banks, stock markets, and even entire economies. The crisis is over now, but countries such as Indonesia will feel its effects for years. Unfortun'9'tely, the IMF policies imposed during t~is _tl,!!pl}lt!:!:2.!:!§ tim~_'iVQI~- ..tht:, situa~­ t~on'..,..sincethe IMF was founded precisel~'to avert and deal with crises of this kind, the fact that it failed in so many ways led to a major rethinking of its role, with"-many people III the United States and abroad calling for an overhaul of many of the Fund's policies and the institution itself. Indeed, in retrospect, it became clear that the IMF policies not onI -exace.~ __ .... the do nturns but w a~tially \ ...

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