Globalisation and its discontents joseph stiglitz Globalisation - the closer integration of the countries and peoples of the

e world which has been brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and (to a lesser extent) people across borders. Globalization has been accompanied by the creation of new institutions that have joined with existing ones to work across borders (ILO decent work; WTO; World Health Organisationetc.). 1. The promise of global institutions Protests against globalisation, although not new, have risen even in developed countries at present great concern that globalisation is not making life better for those most in need of its promised benefits *NAFTA 1992 USA + Canada + Mexico North American Free Trade Area Benefits until now: o International trade export driven internal economic growth o Reducing isolation antiglobalisation protests are made possible o International treaties international land mines treaty o Foreign aid education, disease containment etc. Haves vs. have-nots! increasing poverty and instability People living in poverty + 100 mil in the same period with an increase in the total world income by 2.5% annually!! Africa after decolonisation Crises in Asia and Latin America Hypocrisy of the western countries forcing poor states to lower their trade barriers, but kept up their own The eighth agreement the Uruguay Round 86-95 led to GATT transforming into WTO. o Strengthening the intellectual property rights still, not balanced properly reflecting more the benefits of producers rather than consumers (developing states)

Unsuccessful globalisation projects imposed poor countries to repay the western Banks loans, caused environmental destruction, unemployment, social dissolution increasingly vehement. Inability of the developing countries to modify the rules of the agreements conditionality vs. national sovereignty menace to democracy in itself.

Three main institutions governing globalisation: IMF, WTO and World Bank IMF + World Bank 1944, results of the Breton Woods UN Monetary and Financial Conference finance the rebuilding of Europe (especially WB whose original name was International Bank for Reconstruction and Development) and avoiding another global depression like the one in the 1930s (IMF) IMF mainly stimulate the aggregate demand and provide loans to countries in difficulty o Need for collective action at the global level for economic stability (IMF) o Need for collective action at the global level for political stability (UN) o Public institution founded on money from the tax-payers, accountable to ministries of finance and central banks across the world USA single veto power Most dramatic change in the IMF and WB 1980s Ronald Reagan + Margaret Thatcher the free market ideology in US and UK the Washington Consensus 1990s the fall of communism new arena for IMF & WB transitional economies o Division of labour: IMF macroeconomics budget deficits, loans, inflation..etc. WB structural issues financial institutions, labour markets, trade policies...etc.

The two institutions could have provided countries with alternative perspectives on some of the challenges of development and transition, and in doing so they might have strengthened democratic processes. But they were both driven by the collective will of the G-7 (US, Jap., Ger., Canada, Fr., It. & UK) no democratic debate on alternative strategies. The IMF failed in its mission to provide global economic stability and did not support properly the transitional economies premature market liberalization + imperialistic conditional rules for loans + going above WBs attribution.

 WTO needed to govern international trade relations WTO does not set rules itself forum for international trade negotiations Although the original purposes of the IMF, WB, WTO were generally well-founded, they gradually evolved into unproductive and even harmful policies imposed upon states without previous pre-testing, and even after proofs of disfunctionality blanket protectionism or rapid trade liberalisation has often led to the adverse effects especially for the developing countries that lowering their trade barriers, could not compete with the largely subsidised products from abroad no safety nets crisis and depression. The fall of communism extreme extension of the IMF mandate states looking for help or approval had to follow the IMF prescriptions which were most of the times mistaken Sequencing order of the reform occurrence most important for successful ec. Programmes.

The underlying problems o governance who takes decisions? wealthiest, industrialised countries the institutions are not representative for the nations they serve. o Who speaks for the country trade ministers or finance ministers different purposes. For the developing countries the system run by the IMF is taxation without representation. Lack of a global government to watch over the process of globalisation and hold accountable international organisations. Present system global governance without global government those affected by decisions are voiceless.

2. Broken Promises WB eradicating poverty vs. IMF maintaining global stability Modern economics is similar to modern warfare removing physical contact one imposes policies without confronting with their direct consequences and with the ones affected by them (specific to IMF only one representantive in each country vs. WB teams, some even living in the specific country)

Colonial mind-frame the white mens burden that developed countries know whats best for developing countries still persists. o Ethiopia and the struggle between power politics and poverty

Wrong general purpose of IMF a country like Argentina with double-digit rate of unemployment for years, but with a balanced budget and relative low inflation is considered OK; but a country like Ethiopia, after fights with communist guerrillas, being in a full process of reconstruction, with actually no inflation, falling prices and economic growth but with a questionable budgetary position is left unassisted when in most need. The logic of IMF was that if Ethiopia built schools and hospitals from the loan money, when the loan dries up, the state would not be able to administer those facilities anymore. o Despite this fact, Ethiopia had clear policies of returning the loan and a wellfounded macro-economy; but most of all Ethiopia felt this as an infringement upon its sovereignty, it was IMFs procedures that summed up to a new form of colonialism.

Moreover, IMF wanted Ethiopia to open its financial markets to western competition and divide its central bank into several pieces premature liberalisation that would have led to disaster for Ethiopia (Kenya did that 14 bank failures in 2 years) it resisted the IMF policy no loan from the IMF, but tripled income from WB IMF was confusing ends with means only in the 1970s did the US and Europe liberalised their markets as an end of their policies. + IMF did not consult any other experts on the matter suspecting that power politics and special interests in Ethiopia were influencing policies and conduct. Later on, assistance was restored when IMF was confronted with the facts irrespective of their economic dogma. Developing countries rise different questions during crises: markets are absent or impare; cultural dissensions...etc. The training of the IMF staff is mainly based on ideal economic models where demand=supply, therefore there should be no unemployment unless voluntarily chosen. Time spent in countries (3 weeks) is not enough for a perfect understanding of the contingency in order to formulate valid policies, but IMF wants a central role in shaping policies! ideology driven activity market fundamentalism. in the long run it will be better ignore the primary effects of their policies

Alternatives case of Botswana advising from the Ford Foundation and several meetings and seminars. Its success was preserved through a crisis, without appeal to loans. IMF as Keynes designed it theoretically would finance deficits in order to forestall recession and hardship. As it is now, the IMF promotes fiscal austerity and approves funds only to countries that comply with its economic policies. Just as there has been a shift in the balance of military power, there has been a shift in the intellectual balance of power developing countries are not helpless anymore; they have trained specialists States seeking for IMF help are usually in desperate need of funds, but if they disagree with the imposed policies they risk: o To be deemed as gone off track for not understanding the IMF policies o To receive bad publicity regarding their markets, scaring the investors o Not to have their policies approved by the IMF no debt relief great leverage for IMF.

No chance to disagree in public with the IMF. Little chance to change its dogma. The conditionality of the IMF loans practically turns the loans into policy tools and detracts from the countrys ability to address the central pressing problems. Conditionality does not work for several reasons: o Loans free up money for other projects than those stipulated by IMF (fungibility) o o o o Wrong conditions Kenya and East Asia adverse effects of policies Unsustainable policies imposed One-size-fits-all-reports Engendering hostility on the imposed reforms

IMF should consult widely within a country: o For more accurate information from people within o In order to reach a consensus on the proposed policies, which would assure a commitment toward their implementation

WB replacing conditionality with selectivity rewarding countries with good records of well implemented funds the country should be put in the drivers seat! participatory poverty assessment the country itself teams up the WB and the IMF theoretically. Practically, IMF behaved as if WB was allowed to participate (as its subordinate), but not the country too! 1966 Freedom of Information Act not respected by the IMF total lack of transparency; the public may sometimes have a say in decision-making, but it does not know what the IMF is really doing.

8. The IMFs Other Agenda What the financial community views as good for the global economy is good for the global economy and should be done IMFs view on policies :D. Keynes: identified a set of market failures and considered that by putting pressure on countries to maintain their economy at full employment, and by providing liquidity for those countries facing downturns that could not afford and expansionary increase in government expenditures, global aggregate demand could be sustained.

The market failure theory of governmental action why markets go wrong and why collective action is fit. While IMF is still imposing expansionary policies on developing countries, it has not articulated a coherent theory of market failure to justify its existence and actions. Exchange rates market a zero sum game for speculators whatever one loses, the other one wins IMFs intervention in Brazil, poring $50 billion to stabilise the exchange rate is practically money lost to the speculators who are kept in business by the IMF The sum of all deficits in the world must add up to the sum of all surpluses. Crises appear when a country having a deficit keeps borrowing money without solving the problem. It spends more on imports than it gets from exports. When institutions financing the deficit (i.e. the gap between imports and exports) stop providing money, the state has to adjust or ends up in a crisis. Bankruptcy or moral hazard are as well serious causes for crises where IMFs policies lack consistency IMF bails out debtors and re-establishes them, minimizing the need to buy insurance, encouraging therefore a lack of responsibility, a moral hazard that keeps the cycle going.

From bail-out to bail-in IMF ended up delegating its power over its lending policies to inside creditors who possessed enormous leverage at no cost, even though they were the ones who precipitated crises.

Why does the IMF continuously fail? o IMFs staff is pressed to take hard decision quickly o IMF pursues two different and conflicting sets of interests: serving global economic interests vs. serving the interests of global finance o The double featured agenda was never made public increased interior tension o While trying to assure the stability of the credit contract, the IMF was willing to tear apart the social contract! Shifting blame for failures in policy and for failure in lending: the IMF backed up international banks because it had its share of culpability.