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Making Globalization Work, by Joseph Stiglitz
Friday, October 13, 2006 - Page updated at 12:00 AM
"Making Globalization Work"
by Joseph E. Stiglitz
Norton, 358 pp., $26.95
If a compromise may be found between the business supporters of trade and the anti-traders who staked out downtown Seattle on Nov. 30, 1999, Joseph E. Stiglitz is trying to define it. In "Making Globalization Work," he offers a center-left version of a globalized world.
Stiglitz has the right credentials. He was a winner of the Nobel Prize in economics, for information theory. He was the top economist for President Clinton and after that, for the World Bank. In the latter position he met often with poor-country governments, and in his new book — a follow-up to "Globalization and Its Discontents" — he argues their case against the wealthier lands of East Asia and the West.
The poor countries have too much debt, he says, and it is largely the fault of the lenders. The debts should be forgiven, and followed by large increases in foreign aid. The poor countries have gotten back too little from trade deals, he says. They should be given free access to rich-country markets, and the fat countries should quit featherbedding their farmers.
In trade talks, Stiglitz writes, "The job of Western trade negotiators is to get a better trade deal for their countries' industries." The U.S. trade negotiator pushes for intellectual-property rights so that Americans can get paid for what they invent. At the same time, Congress blocks poor-country products with one-sided anti-dumping laws, an outrageous sugar quota and a ridiculous subsidy to cotton growers.
It is good to hear the arguments of Third World nations about this inequitable state of affairs. Americans should hear them more often.
But Stiglitz is hardly evenhanded; he is making a case. He brushes aside rich-country bellyaches, such as the U.S. trade deficit with China. He caricatures the views of his opponents, saying they believe that their undiluted version of free trade will make everyone better off, when what they actually believe is that by lowering prices it will make most people better off. Stiglitz highlights the flaws of markets, but he is not equally tough on the deficiencies of government economic policies or the failures of foreign aid.
His book is flavored with a deep distaste for inequality. "Those who are concerned about inequality see much of it arising out of luck — the luck of being born with good genes or rich parents or the luck of buying a piece of real estate at the right time," he writes. "Those who are less concerned feel that wealth is a reward for hard work."
It is, of course, a combination of the two. Free-traders would give freer rein to luck in order to maximize overall economic gain. Stiglitz would not.
Stiglitz was an official in the last Democratic administration, and this book might be a source of ideas in the next one if it leans far enough left. He criticizes the Kyoto accords on greenhouse gases, not because they let China and India off the hook, but because they grandfather in the effluents of the rich. "By what right are the developed countries entitled to pollute more?" he asks.
He proposes a set of green tariffs to offset damage to the Earth. He has tried out the idea on officials, and he says they liked it but tended to see it as "the equivalent, in the trade arena, of declaring nuclear war." He also proposes a global anti-monopoly authority.
Some of these may seem like impossibly radical ideas now, but you never know. Books like "Making Globalization Work" — and it is an intelligent, feisty, partisan volume — are where such ideas get their first popular airing.
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October 2, 2006 Monday
'Making Globalization Work' presents brave observations; Environment plays key role
by Russ Juskalian
Making Globalization Work
By Joseph E. Stiglitz
Norton, 292 pages, $26.95
"It appears that it is better to be a cow in Europe than to be a poor person in a developing country," writes Nobel Prize-winner Joseph Stiglitz in his new book, Making Globalization Work. "The average European cow gets a subsidy of $2 a day," whereas, he notes, half theworld's population subsists on less.
In Globalization and Its Discontents (2002), Stiglitz pointed out that despite all the promises of globalization, the developing nations of the world didn't seem to be, well, developing. The numbers that Stiglitz cites in the latest book are staggering: 40% of the world lives in poverty. In every region of the world outside South Asia, the USA and the European Union, unemployment increased from 1990 to 2002; and 59% of the world's population lives in countries where inequality is growing.
Making Globalization Work is a brave book. But Stiglitz was never one for going quietly into the night. As senior vice president and chief economist of the World Bank from 1997 to 2000, and as a member and then chairman of President Clinton's Council of Economic Advisers, Stiglitz drew the ire of many at the International Monetary Fund (IMF), the World Bank and elsewhere with his contentious opinions.
This book focuses on fair trade, patents, world resources, the environment, the multinational corporation, international debt and the global reserve system. Stiglitz puts extra emphasis on environmental concerns and what he calls a "grand experiment" we are conducting vis-a-vis global warming: "If we had access to a thousand planets, it might make sense to use one to conduct such an experiment, and if things turn out badly -- as I believe this experiment will -- move on to the next. But we don't have that choice; there isn't another planet we can move to. We're stuck here on Earth."
One solution, he tells us, is a continuing effort to create a global system of emissions trading and taxing. If countries producing pollution won't pay for the damage their industries cause, other countries should tax imports from the offending nations at rates proportional to theenvironmental cost of these emissions. Such a system might force polluters to change byallowing the market economy to adjust demand, based on prices that more accurately reflectthe true cost of production.
The environmental issue is pressing, but at least it is an issue that plays heavily on the minds of many in the world. Trade fairness, global debt and increasing macro-economic stability (at the level of nations) are not generally dinner table topics.
Stiglitz does an excellent job of describing dense topics -- non-tariff trade barriers, the history of trade agreements, the global reserve system -- in language that's understandable and accessible.
You don't have to be an economist or a politician to make quick sense of his explanations. At the heart of Making Globalization Work is Stiglitz's discussion of the global reserve system. The basic idea goes: Countries, like individuals, try to set aside some of their income to use when the economy slows down or there is an impending financial crisis. A good currency to set aside is one that is easily converted into goods and services in an emergency.
In the modern world, the U.S. dollar has become the reserve currencyof choice because of its relative stability and the strength of the USA. In financing foreign reserve savings for other countries, the United States, however, takes on massive debt, "borrowing $2 billion a day from poorer countries." Building up this much debt ultimately undermines the strength of the U.S. currency. It is, thus, likely that at some point, foreign countries will realize that the U.S. dollar isn't the bastion of stability it once was and slowly divest -- dump -- the currency.
"In early 2005, China announced that it is no longer committed to holding reserves in dollars. It had, in fact, already moved substantial amounts out of dollars (about a quarter of its reserves), but the announcement had immense symbolic value." Stiglitz's solution involves creatin a universal currency, similar to John Maynard Keynes' "bancor," or the IMF's "special drawing rights" (SDRs), that could be banked by nations and used in times of crisis. This new currencycould also be used in emissions trading, as well as doled out for developing medical, educational and financial systems in poor countries.
How this system of "global greenbacks," as Stiglitz calls his hypothetical currency, is created and governed is the topic of his penultimate chapter, "Reforming the Global ReserveSystem." Making Globalization Work is an important, and understandable, book. While many economists talk in a language that mere mortals find foreign, Stiglitz is able to cut through the jargon and explain the complex in simple terms. In outlining the problems of globalization and also offering solutions, Stiglitz has written more than just criticism. One question remains: Will future generations look back on our time as a missed opportunity, or will they see the moment when we decided to make things better?
September 21, 2006
How the World Works
Andrew Leonard
The perfect imperfection of markets
A striking parenthetical revelation kicks off Joseph Stiglitz' new book "Making Globalization Work." He's summarizing his work on "asymmetric information" -- for which he eventually won a Nobel Prize in economics.
"My research on the economics of information showed that whenever information is imperfect, in particular when there are information asymmetries -- where some individuals know something that others do not (in other words, always) -- the reason that the invisible hand seems invisible is that it is not there. Without appropriate government regulation and intervention, markets do not lead to economic efficiency."
The italics are Stiglitz's. But the word "always" shouldn't just be italicized. It should be carved in a block of granite a mile high and wide. Playing fields, left to themselves, are never level. This is true whether one is talking about energy traders betting on gas price futures or free traders negotiating deals in WTO summit meeting back rooms. Self-interest, combined with aysmmetric information, leads to market distortions that do not serve everyone equally.
The funny thing is that whenever Stiglitz's academic work is summarized in a press account or bio, that parenthetical observation is invariably left out. The reader is left to think it through himself -- wait a minute, this isn't just a treatise suggesting that sometimes, things don't work out the way a pure market fundamentalist would predict, this is actually a universally true theorem about all markets, all the time. So it is very refreshing to see the man himself lay it out there, in black and white.
"Making Globalization Work" is in general a refreshing book, a reader-friendly version of "Fair Trade For All," which was published in January and co-written by Stiglitz with Andrew Charlton. It is at once a damning denunciation of things as they are, and a platform for how we can do better. "Globalization does not have to be bad for the environment, increase inequality, weaken cultural diversity, and advance corporate interests at the expense of the well-being of ordinary citizens," writes Stiglitz. His proposals are ambitious and will be extremely challenging to implement. I'll be looking at them in more detail in the weeks to come. But the first step in the journey is to accept the most basic observation: It's an asymmetric, asymmetric world.
Sept. 25, 2006 issue - The high priests of global finance continue to embrace a smug consensus that globalization has been a wild success. In recent days, for example, U.S. Treasury Secretary Henry Paulson, Fed chairman Ben Bernanke and British Chancellor of the Exchequer Gordon Brown have all talked about globalization in glowing terms.
Such leading pundits as Martin Wolf and Jagdish Bhagwati also believe that more rather than less globalization is part of the answer to problems from poverty to environmental degradation, as do many of the ministers at the IMF-World Bank summit in Singapore this week. So it is worth calling attention to a prickly professor, Nobel laureate Joseph Stiglitz, a former member of President Clinton's Council of Economic Advisers and chief economist for the World Bank, whose views go in a different direction.
In his new book, "Making Globalization Work," out this week, Stiglitz offers a searing critique of the conventional wisdom. While he is a proponent of free markets, he attacks the assumption that globalization is in fact operating according to Adam Smith's principles. What use is it to developing nations, he asks, if the G-7 nations open some of their markets but the poor countries don't have the roads and other infrastructure to get products there? What use is it to engage them in complex negotiations when many countries don't have enough skilled officials to handle them? What use is it to force developing countries to open their financial markets only to see big international banks, interested primarily in their multinational clients, put many local banks out of business, and thereby deprive the poor of access to credit?
Stiglitz takes particular aim at the hypocrisy of rich countries professing to want to help emerging nations. He says, for example, that the Doha "Development" Round, which is now at a standstill, always had less to do with development than with rich countries' gaining access to Third World markets and protection for their companies' patents. All the while, he says, the G-7 governments have been refusing to materially reduce their farm subsidies or drop tariffs on the industrial products of developing nations. (He calculates that developed nations levy tariffs on poor countries that are three times higher than those they charge other rich countries.) And he accuses the United States, the European Union and Japan of refusing to liberalize import rules on sectors like construction or shipping, where Third World nations are particularly competitive.
Stiglitz's analysis is eye-opening, even if he is not breaking much new ground, because it is consistent and comprehensive, and he writes with rare clarity and passion for a distinguished economist. Just because an idea isn't new doesn't mean it shouldn't be pushed over and over. After all, it took John Maynard Keynes decades to get his ideas across. Policies once considered radical—such as Social Security—were debated for a generation before they were accepted.
It would therefore not be surprising if most of Stiglitz's prescriptions were rejected by the official crowd in Singapore, most of whom are concerned about what happens during their brief time in office. And the the truth is, Stiglitz's proposals are a mixed bag. Some are important, such as the IMF's issuing new reserves to poor countries. Also worthwhile is the notion of establishing a global tribunal to enforce new international environmental standards, and the idea of preventing a new binge of lending to developing countries whose debts have just been cancelled. But some of his proposals are highly problematic.
To me, his biggest conceptual mistake is lumping big emerging countries such as Brazil with others such as Sri Lanka, because their problems and prospects are so different. Beyond that, he advocates that rich countries open up their markets without asking poor ones for reciprocal concessions, an idea that is economically sound but politically naive. Another far-fetched proposal: a new patent system in which countries can follow a different set of rules depending on their state of development. His desire to severely regulate multinational corporations would constrict the very flow of capital and technology he would like to see.
Still, the bottom line is that the Singapore delegates ought not to dismiss the thrust of Stiglitz's arguments, particularly his description of the severe challenges that are not being met, no matter how much these perspectives go against the grain today. After all, most of Africa is mired in hopeless poverty. Much of Latin America has soured on free-market policies. The IMF and World Bank are searching desperately for relevance, as even supporters criticize their effectiveness. To ponder only incremental change is just not enough, though that's all the Singapore summit is likely to do.
Garten is the Juan Trippe Professor in International Trade and Finance at the Yale School of Management.
inthenews.co.uk
Wednesday, 06 Sep 2006 17:31
Published
by Penguin Allen Lane, out September 7th, hardback, 384 pages, £20.
In a nutshell...
Urgent. Intellectual. Compelling. Honest. Scathing.
What's it all about?
This book surveys the iniquities of the global economy, and the mechanisms by
which developed countries exert an excessive influence over developing nations.
Dr Stiglitz argues that through recourse to various measures - be it overt
trade tariffs, subtler subsidies, a patent system that developed countries are
far better prepared to navigate, or the damage done to poor countries by global
pollution - the world is being both economically and politically destabilised,
from which we will all suffer.
Making Globalization Work exposes the problems of how globalisation is currently
being managed, the vested interests behind many decisions and the prospects for
negotiating fairer terms for those worst affected. Dr Stiglitz tackles the
problems immediately facing the world, arguing that strong, transparent
institutions are needed to turn globalisation to favour the world's poorest, and
to address the democratic deficit that is so keenly felt across the world.
Who's it by?
Joseph Stiglitz is one of the most prominent and controversial economists of our
time. He chaired US president Bill Clinton's Council of Economic Advisors, sat
as chief economist at the World Bank, and received the Nobel Prize for Economics
in 2001.
A critic of free-market fundamentalists, Dr Stiglitz has repeatedly challenged
what he sees as the ideological basis to much of the world's economic
decision-making. This is most notable in his battles with the International
Monetary Fund (IMF) over developing countries being pushed to open their markets
before they have stable, democratic institutions to protect their citizens.
His last book, Globalization and Its Discontents, sold more than a million
copies.
As an example
"For much of the world, globalization as it has been managed seems like a pact
with the devil. A few people in the country become wealthier; GDP statistics,
for what they are worth, look better, but ways of life and basic values are
threatened... This is not how it has to be."
Likelihood of becoming a Hollywood blockbuster
Not a Hollywood blockbuster, but an outstanding bestseller certainly, one that
will again rile many in western political office and the economic community. Dr
Stiglitz's open, honest style of writing and appeal to experts and non-experts
alike - coupled with the ever-heightened debate over globalisation - will
guarantee this book's enduring success.
What the others say
"Attacking the idea of free-for-all markets in a superfluous debate with
conservative purists only overshadows Dr Stiglitz's practical suggestions,
like adding labour and environmental ministers to trade negotiations." -
Stephen Kotkin, The New York Times
"What the world needs is not another book on the failures of ill-defined
globalisation. What we need is hope." - Bill Jamieson, The Scotsman
" Joseph Stiglitz's new book, Making Globalization Work, is an imaginative
and, above all, practical vision for a successful and equitable world." -
World Affairs Council
So is it any good?
In a word, yes. It will undoubtedly infuriate many, but cannot be accused of one
of the complaints most commonly raised against Globalization and Its
Discontents: This book is thorough and practical, and only rails against
economic establishments such as the IMF when this expands and expounds his
arguments.
The focus on development and spending to draw economies out of downturns will
see comparisons drawn with both Amartya Sen and Keynes. His argument for a
global reserve currency to avoid the US dollar's present problems is truly
innovative, and will no doubt meet staunch opposition from the same economists
and politicians who reject his support for the gradual opening of a country's
markets to volatile capital flows.
Following the collapse of the Doha round of trade negotiations, this book's
release is particularly well timed - the very dangers and fears it tackles,
all intertwined with the growing dissatisfaction with globalisation's current
direction, are perhaps more prominent than ever. An urgent, compelling read.
9/10
Chris Wilson
August 27, 2006
The average European cow gets a subsidy of £1.20 a day, more than is earned by half the people in the developing world. For much of that world, globalisation seems like a pact with the devil, according to Joseph Stiglitz, and he should know: he was chief economist at the World Bank after a stint as adviser to President Bill Clinton and won the Nobel prize for economics in 2001.
In a new book, the rotund, benign 63-year-old Columbia University professor says the problem is not globalisation itself, but the way it has been managed. He regards the system as a relic of the cold war in which dominant countries pursued their own economic agenda in the battle for hearts and minds.
“Globalisation was to bring unprecedented prosperity to all,” he says. Instead, it “succeeded in unifying people from around the world — against globalisation”.
But globalisation is here to stay and even long-time critics such as Stiglitz, installed as chairman of the new Brooks World Poverty Institute at Manchester University earlier this year, are coming to realise that it’s how it develops that matters. If it is possible to influence such things, that is. You wonder what place fairness has in the law of the jungle.
“The goal is not to make a garden of Eden out of the jungle but something that makes things better,” he replies. “You expect the largest to get the lion’s share of the game, but you don’t necessarily expect in a democratic system that they would leave the poorest worst off. That is what has happened.”
Will China play fair when it gets in the driving seat? All the more reason to act now, he says. He has a cunning plan to force America to clean up its act — a common global tax on carbon emissions. This would allow Japan and Europe to claim that America’s failure to pay for its energy costs is tantamount to an unfair trade advantage or subsidy and bring a case before the World Trade Organisation.
Closer to home, millions of Britons feel that as much has been lost as gained through globalisation and that the true price of buying £4 jeans comes in the shape of mass migration from eastern Europe and a sense of eroded cultural identity. What does Stiglitz have to say to them?
“They enormously enjoy the goods they buy at low prices as a result of globalisation. And their standard of living would not be able to be sustained without globalisation,” he says.
Yet we still feel guilty about those cheap jeans — and the T-shirts, trousers and so on, piled up in the newly trendy “thrift” fashion shops — suspecting that they were made by workers, possibly even children, paid a pittance for their pains.
Over that, at least, we can breathe a small sigh of relief. “There has been some progress,” Stiglitz reports. “Governments in the West had to pass legislation to ensure that employers treated their workers well. The excuse, ‘We didn’t know, we just subcontract’, no longer works.”
The economist J K Galbraith observed in his book The Affluent Society in 1958 that chasing economic growth does not necessarily make people’s lives better. It’s a lesson usually learnt the hard way by rural migrants who abandon the support network of extended families for a worse quality of life in towns.
Should we encourage such people to become fodder for globalisation? “Institutions like the International Monetary Fund were not as sensitive to these concerns as they should have been,” Stiglitz says. “They thought it was a simple process in which everyone was going to be better off.
“What we see now in China is very interesting. They focused on urban development and discovered that meanwhile the standards of healthcare and education had deteriorated in rural areas. Incomes might be going up, but overall standards of living might be going down.”
Stiglitz has nothing but praise for Britain’s leading role in urging a fair deal for developing countries. “There is a growing awareness in Britain about the importance of this issue and your political leaders are reflecting a broader sentiment in society,” he says.
Yet some people grumble that the passionate grandstanding of Tony Blair and Gordon Brown on Third World issues such as debt relief has not been matched by their actions over Britain’s pensions crisis, illiteracy and other pressing national ills. “That may be true,” Stiglitz concedes, “but they represent an important cross-section of a part of British society. It raises the question: does charity begin at home? My view is that we need to do both.”
Making Globalisation Work by Joseph Stiglitz is published by Penguin
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The Austin American-Statesman, October 25, 2006.
The world is tilted
In his second look at globalization, Nobel laureate Joseph Stiglitz turns Thomas L. Friedman on his head.
By John Hoberman
Having sold 2 million copies in hardcover, Thomas L. Friedman's 2005 book "The World Is Flat" tells us a lot about what Americans want to hear about globalization. And what they want to hear about is the limitless potential of free-market capitalism and the cutting-edge technologies that drive it.
Readers of Friedman's New York Times column are long familiar with his high-energy gospel. This version of economic progress presents an awe-inspiring world of dynamic multinational corporations, mind-blowing technical innovations and sheer entrepreneurial élan. Globalization à la Friedman is a declaration of faith in what capitalism can do to boost us into a new era of worldwide prosperity.
Joseph Stiglitz's "Making Globalization Work" is a sobering antidote to Friedman's evangelism. A former chairman of the Council of Economic Advisers, a former chief economist at the World Bank and a 2001 Nobel laureate in economics, Stiglitz is not even mentioned in Friedman's book. Friedman is mentioned once in "Making Globalization Work" — when Stiglitz declares that, contrary to Friedman's claims, "the world is not flat." Given that enormous numbers of the world's people continue to live far below a decent standard of living, the "level playing field" celebrated by Friedman is anything but; it is reserved for those endowed with material and cultural advantages of which billions of "undeveloped" people can only dream.
Fifteen years or so after the term began its spectacular ascent, the debate over globalization continues to oscillate between euphoria about its prospects and disappointment about its results. Friedman's solution is to treat the world as a set of exercises for aspiring MBAs; Stiglitz's anticlimactic response is to treat the world's left-behind masses as a set of exercises for politicians, foundations and social scientists with a sense of right and wrong.
Do the societies that enjoy decent standards of living have an obligation to assist the wretched of the earth? Friedman tells the do-gooders to get over their idealism and "mobilize the big, cold, selfish market players to do the right thing for the wrong reason — greed." It is left to Stiglitz to talk seriously about what governments and corporations can do to relieve mass suffering by instituting what he calls "fair trade" — as opposed to unregulated "free trade."
For example, the agricultural subsidies paid to domestic farmers by the United States, the European Union and Japan nearly equal the total income of sub-Saharan Africa, "making it almost impossible for African farmers to compete in world markets." So-called escalating tariffs imposed on developing countries suppress their ability to derive additional income from processing the crops they sell. The efforts of Western drug companies to deny generic AIDS medicines to millions of dying Africans and Asians is a shameful chapter unto itself.
Stiglitz's 2002 book, "Globalization and its Discontents," was primarily an indictment of the International Monetary Fund for what Stiglitz regards as a long series of policies that have failed to relieve, or have even exacerbated, the economic problems of developing countries. The Fund's insistence on spending cuts or tax increases can make economic downturns worse. Its prescription for higher interest rates can bankrupt companies that are unprepared for sharply higher debt service costs. Its belief in opening up financial markets can allow better-funded foreign banks to drive local banks out of business. In summary, Stiglitz argues, the Fund has served as a tool of wealthy countries and their most-favored corporations.
"Making Globalization Work" offers a broader critical look at the world economy and, in contrast to his previous book, proposes concrete policy goals and reforms. Stiglitz argues that countries should be empowered to subsidize domestic cultural productions in a world where universal access to products can endanger cultural diversity. He suggests that new trade rules could minimize the ruthless exploitation of natural resources that leads to ecological disasters, such as China's hyper-pollution. And he makes the case for a global competition law (and a competition authority to enforce it) that could contest monopolies like Microsoft and crack down on bribery.
It is not news, of course, that economically powerful nations exploit their most vulnerable trading partners. What makes the current imbalance of power different is the revalidation of the "free market" as the prime motor of prosperity for all, as an ideology of progress that sounds progressive if we disregard those for whom a level playing field is not enough. The free trade doctrine that dominates the discussion today is essentially a celebration of unfettered capitalism under the kinder, gentler rubric of the "entrepreneurial" spirit. And it is the disadvantaged who are more likely to recognize the iron fist inside the velvet slogan.
Staring down the barrel of Western economic might, Kofi Annan once expressed his defiance in these terms: "It has been said that arguing against globalization is like arguing against the laws of gravity. But that does not mean that we should accept a law that only allows heavyweights to survive." In recent years, Stiglitz has devoted his professional life to opposing the kind of economic Darwinism that is frequently codified (and justified) as "global- ization." With a clarity the lay reader will appreciate, he demonstrates in "Making Globalization Work" that free trade doctrine does not have to be an intoxicant that legitimates domination; it can also be a set of civilized practices that promote equity as well as efficiency.
This is why Stiglitz's importance derives in part from his emphasis on the ethical dimension of economic behavior. In this sense he and Friedman represent profoundly different sensibilities. "It's a plug-and-play world," says one of the Indian entrepreneurs Friedman likes to hang out with, and his American admirer could not agree more. Consequently, Friedman's books offer no depths, no shadows, no pathos, no tragedy. While Stiglitz is no Shakespeare, he is at least a Nobel laureate who has chosen to represent the interests of people for whom the ethos of plug-and-play is an unaffordable luxury.
John Hoberman, professor and chair of Germanic studies at the University of Texas, teaches a course on 'Germany and Globalization.' His most recent book is 'Testosterone Dreams: Rejuvenation, Aphrodisia, Doping.'
Joseph Stiglitz will discuss 'Making Globalization Work' at 2 p.m. Sunday in the House Chamber.
To Have and Have Not
By JEFFRY A. FRIEDEN
Published: December 24, 2006
MAKING GLOBALIZATION WORK
By Joseph E. Stiglitz.
358 pp. W. W. Norton & Company. $26.95.
Fifteen years ago, the world seemed headed irresistibly toward economic integration. Developed, developing, formerly Communist and even still-Communist nations (like China and Vietnam) had embraced markets and plunged into the global economy.
Joseph E. Stiglitz, a former Yale, Princeton and Stanford professor, spent most of the 1990s atop the commanding heights of this globalizing economy, first as the chairman of Bill Clinton’s Council of Economic Advisers and then as chief economist at the World Bank. After returning to academia with a position at Columbia, Stiglitz became one of three recipients of the 2001 Nobel Memorial Prize for his research on the economics of information.
Now, as enthusiasm about economic integration has waned, Stiglitz has emerged as one of globalization’s most prominent critics. Even while he was at the World Bank, he clashed repeatedly with his counterparts at the International Monetary Fund and the United States Treasury over what he called their “market fundamentalism.” His “Globalization and Its Discontents” (2002) included sharp criticisms of international economic institutions, in particular the I.M.F. for its handling of the East Asian financial and currency crises of 1997-98.
The book, which sold widely, was hailed by globalization skeptics and hotly debated by economists, some of whom found Stiglitz’s criticisms exaggerated, unfair and unduly personal. Still, the novelty of an eminent economist and former high-ranking public official making a passionate assault on the international economic order put Stiglitz at the center of the globalization debate.
His new book extends the discussion of “Globalization and Its Discontents” but largely avoids the polemical tone. One can, in fact, judge these two books by their covers. The earlier work showed a flame streaking across a stark black background. The soft white jacket of “Making Globalization Work” features three earth-eggs resting in a vulnerable nest. Stiglitz appears to have gone from flamethrower to mother hen. Even the title suggests a transition from flashy dissent to constructive engagement. And indeed, this book is a concise and enlightening treatment of international economic problems, along with much less convincing proposals for reform.
Stiglitz walks the reader through a series of issues, from trade and intellectual property rights to global warming and the role of the multinational corporation. Each of the book’s chapters frames a problem, provides some analysis and proposes solutions. On page after page, Stiglitz argues that globalization holds out great promise as a force for good, but that the rules of the present international economic order are designed and enforced by the rich nations to serve their interests. As a result, they are inequitable and inefficient.
Developed countries manipulate international trade rules to protect their factories and farmers from more efficient producers in the developing world, Stiglitz tells us. Multinational corporations evade responsibility for the damage they do. Meanwhile, the international financial system, led by the I.M.F., rewards improvident lenders (the wealthy) and penalizes hapless debtors (the poor).
Stiglitz often invokes the concept of negative externalities: the costs that some individuals, firms or nations impose on others. A factory that skimps on pollution control, for instance, may increase its profits, but it harms the rest of society. The polluter is responding to incentives without having to pay the cost of its activities. Similarly, interest groups in developed nations benefit from favorable treatment by their governments, but these favors victimize people in developing nations who are trying to compete. It is bad enough, Stiglitz says, that thousands of wealthy American cotton farmers get billions of dollars in government subsidies; it is even worse that this depresses the world price of cotton, further impoverishing millions of African cotton farmers.
When the pursuit of private gain causes social losses, government should force the perpetrators either to stop or to help repair the damage, Stiglitz argues. This is the rationale for pollution control, fisheries management, public health restrictions and other familiar regulatory measures. “Making Globalization Work” calls repeatedly for action to avoid or redress the impact of externalities — in trade, corporate activity, the environment and financial and monetary affairs.
Stiglitz uses his command of economic logic to good effect, offering clear discussions of dozens of complex issues, from patent law to abuses in international trade. Many critics complain that drug companies overcharge poor countries, but Stiglitz goes further and makes a convincing case that this is not only immoral but also economically inefficient. Poor countries should be charged less than rich countries: if people willing to pay for medicines are unable to buy them, an existing demand goes unmet, which, in economic terms, is wasteful. Drug companies’ pursuit of private gain results in an inefficient allocation of resources and a social loss. Stiglitz won the Nobel for exploring how uncertainty and poor information can make markets fail. Here he takes evident pleasure in showing how an examination of incomplete markets can make corrective government policies desirable.
Many of Stiglitz’s criticisms are uncontroversial. He is hardly alone in believing that economic opportunities are not widely enough available, that financial crises are too costly and too frequent, and that the rich countries have done too little to address these problems. But he can be one-sided, as in his unstinting praise for East Asian development policies that often repressed labor and restricted democracy, and in his tendency to absolve developing-country governments of almost all blame for their problems. He is even weaker in his policy proposals.
Stiglitz argues throughout that powerful special interests have distorted the world economic order and the international institutions that run it. His preferred solutions are large-scale reforms in existing international institutions and the creation of new institutions like a global reserve system — to make trade fairer, to allocate reserves more equitably, to discourage despotism and corruption. But why would the national governments that, after all, still run the world want to do any of these things? And why should we expect new institutions to be any less biased, any less subject to special-interest pressures, than existing ones?
It is hard to disagree with Stiglitz’s intentions. Yet he seems to assume that bumping policies up to the international level will make world economic institutions less captive to the special interests he abhors — though democratic control of policy is more likely at a national than an international level, since most national politicians must face elections. Even if focusing on national policies (for example, what the United States should do in the I.M.F.) is difficult, it may be a more promising avenue for reform than Stiglitz’s new and improved international organizations.
“Making Globalization Work” is an optimistic book, offering the hope that global society has the will or the ability to address global problems and that international economic integration will ultimately prove a force for good. Certainly Stiglitz is right that the world would benefit from a concerted effort to address problems of the environment, poverty and disease. However, his proposals are almost utopian in their reliance upon good will, enlightened public opinion and moral imperatives to overcome selfish but deeply entrenched private or national interests that do not share his goal of making globalization work for as many countries and as many people as possible.
Stiglitz has given us a well-written and informative primer on the major global economic problems. He helps his readers understand exactly what is at stake. Nonetheless, for all its good intentions, “Making Globalization Work” is probably not a workable blueprint for the future.
Jeffry A. Frieden is a professor of government at Harvard University and the author of “Global Capitalism: Its Fall and Rise in the Twentieth Century.”
