[stop-imf] NYT: An Ivory Tower Embrace of Views in the Streets [review of Stiglitz book]

[Robert Weissman]

June 9, 2002
An Ivory Tower Embrace of Views in the Streets
By ALAN COWELL

For several years now, a fractious debate about the role of the big financial
institutions in the globalized economy has encircled the world's policy
makers, moving from the initial grumblings of the often-unheeded developing
world through the street protests of Seattle and elsewhere and on to a much
broader agenda.

With "Globalization and Its Discontents" (W. W. Norton, $24.95), Joseph E.
Stiglitz, a Nobel laureate in economic science in 2001, has taken the
discussion a step further. He shows just how much the protesters' misgivings
about and outright hostility toward some of those institutions have moved
from the fringes into influential, mainstream thinking.

Professor Stiglitz, a former top economic adviser in the Clinton
administration and chief economist at the World Bank, is now an economics
professor at Columbia. He has long been associated, of course, with the
economics of growth and development in the third world. With this accessible,
provocative and highly readable study, he brings an insider's insights into
the crises of the 1990's and beyond, from East Asia to Russia and on to
Argentina.

His central thesis is simple — that the "market fundamentalism" of the
International Monetary Fund, with its insistence that markets themselves will
achieve a balance between supply and demand, furthering growth and
development, is fundamentally flawed. The I.M.F.'s prescriptions in
times of
economic crisis, he writes, have caused far more human suffering than they
have resolved economic problems.

Globalization has been badly managed, he contends, colliding head-on with
some of the nostrums of the I.M.F. and what is sometimes called the
Washington Consensus. Those include the idea that poverty is eased by the
trickle-down effect of prosperity for the elite and that governments should
not get in the way of the markets.

He goes further, embracing ideas once thought the exclusive preserve of the
street protesters: the I.M.F. and the United States Treasury Department, he
contends, pursue the interests of the big investment banks rather than the
poor most directly affected by their macroeconomic solutions to crises like
those in East Asia and Russia. Indeed, those interests seem intertwined in
the very personalities who exerted such enormous influence as globalization
emerged as the dominant force of the 1990's.

After all, he says, did not Robert E. Rubin, the former United States
Treasury secretary, hail from Goldman, Sachs and move on to Citigroup after
his spell in Washington? Did not Stanley Fischer, the former No. 2 executive
at the I.M.F., go directly from that job to a well-paid position at Citigroup?

"One could only ask: Was Fischer being richly rewarded for having faithfully
executed what he was told to do?" Professor Stiglitz writes.

The World Trade Organization, too, Professor Stiglitz asserts, promotes the
interests of the developed world. The developing world, he says, still labors
under unfair rules that restrict access to richer nations that preach trade
liberalization but keep their own markets closed.

That is a hypocrisy, he says, that extends to the readiness of the global
institutions to bail out their "client" states, differentiating between the
strategically significant and the rest. "The I.M.F. is a political
institution," he writes, saying the fund was ready to ignore runaway
corruption in Russia to rescue Boris N. Yeltsin while suspending aid to Kenya
on grounds of corruption.

Of course, it would be disingenuous to ignore Professor Stiglitz's own
background as chief economist at the World Bank for almost three years, from
1997 to early 2000. In this study, the bank is spared the searing indictment
that Professor Stiglitz reserves for the I.M.F. Yet the two are sister
organizations, set up together after World War II. And much as he inveighs
against what he calls the I.M.F.'s hard-nosed approach to economic crisis,
the World Bank itself withholds loans to developing countries that fail to
secure the I.M.F.'s imprimatur on their economic performance.

To that extent, the World Bank itself creates part of the pressure,
particularly on developing countries, to accept those same I.M.F.
prescriptions that Professor Stiglitz finds so distasteful. Often enough,
however, officials of the two institutions behave more as rivals than as
colleagues.

Not surprisingly, part of the book's purpose seems to be an attempt to ensure
that events during his World Bank tenure do not besmirch his own reputation.
In the process, one suspects that some score-settling may well be in play.

Significantly, though, Professor Stiglitz dismisses any illusion that the
protesters on the streets of Prague, Seattle or Genoa were some kind of
lunatic fringe whose arguments will disappear easily. "For decades the cries
of the poor in Africa and in developing countries in other parts of the world
have been largely unheard in the West," he writes, and it was only the street
protesters "who have put the need for reform on the agenda of the developed
world."

Once the issue is on the agenda, of course, the discussion moves on to reform
issues that have absorbed some strategic thinkers since the late 1990's. Part
of his message reflects his argument that the global financial institutions
have drifted away from the Keynesian principles on which they were founded.
The I.M.F.'s "market fundamentalism" — placing much faith in freewheeling
markets — has not worked, he contends, as much as the economic
policies of
nations like Malaysia, where government intervention provided protection from
the worst of the East Asia crisis.

The countries that have benefited most from globalization, he writes, "have
been those that took charge of their own destiny and recognized the role
government can play in development rather than relying on the notion of a
self-regulating market that would fix its own problems." Equally,
though, he
says that far greater openness and democratic responsiveness are long
overdue, both in the governments of developing countries and in the secretive
global institutions where decisions are routinely made in private.


S much as anything else, Professor Stiglitz says, all countries should
have a
clear picture of what development is supposed to achieve. "It is not about
bringing in Prada and Benetton, Ralph Lauren or Louis Vuitton for the urban
rich, leaving the rural poor in their misery," he says. Development, he says,
"is about transforming societies, improving the lives of the poor, enabling
everyone to have a chance at success and access to health care and education."

Judged from that viewpoint, the record of globalization has been patchy to
date.

And, Professor Stiglitz says, "if globalization continues to be
conducted in
the way that it has been in the past, if we continue to fail to learn from
our mistakes, globalization will not only not succeed in promoting
development but will continue to create poverty and instability."

Copyright 2002 The New York Times Company