[OPE-L:7364] An Ivory Tower Embrace of Views in the Streets

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Sun Jun 09 2002 - 00:23:50 EDT

This article from NYTimes.com

An Ivory Tower Embrace of Views in the Streets

June 9, 2002

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

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

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

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

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

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

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

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

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