REVIEW BY LEE SUSTAR

In the last decades of the USSR, Western officials denounced the Kremlin whenever Moscow purged or harassed dissidents who had the courage to speak out. These days, former World Bank chief economist Joseph Stiglitz is getting similar treatment — because he has deviated from Washington's free-market party line.

Stiglitz was forced out of his job in late 1999 for criticising the International Monetary Fund (IMF) and the US treasury department. Now the economic policymaking establishment and its media apologists are trying to discredit Stiglitz's new book, Globalization and its Discontents.

“Self-satisfied, misleading, irresponsible and simplistic”, wrote a British Financial Times columnist. “Overly tendentious, even vengeful”, “sanctimonious” and often “shallow” was the verdict of a New York Times reviewer.

In July, the IMF's chief economist Kenneth Rogoff turned a public “discussion” with Stiglitz in Washington into a character assassination, declaring: “Your ideas are at best highly controversial, at worst, snake oil.”

It isn't hard to see why the free-market ideologues are so vicious in attacking Stiglitz, a recent winner of the prestigious Nobel Prize for economics. His book is a hard-hitting expose of the so-called “Washington Consensus” of deregulation, privatisation and “flexible” labour policies — often called “neo-liberalism” and sold as “globalisation”.

“The net effect of the policies set by the Washington Consensus has all too often been to benefit the few at the expense of the many, the well-off at the expense of the poor”, Stiglitz writes in his book. “In many cases, commercial interests and values have superseded concern for the environment, democracy, human rights and social justice.”

The IMF, as the chief enforcer of free-market policies in the “developing” countries and the old Eastern bloc states, is Stiglitz's main target. He writes: “In the standard competitive model — the model that underlies the IMF's market fundamentalism — demand always equals supply. Someone who is not working has evidently chosen not to work. In this interpretation, unemployment in the Great Depression, when one out of four people was out of work, would be the result of a sudden increase in the desire for more leisure.”

Yet in the IMF's view, the market is never the problem. “It must lie elsewhere — with greedy unions and politicians interfering with the workings of free markets, by demanding — and getting — excessively high wages. There is an obvious policy implication — if there is unemployment, wages should be reduced”, Stiglitz explains.

And that is exactly what the IMF prescribed — or rather, ordered — during the East Asian financial crisis of 1997-98. The economies in the region unravelled when foreign investors realised that countries like Thailand, South Korea and Indonesia would be unable to repay dollar-based loans in dollars on time or in full because their exports — and profits — were falling.

The IMF's solution: devalue currencies to make exports cheaper — and cut food subsidies and other government spending to reduce budget deficits as part of the first phase of free-market “reforms” and “structural adjustment programs”.

Stiglitz describes the terrible social cost. Within months, unemployment quadrupled in South Korea and tripled in Thailand. In many of the crisis-stricken countries, Stiglitz writes, many people refer to the economic and social storm that hit their nations simply as “the IMF” — the way one would say “the plague” or “the Great Depression”.

The IMF's second-in-command, Stanley Fischer, backed by then-US treasury secretary Robert Rubin and his deputy, Lawrence Summers, argued that these tough policies would eventually lead to economic recovery. In fact, the IMF policies only accelerated the flight of capital from the affected countries — a process made easier by the financial deregulation pushed by the US treasury.

“Sure enough, just at the time the countries needed outside funds, the bankers asked for their money back”, Stiglitz notes. And, thanks to the IMF, they largely succeeded, but at enormous cost. Stiglitz estimates that incomes are 20% lower than they would be if they had continued to grow at pre-crisis levels.

Rubin and Fischer did rather better, becoming top executives at the Citigroup banking corporation. In a passage that has outraged the Washington establishment, Stiglitz writes: “One could only ask, was Fischer being richly rewarded for having faithfully executed what he was told to do?”

IMF policies follow the discredited approach that US President Herbert Hoover took to the depression of the 1930s, Stiglitz argues. Then, cuts in government spending to balance the budget dragged down the economy and led to the deflation of prices. So it was in East Asia after the crisis, when the IMF pushed austerity and saw inflation as the main enemy, even as economies shrank.

Next, the IMF sought to avert a crisis in Russia by supporting the exchange rate of the ruble by loaning Moscow billions of dollars. But the money sent abroad by Russia's mafia-business tycoons and a Russian default on its government bonds pushed the world financial system to the brink. “Some of us quipped that the IMF would have made life easier all around if it had simply sent the money directly into the Swiss and Cyprus bank accounts”, Stiglitz recalls.

For workers, Russia's headlong rush into free markets resulted in social catastrophe: declining living standards and an economy that has shrunk by as much as a third since 1989. In other parts of the world, the results of the “neo-liberal decade” are even worse. According to the 2002 United Nations Human Development Report, the number of people in the world living on less than US$1 per day, remained about the same — some 1.2 billion. In sub-Saharan Africa, the number dramatically increased from 242 million to 300 million — nearly half the population.

But in proposing alternatives, Stiglitz is far less effective — because he shares the assumption that the market is the only conceivable way to organize the world economy. Stiglitz's alternative is a kind of international Keynesianism — policies named after the liberal British economist who advocated increased government spending to stimulate a recession-bound economy, even if it resulted in budget deficits.

He praises supposedly “communist” China for ignoring IMF advice and making a more gradual transition to a market economy. But China's success is based in large part on outlawing independent trade unions and keeping workers toiling for pennies an hour for transnational corporations — which Stiglitz skates over by criticising China's “authoritarianism”.

Another problem is that Stiglitz portrays the World Bank as the saintly twin of its evil sister institution, the IMF. But the World Bank also typically demands “structural adjustment” programs as a condition of its loans.

While Stiglitz shows how the IMF reflects the interests of Washington and Western banks, he retreats from drawing similar conclusions about the world system as a whole. For the financial panics of the 1990s — and, later, the stock-market bust in the US — aren't simply the result of the policies of the IMF and other free-market policymakers. They are the inevitable results of a profit-driven world economy divided by competing nation-states. It's a system dominated by the US, which uses both economic and military means to get its way.

At his best, Stiglitz shows flashes of recognition of this dynamic. He describes how the IMF forced heads of state in East Asia to sign “letters of intent” that surrendered control of much of their economic policy — and even dictated what laws would be passed by parliaments. “Had things really changed since the `official' ending of colonialism a half century ago?”, he asks.

Washington's financial bureaucrats and New York bankers are furious that an influential establishment economist like Stiglitz would dare to even ask such questions. But for opponents of corporate globalisation, the book is a powerful vindication.

[From Socialist Worker, weekly paper of the US International Socialist Organization. Visit <http://www.
socialistworker.org>.]

From Green Left Weekly, November 13, 2002.
Visit the Green Left Weekly home page. 

Tools

• Bookmark This Page
• Print This Page