by Joseph Stiglitz
Joseph Stiglitz was Clinton's economic advisor and, from 1997 to 2000, chief economist at the World Bank. So he is no socialist radical. He is for capitalist globalisation, but against the way in which it has been "managed". He regards the International Monetary Fund (IMF) as having often acted on behalf of the advanced capitalist states and for the US state and the US's financial sector. By so doing, institutions like the IMF have acted against the interests of capitalism as a whole. And they have often had an appalling and, according to Stiglitz, an unnecessary effect on the world's poor.
This book is a devastating, detailed indictment from an insider.
Stiglitz argues that the IMF was founded in the belief that markets often worked badly. However, in the 1980s, Thatcher-Reagan era such institutions as the IMF were purged and became missionary institutions for free market ideologues to press for trade and financial liberalisation and privatisation across the globe. The IMF is now driven by the finance ministries of the G7 countries - the US, Japan, Germany, Canada, France, Italy and the UK. It has been responsible for imposing capitalist "solutions" on less developed economies in crisis which have led to political and social chaos.
Stiglitz looks at two examples with which he was directly involved: the East Asian meltdown following the collapse of the Thai currency, the bhat, in July 1997; and Russia's attempt to move from a Stalinist economy to a market one during the 1990s.
Stiglitz argues that "the only major East Asian country, China, to avert the [1997-8] crisis took a course directly opposite to that advocated by the IMF, and the country with the shortest downturn, Malaysia, also explicitly rejected the IMF strategy." (China had capital controls in place and created demand with state money; Malaysia attempted to keep interest rates low and imposed brakes on the movement of capital.)
Stiglitz thinks the IMF not only made the slump worse than it might have been but helped to start the crisis in the first place: "excessively rapid financial and capital market liberalisation was the single most important cause of the crisis". Liberalisation made new areas much more vulnerable to speculative (i.e., Wall Street) raids.
The IMF and G7 provided massive loans ($95 billion) to prop up exchange rates and promote "confidence". The lending allowed local firms which had borrowed from Western banks to repay loans rather than default, and the local ruling classes to "convert their money into dollars at a favourable rate and whisk it abroad". The local working class and the poor were left to face the consequences.
The IMF plan failed to stop the fall in exchange rates and, as the crisis grew, unemployment increased tenfold in Indonesia. In South Korea a quarter of the population fell below the official poverty line. In 1998 Thailand's GDP fell by over 10%.
Stiglitz blames IMF ignorance and dogmatism for the imposition of high interest rates, which led to widespread bankruptcy, increased poverty and unemployment. At the same time that Clinton administration was worrying about the effect of a half a percent interest rate rise at home, US officials were pushing 25 percentage point rises, through the IMF, in Asia.
Eventually the IMF forced "restructuring" - the closure of failing banks and companies. Stiglitz comments: "Much of what the IMF did helped push the sinking economies down further."
While there is no need to doubt that Stiglitz genuinely dislikes poverty, his essential argument here is that IMF policies lead to riots, revolutions and such like, and such phenomenon are bad for business.
Stiglitz's alternative is Keynesian demand stimulation. He argues that an economist's job is to focus on social conditions - as well as on the cash - because not to do so can impose its own costs.
Stiglitz then focuses on the effects of the Asian crisis, as it hit Russia in 1998. Here, "without private property and the profit motive, incentives were lacking." The problem was a "restricted trade regime, huge subsidies, arbitrarily set prices". None of the basic institutions in the old USSR functioned in a capitalist manner - banks existed, but not to make loans; no housing market or labour markets really existed. The "shock therapy" in Russia advocated by the IMF to deal with these problems has been a disaster for Russian workers. Between 1990 and 1999 GDP fell 54%; and by 1998 a quarter of the population was living on less than $2 per day and 50% of children were living in poverty.
Stiglitz says that "each mistake" of the IMF, starting with the dramatic freeing of most prices in 1992 which led to a surge in inflation, "was followed by another, which compounded the consequences ... A few friends and associates of Yeltsin became billionaires, but the country was unable to pay pensioners their $15 per month pension."
In 1998 the Russian currency came under attack and the IMF led the "rescue" - pumping billions in to prop up the ruble, despite the fact that it knew much of the money would be siphoned off by corrupt officials and the new Mafia-capitalists. Clinton wanted the loans to support a particular Russian government.
The book documents failures of the IMF-led world trade institutions. What's important for us is not so much that Joseph Stiglitz believes in a re-jigged capitalist globalisation - but that he does so by advocating some consideration for human beings. In part he must be reacting to the massive anti-capitalist mobilisations and NGO campaigns against the IMF and WTO policies. These protests have been impacting on the ruling class, which he has served.
Stiglitz's critique brings to light much evidence that should shock us and allow us to better arm ourselves to go far beyond him, arguing and organising for a different globalisation based - in its entirety - on human solidarity.
Reviewer: Richard Denton