The critique from Joseph Stiglitz

Money and globalisationThe finance industry lies at the heart of

globalisation. Of the total international transactions of a trillion or so dollars each day. 95 per cent are purely financial. Globalisation in not about trade; it is about money.

the financial system now completely dominates the real economy of goods and services

Mellor et al. The Politics of Money. 2002

Joseph StiglitzChief Economist at

the World Bank until 2000

Chair of President Clinton’s Council of Economic Advisors

Professor of Finance and Economics at Columbia

‘Nobel Prize’ in 2001

What is the IMF?‘The International

Monetary Fund (IMF) is an organization of 186 countries. working to foster global monetary cooperation. secure financial stability. facilitate international trade. promote high employment and sustainable economic growth. and reduce poverty around the world’

Trade requires an exchange of currencyA corporation would rather be paid in a

reserve currencySo the importer country wants to have dollars

or euros in its banks to pay for imported goods and services

The IMF was set up to lend countries these reserves so that they could continue to trade

It also collects information about member countries and publishes reports

It also offers technical advice

Country Quota of SDRs %age of total votes

USA 17.09 16.79Japan 6.13 6.02Germany 5.99 5.88France 4.94 4.86UK 4.94 4.86China 3.72 3.66Italy 3.25 3.2Saudi Arabia 3.21 3.17Canada 2.93 2.89Remaining 175 47.8 48.67

What is the World Bank?‘Our mission is to fight poverty with passion

and professionalism’ ‘help people help themselves and their

environment by providing resources, sharing knowledge, building capacity and forging partnerships in the public and private sectors’

‘financial and technical assistance’low-interest loans, interest-free credits and

grants to developing countries

The theory‘Trickle-down economics’No barrier to the

accumulation of wealth by the rich

If the rich become wealthy enough, some of this will trickle down to the less well-off

Applies within and between countries

The practice

The message from the IMFPrivatise—get the state out of the economyLiberalise—open the economy up to global

markets in goods and capitalStabilise—balance the budget by cutting

public spending and increasing taxation: Structural Adjustment Program

PrivatisationCochabamba is Bolivia’s third largest cityTo meet the conditions imposed by the world

bank Bolivia privatised its railways, telephone system, airlines

In 2000 the World Bank refused to renew a $25m. loan unless the water system was also privatised

A 40-year contract for $2.5 billion was signed

In a country where the minimum wage was less than US$70 per month, many citizens were hit with monthly water bills of $20 or more

Law 2029 privatised all water in the country – even rainwater

This led to widespread protests joined by coca growers

Radicalisation led to the election of Evo Morales in 2005

Not a very secure investment for Bechtel et al.

Financial liberalisationPeso pegged to the dollar: Argentina’s

exports became more expensive than those of competitor countries

Pesos exchanged for foreign reserve currencies or sent overseas

The financial crisis in Mexico in 1994. followed by those of the Asian Tigers. Russia and Brazil from 1997 to 1999 undermined confidence in Argentina’s ability to pay her sizeable external debt.

Europeans banned the free flow of capital until the 1970s

Trade liberalisationStiglitz’s questions:

Efficient outcomes from comparative advantage

Need to protect ‘infant industries’

Freeing of trade in services. but only those where Western nations dominate (financial services and information technology). not those where poorer countries could compete (maritime and construction)

Stabilise?William Browder. co-

founder of Hermitage Capital in 1996

Shareholder of Russian gas company Gazprom

In 2006 blacklisted as ‘threat to national security’

This week his lawyer died in custody

Time for a breatherAsk your neighbour:What was the most useful thing you

learned from the lecture?What was the most interesting thing

you learned from the lectureWhat was the thing that was most

difficult to understand?

Expanding the reach of the marketFormer communist

countries making a ‘transition’ to a market economy

China making a transition towards state capitalism

Subsistence economies moving into the global marketplace

The business angleThe rules suit international business. which is

free to move from country to country. Advantages are:

Consistent global legal frameworkLoss of domestic control over capitalEnd of protection of domestic productionSpeculative investment flows

Multilateral Agreement on InvestmentNegotiations launched at the Annual Meeting of

the OECD Council at Ministerial level in May 1995.

The objective was to provide a broad multilateral framework for international investment with high standards for the liberalisation of investment regimes and investment protection

Shift in power from governments to corporationsNegotiations were discontinued in April 1998,

however, and they will not be resumed.

Economic ‘shock therapy’‘These countries were told by the West that the

new economic system would bring them unprecedented prosperity. Instead it brought them unprecedented poverty. . . In 1990 China’s GDP was 60 per cent less than that of Russia; by 2000 the numbers had been reversed.’ p. 6

‘Rapid mass privatisation as an economic transition strategy was a crucial determinant of differences in adult mortality trends in post-communist countries; the effect of privatisation was reduced if social capital was high.’

The Lancet, 2009

The results of gangster capitalism

Increases in poverty and inequalityShrinkage of GDPIn 1989 2% of the

population were in poverty; by 1998 it was 23.8%

More than 40% had less than $4 per day

Similar rates in other post-Communist societies

China’s path to the marketBegan with agriculture—a move away from

collective agriculture to ‘individual responsibility system’

Competition more important than privatisationA gradual approachOnce the basis was secure foreign firms were

invited in‘China put creating competition, new

enterprises and jobs before privatization and restructuring existing enterprises.’

Structural Adjustment ProgramsHigh levels of interest rates—makes

indigenous entrepreneurship impossibleRequirement to pay off external debt—no

money for domestic investment in job creation

Cutting of government spending – no possibility to develop the workforce. i.e. human capital

GDP per capita growth

Countries

More than 50%

Chad. Cambodia. Myanmar. Mozambique. Nigeria. Sierra Leone. Tajikistan. Vietnam

25-50% Bangladesh. Burkina Faso. Ethiopia. The Gambia. Ghana. Krygyz Republic. Laos. Madagascar. Mali. Nepal. Pakistan. Sao Tome & Principe. Tanzania. Uzbekistan

0-24% Benin. Kenya. Guinea. Malawi. Mauritania. Niger. Rwanda. Senegal. Uganda. Republic of Yemen. Zambia

Less than 0%

Burundi. Central African Republic. Comoros. Dem. Rep. of Congo. Cote D’Ivoire. Etritrea. Guinea-Bissau. Liberia. Papua New Guinea. Solomon Islands. Togo. Zimbabwe

Stiglitz’s conclusion‘Today, globalization is being challenged around

the world. There is discontent with globalization, and rightfully so. Globalization can be a force for good: the globalization of ideas about democracy and of civil society have changed the way people think. . . But for millions of people globalization has not worked. Many have actually been made worse off, as they have seen their jobs destroyed and their lives become more insecure. They have felt increasingly powerless against forces beyond their control.’