Nobel economist says IMF is destroying poor nations it was set up to help
This month, when the G-8 leaders meet deep in the Canadian woods to discuss global economic growth, it will be far from civilization and far from any protesters. To much of the world, it will look as if they're hiding. Because lately, they have a lot to hide from.
Since the infamous World Trade Organization meeting in Seattle, nearly every gathering of leaders from the industrialized world has been thronged with angry young men and women scaling fences, blocking roads, and demonstrating against "globalization."
Now, with the publication of "Globalization and Its Discontents," by Joseph Stiglitz, those protesters and others in the developing world have acquired a formidable ally.
Stiglitz is no rock-throwing nihilist. The Columbia University professor, who won the Nobel Prize in economics last year, was chief economist at the World Bank from 1997 to 2000 and served on President Clinton's Council of Economic Advisors. In other words, what the anti-Starbucks anarchist can't tell you, Stiglitz can.
"Globalization" is a fairly damning read, particularly of the International Monetary Fund and its policies, as Stiglitz trots out failure after failure in painful detail and also explains how and why these policies failed. At the core is what Stiglitz feels is a betrayal of the IMF's original mission.
Stiglitz is a Keynesian at heart (as is anyone who ever voted for a stimulus package), and it is the ideas of John Maynard Keynes that were the foundation of the IMF. Keynes saw that a depression is caused by a drop in overall demand. When this happens, he said, the government should stimulate the economy, with either spending or tax cuts.
The IMF was founded on this assumption: Markets don't always work well. The Fund's raison d'être was to ensure that countries were able to get their economies going when they slowed.
But in the 1980s a new breed of international bureaucrat emerged: the market fundamentalist. Under Reagan and Thatcher, the new creed of the IMF and World Bank became the sanctity of markets. That is, markets always work perfectly.
On these beliefs, they formed the "Washington Consensus," a three-pronged approach stating that austerity, privatization, and market liberalization were the path to development, or at least to stability. And from the holy grail of low inflation, all else would magically follow. Unfortunately, reality has not borne this out. Stiglitz trots out example after example showing how IMF and World Bank policies did not work, and sometimes had the opposite effect. Poor countries were forced to adopt policies that made their economies contract rather than expand, like raising interest rates to more than 25 percent. Who would think of doing that to alleviate a US recession?
This is where Stiglitz's criticisms bite hardest. The 1997 East Asian financial crisis was exactly the kind of event the IMF was founded to deal with. But according to Stiglitz, the organization did not foresee it, did not stop it, and stepped in with policies that actually made the crisis worse.
Countries like Malaysia, which ignored IMF advice, recovered fairly quickly. Others, like Thailand, that took the fund's advice had much longer, more severe depressions. But the IMF and the World Bank have been loath to look at actual data, feeling confident in the Washington Consensus, regardless of results.
All this aside, Stiglitz is a sort of pessimistic optimist, believing that neither the World Bank, the IMF, nor the WTO is beyond salvation. Among the many changes he advocates are poverty impact statements for all IMF policies, and the replacement of low inflation with good old-fashioned Keynesian full employment as a goal.
In his Nobel Prize address, Stiglitz said that the two years he spent in Kenya in the late 1960s helped form the basis of his theories in economics. What he also seems to have gleaned was a humanism that pervades his new book, and which sets Stiglitz's apart from many of his colleagues.
Development and economics are not about statistics. Rather, they are about lives and jobs. Stiglitz never forgets that there are people at the end of these policies, and that the success of a policy should be defined not by how fast international banks are repaid, but by how much people have to eat, and by how much better it makes their lives.
Frank Bures is a freelance writer in Portland, Ore.