It was Peter Berger that said it is within human nature to offer meanings to all that they perceive and construct social realities from it. (Luckmann, 1967) A certain fear of the unknown and a desperate need to predict the future also falls under the same category regardless of how aloof the outcome is or how misinterpreted. Like the oracle of Delphi who told Croseus, king of Lydia that if he were to attack the Persians, “a great empire will be destroyed”. Little did Croseus know that the oracle was speaking about his own empire. And yet the need to consult soothsayers, astrologers and reading into the predictions of Nostradamus is still continued to this day because reputable sciences have very little to offer on this regard.
Economists seem to betray a feeling along similar lines in predicting the direction of globalization as the oracle of Delphi. There is great talk of how globalization would generate obscene amount of new wealth in a short period of time and yet they seem to forget to tell you that greater wealth generation does not equate to greater wealth for all. That with greater wealth the inequality would also rise as giant fissures between the rich and the poor are created due to highly fraudulent wealth distribution systems supported by idealistic as well as impractical theories such as “free market”, “invisible hand” and “trickle-down effect”. (Chomsky, 1993) (Galbraith, 1982)
Personally I think it is a highly immoral act on the part of economists to preach about the wonders of free trade, wealth and happiness and everyone being “better off” as a result of globalization when statistics show the exact opposite. (Giovanni Andrea Cornia, 2003) A sheer lack of foresight which seems to rear its head when one analyzes the impact of full blown globalization in emerging economies such as Latin-America, Russia and south-east Asia. The oracles of this field would also fail to tell you about the impacts globalization may have on the environment, culture, identity, family structure and much more. The famous economic-historian Niall Ferguson considers this style of romanticist thinking as a natural outcome of seeing the world through the “ivory towers of ivy league colleges” and air conditions of Wall Street. The point of this mini-rant being that many economists fail to acknowledge limitations; limitations of knowledge; limitations of idealism with confluence of reality; and limitations in acknowledging intricacies and complexities of spillovers that decisions may have.
Joseph Stiglitz would therefore be considered a whistle blower in his profession. A Nobel Prize winner and former head of the World Bank, Stiglitz in his insightful book ‘Making Globalization Work’ draws a frame work on where things went wrong and how to mitigate and solve the crisis that face us today and also in the future.
The gravamen of Stiglitz’s case against the current form of globalization is the two distinct faces it wields. On the one hand globalization generates a euphoria never before seen and on the other hand it puts the lives of workers, farmers, activists as well as trade agreements and sovereignty of a country in jeopardy. Globalization in its current form has succeeded in uniting the world - against globalization itself. Between 1990 and 2002 barring south Asia, European Union and United states the unemployment rate had increased in almost every other country with 59% of the world population living in countries with growing inequality. In short the GDP countries may have increased but it had not helped most of the people. As Stiglitz puts it “globalization might be creating rich countries with poor people”.
Of course this does not mean that people object to the fact that there is greater access to global markets today as well as greater spread of knowledge and technology. However Stiglitz points out that there are 5 areas of concern that plague the system:
1) The rules of the game that govern globalization are skewed in the favor of rich industrial nations.
2) Globalization advances material values over all other values.
3) Erosion of sovereignty and abilities of governments to look after the well being of its citizens thereby undermining democracy.
4) Plenty of evidence suggests that opening up of trade between rich and poor countries has created losers on both sides.
5) The economic system of free trade has been pressed upon many developing countries thereby leading to an Americanization of economic policy and culture. This has lead to great resentment.
The free market neo-liberalist led by Chicago School of Economic thought is the face of globalization today. Their style of economics is very good at understanding social and economic interdependence but very poor at understanding motives, morals and ethics and thereby consumer behavior. Amartya Sen eloquently describes them as “rational fools”. (Sen, 1977)
Now naturally the question to be asked next is: what is the right way for Globalization to progress forward?
Stiglitz in his book broadly outlines 6 key areas that must be looked into to curb the current form of Globalization towards the path of holistic development. These areas highlight the distance already traversed by Globalization and distance still left to be achieved. The change will come at the face of stiff and powerful opposition from the people that already benefit from the established system. The areas of concern are:
1) Pervasiveness of Poverty:
Poverty is finally seen as a global concern according to Stiglitz. He takes the example of how 150 countries came together in recognition of this phenomenon during the millennium summit in 2000 and pledged to cut poverty by half till 2015. The IMF also has changed its priority from curbing inflation to looking at the question of poverty which was considered to be a matter taken up by only the world bank.
Through these examples Stiglitz makes the conclusion that just opening up the market by itself would not “solve” the problem of poverty but more assistance and a fairer trade regime will.
2) Need for foreign assistance and debt relief:
Countries have begun to understand the importance of assistance through grants rather than loans given the persistent problem of repayment. Another issue that is seen with regards to assistance is the excessive conditionality attached by IMF and World Bank which encroaches on the sovereignty of a country.
Developing countries use most of the revenue earned by export to service debt; the same money could have put to far more fruitful tasks such as welfare. In 2005 the G-8 countries agreed to waver off the debt owed by 18of the poorest countries in the world. 14 of them being from Africa. These are legitimate concerns as the world’s developing nations owe 1.5 trillion in debt.
3) The aspiration to make trade fair:
This excerpt from Stieglitz’s book describes the cause of imbalance that exists when an industrialized nation trades with a developing nation, “Part of the reason that international trade agreements have been unsuccessful at promoting growth in poor countries is that they were often unbalanced: the advanced industrial countries were allowed to levy tariffs on goods produced by developing countries that were, on average, four times higher than those on goods produced by other advanced industrial countries. While developing countries were forced to abandon subsidies designed to help nascent industries…”
There is now a widespread acknowledgement among economists that indeed many trade agreements between the economic north and south have been unfair. The world responded in the Doha summit in 2001 where the focus would shift to the needs of the developing countries.
4) The limitations of liberalization:
History has shown that full blown liberalization has not worked its theoretical miracles. Indeed evidence points to the contrary. Stiglitz critiques capital market liberalization as one of the key issues of the downfall of highly liberalized economies. The money flowing in was for short term benefits only and as soon as financial crisis struck huge amounts of money was taken out of these countries overnight. The shock of the vacuum left behind caused great turmoil in the form of job losses.
The doctrine of liberalization as proposed by the Washington consensus was no longer seen viable. The narrow minded document did not take pay attention to equity, employment and competition or how privatization needs to be conducted. The focus was on GDP and not on living standards. Indeed economists today share a collective blame for the ordeal Stiglitz says.
5) Protecting the environment:
Concern for the environment today is universal. Global warming is one of the true challenges that globalization faces. Stiglitz sees the energy consumption that India and China’s growth threatens as an onslaught that the world cannot take. It is an imperative that India and China do not consume at the destructive levels United States consumes at according to Stiglitz. The positive is that the phenomenon is universally recognized, the negative however is changing personal lifestyle will not be easy.
6) A flawed system of global governance:
When thinking about global governance my mind wavers to another great author who spoke at lengths on this topic – Alvin Toffler. Toffler made it quite clear in his book “Revolutionary Wealth” that today’s governance cannot keep up with changing businesses mainly because the decision making is so painstakingly slow. (Toffler, 2006) Political globalization has not kept up with economic globalization leading to an imbalance and a lack of direction. This is not only reflective in state governance but also in institutions such as the IMF, UN and World Bank who suffer from lack of transparency, lack of democracy and a lack of accountability. Add to this the fact that the aims of state governments and global institutions are at times loggerheads with each other rather than cooperation and you have a system that is speeding towards failure.
Joseph Stiglitz’s work is important because not only does it analyze the key hotbed issues of today’s world but it also starts a discourse among the different schools of economics, politics, governance, welfare, environment and much more. Stiglitz work is a lucid and insightful reference on the shaping the future of our planet.
Bibliography
Chomsky, N. (1993, March). Notes of NAFTA "The Masters of Man". Retrieved February 2012, from Chomsky.info: http://www.chomsky.info/articles/199303--.htm
Galbraith, J. K. (1982). Recession Economics. New York Review of Books.
Giovanni Andrea Cornia, T. A. (2003). A fair globalization: creating opporunities for all.
Luckmann, P. L. (1967). The Social Construction of Reality.
Sen, A. K. (1977). Rational Fools: A Critique of the Behavioral Foundation of Economic Theory. JSTOR , 317-344.
Stiglitz, J. (2007). Making Globalization Work. Penguin.
Toffler, A. a. (2006). Revolutionary Welath; Chpater 5: Clash of speeds. Alfred A. Knopf Publisher, New York.
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