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Nobel Prize-winning economist

Joseph Stiglitz, a Nobel Prize-winning economist contributed highly incisive and valued explanation regarding a wide range of economic experiences which consisted of interest rates, tax rates, corporate finance and much more. Many of the economists who are currently working for making economic policies ranks him as a pioneer of economic. (Benjamin M. Friedman, 2002). However, throughout a trip of Ethiopia in 1997, Joseph Stiglitz, chief economist for the World Bank and an economic adviser of the Clinton Administration noticed a gap amid the authorization and practices of the International Monetary Fund (IMF).

Ethiopia was at that time a developing country and according to Stiglitz, “Not only did Ethiopia have a sound macroeconomic framework but the World Bank had direct evidence of the competence of the government and its commitment to the poor. ” Still, the IMF placed more load on Ethiopia by looking at its budgetary position they chopped off the aid program and putting people into more political turmoil. The matter became even worse when one of the IMF’s policy to restore loans to liberalize their small banking system and converting the nation’s largest bank into small pieces.

Due to this situation, bankers around the globe, along with Stiglitz intervened and forced IMF to restore their policies back by dropping its demands. The book is divided into three essential parts, therefore, manifestation, part like memoirist and lastly criticism regarding the International Monetary Fund (IMF). However, as a memoir, the book is extremely informative and as a manifest, it is very powerful.

Professor Stiglitz illustrates in this book about politics, a major game played within Washington DC. Many people ignored his advice and others never wanted to listen to him. According to Norton (2002), weak point of this book is when Stiglitz criticize about IMF not because of what he says but how he says becomes the real issue. (Sebastian Edwards, 2002). In Globalization and its Discontents, professor Stiglitz illustrates same examples that reflects powerfully on IMF seventy one polices that went off.

He gives explanation about the economic policies for a number of other countries like Latin America, Africa and East Asia. According to Rafi Rom (2004), the major source of there issues are similar, whether he examine Morocco’s stressed farming districts or disastrous transition in Russia for free enterprise led by the IMF. When he was in the mid of his economic expedition, Stiglitz supports aspects regarding globalization movement that are “more feasible changes in policy” stated by Rafi Rom. (Rafi Rom, 2004).

However, according to Bruno Schonfelder (2006), a critic, that there were three basic fundamentals introduced by Stiglitz, therefore, stable monetary system, free prices and rivalry out of which Russian reformers adopted only the second one that is free prices as they thought other two are disillusioned by anti-reformers. He also stated that these policies were however stuck in 1991 after few months when prices were liberalised which was also effected when it was obvious because the supply system, operated by the government, nearly collapsed and famine threat started to appear in the major cities of Russia.

Stiglitz tried to set an image for Russian reforms which eventually failed to distinguish the nature of its activities. At last, after the mid of eighties started to collapse so dramatically that Russia and other small collective nations started to convert into showpieces of socialism. (Bruno Schonfelder, 2006). In years when he was working within the White House during Clinton administration, Stiglitz criticized the political and business related policies that are functioning in developed countries which affects negatively on the developing ones that was named by Stiglitz as “The Washington Consensus.

” Most of the heat taken by Stiglitz on IMF and U. S. Treasury Department is a blind approval of the policies regarding the free market system. According to Stiglitz, most of the policies regarding liberalization and privatization fail to adopt any kind of economic theory that is developed from many decades and moreover it did not do anything for the people who suffer from poverty. (Rafi Rom, 2004). Stiglitz argues and complains that IMF has done a huge damage by the means of economic policies which prescribed that countries should follow to obtain IMF loans or loans from other banks.

The officials of IMF, he claimed, do not notice about the insinuations of insufficient markets, incomplete information and institution that are not functioning which are known to be especial features of a developing country. (Benjamin M. Friedman, 2002). At this point, Bruno Schonfelder (2006) argues that in the book, Stiglitz has only quarreled about IMF with cooperation of another party to obtain money which makes a thought of Sligitz referring to market fundamentalism and does not provide details about its connection.

Rather, he makes a case regarding the IMF on which Rogoff, an IMF official, stated “That these facts more often than not are fiction. The author of this review surely does not have the profound insights into Indonesian, Ethiopian, Argentine, Brazil, Thai etc. etc. affairs which Stiglitz claims to possess. ” According to Bruno the post communist transition and history of German economy, Ragoff is somewhat right which however, does not mean that Stiglitz is lying but it seems more to overextend himself. (Bruno Schonfelder, 2006).

In opposed to Bruno, Eyal Press (2002) argued that policies made by IMF have caused suffering such as the free trade treaties which highly benefited rich people through privatization and have proved to be disastrous in a number of nations. Until and unless policies regarding global capitalism are changes, the gap amid poor and rich will wash away. Stiglitz, as a scholar according to Press (2002) has devoted much of his career to challenge one of the cores of neoclassical economics which is that the market always takes action on their own which is the perfect way.

However, Stiglitz never said anything critical to IMF directly but when IMF called on wracked nations along with South Korea to cut their expenses and raise interest to be one of the conditions to obtain loans which directed Stiglitz to the boiling point. (Eyal Press, 2002) Globalization and its Discontents consist of three chapters that are totally dedicated to the biggest economic collapse, therefore, Russia and East Asia.

He blamed the three years of Asian financial crisis due to the premature push by Washington Consensus to liberalize the capital markets which directed to billions of dollars of loss of Thailand and East Asian states in its capital outflows. According to Rafi Rom (2004), after stable growth since thirty years, the financial market liberalization led the developing states into a situation of both rational and irrational whims of the lender’s community. To aid East Asian countries, the IMF did lend loans but with a number of stringent conditions.

According to Stiglitz, Russia was forced on with a number of stringent policies by Washington Consensus which directed Russia for an economic break down. However, this is not surprising; according to the survey made by World Bank to places like Russia originated that privatization during the absence of institutional infrastructure does not help for economic growth. (Rafi Rom, 2004). World Bank also think that IMF should be abolished but Stiglitz believes that such institutions should be reorganized rather then eliminating it. (Eyal Press, 2002)

The policy of capitalism of IMF worsened the economic situation of Russia, proved by the statistics that GDP in 2000 is less the two third as compared to GDP in 1989. Since 1998, about 23. 8% people in Russia lived in poverty which was only 2% in 1989. People who took advantage of this situation were the influential who had been supported by IMF, which resulted into to promote corrupt environment through market liberalization. However, for Sliglitz, he learned a lesson for what he calls “the Bolshevik approach to market reform. ” (Rafi Rom, 2004).

As an example in regards to spread global capitalism, Sitglitz point out towards China as the nation has adopted privatization and chopped off its trade barriers. He argues, that it should be done slowly and steadily to avoid social fabric from being worn out during the procedure. (Eyal Press, 2002) Criticizing Stiglitz, Bruno (2006) noted that Stiglitz was fully against to liberalize the capital account but the reader of this book may end up with a confusing thought of whether the capital account should be liberalized or not.

He also asserted that Stiglitz on behalf of liberalizing the capital account provides various references of economic history but in the end his facts are not right. On the success of China, Bruno thinks that victory is obvious in some cases but what about the catastrophic failures faced by Russia and other countries. To prove the success of China and other countries like Poland, Bruno claims that it is repeatedly mentioned in the book about the comparison of GDP before and after the change.

Bruno thinks that Stiglitz repeatedly states tales about such success stories is because he accepts the problems that are so stern that its result might be worthless. (Bruno Schonfelder, 2006). However, rest of the book consists of solutions for free market disaster generated by the Washington Consensus. To make globalization work in a positive way, Stiglitz stated that there is a need to change the governance such as voting rights and more simple policies should be proposed.

For IMF he stated, “needs to return to its original mandate of providing funds to restore aggregate demand in countries facing an economic recession. ” An alternative for such problems is the utilization of Special Drawing Rights (SDRs) for the purpose to fund worldwide public goods. SDRs are an exclusive kind of currency issued merely by IMF which gains its value through price fluctuation for various currencies like pound, US dollars, yen and euro. Special Drawing Rights (SDRs) is the central heart of this book.

According to George Soros (2005), an economist, claims about the help the SDRs can provide to the public goods market for example infrastructure regarding medical treatment or labor standards that are mostly ignored to gain wealth. As opposed to Stiglitz, Soros does not impose further rules and regulation to gain answer regarding labor, environmental and human rights issues as it is not possible for developing states to participate at the international level with additional rules without any financial support.

Additionally, Soros states “it would be much better to provide resources that would enable poor countries to comply with those requirements on a voluntary basis. ” (Rafi Rom, 2004). Conversely, Globalization and its Discontents consist of few mistakes as well argued by Bruno (2006), for example, the World Bank is not at all criticized in the whole situation of free market mess. Every time he states about the bank, he honors some of its studies which in turn proves IMF policies wrong or he may declare its packages to assist any developed country.

Bruno also states several experts who criticized his work such as William Easterly who was a former colleague of Stiglitz. (Bruno Schonfelder, 2006). William Easterly (2001), focus in a different direction and his methods also differ from Stiglitz. His tone while mapping the history of economical policies regarding the International Financial Institutions (IFIs) is humbler unlike Stiglitz. While reading Globalization and its Discontents, often readers gets an impression of IMF performing mostly in allocating loans, an act which is most of the time criticized by Stiglitz.

(Rafi Rom, 2004). While according to Easterly (2001), IMF is rarely found in his work among with the World Bank. However, during 1980s and 1990s, both IMF and World Bank made numerous amount of loan while in the case of Africa, Easterly states that each of other nations received an average amount of six loans for adjustment but as predicted by the World Bank “such an act for success is overestimated in Africa. ” He stated in his book, “Twelve countries received fifteen or more World Bank and IMF adjustment loans over the fifteen-year period 1980 to 1994.

The median per capita growth rate for those twelve countries over that period was zero. ” It has been proved that Stiglitz differ from Easterly on other issues as well. Such as, Easterly thinks about debt forgiveness as a mislaid effort for forced growth and Stiglitz argue that it is a positive step. Though, at the end of the book, Stiglitz arguments are strong while Easterly mainly provokes particularly regarding his approach of poor Capitalism through growth is somewhat not explained properly that sometimes direct to arguments with a lot of questions.

For example, Easterly expose about the usual belief of education that leads towards growth. In one of the chapters of Easterly Book namely “Cash for Condoms,” he refuses the utilisation of contraceptives to control population for the purpose of promoting the growth. His focus is mainly on free market system which itself will never supply sufficient contraceptives cover people needs. Afterwards, Easterly questions about how free market failed to supply inexpensive product which is in demand by hundreds of people. Then his argument leads towards other forceful factors like AIDS.

This statement reach to a new stage of what he blames to Stiglitz “a splendid bit of illogic. ” How can someone in a chapter like population growth and control do not mention that facts about the countries like South Africa where a number of people are HIV positive? And that the ongoing spread of HIV positive in developing nations are proved to be countless amongst the NGOs, government and other studies which is successfully encloses the admittance of education. This would have however reaches towards the approach of unimaginable population growth. (William Easterly, 2001).

On the other hand, in Globalization and its Discontents, Stiglitz portrays IMF as a flawed organization that elevates significant questions about the accountability of foreign institutions. This is however even more appropriate than ever due to the collapse of corrupt capitalists that destabilised the market. Stiglitz explains about this in the book: “today’s IMF has, in my judgment, not articulated a coherent theory of market failure that would justify its own existence. ” He simply thinks that such actions are a sign of generosity that has been gone far away. (Rafi Rom, 2002).

According to a critic, IMF never wanted the poor to suffer and they believed in their policies that it would eventually advantage them but unfortunately, that it dropped the economics, not once but again and again. However, it also believed their policies would have created disciplne to assist the poor nations to develop and grow therefore, they thought of giving priority to the capital market will help in do so. (Eyal Press, 2002). But looking at Stiglitz propositions regarding their policies since start have constantly proved IMF practise and theories to be wrong.

It has raised doubts for many people whether IMF didn’t had any idea about what they were doing was illegal or wrong. Repeatedly he demonstrates about how powerful politicians, economists and corporate administrative have forced the strategy merely just for their special interest. For example, Paul O’Neill, Treasury Secretary, has lobbied for a world wide aluminium cartel by adding Alcoa init by knowing that such coalitions destroys all the domestic antitrust laws if the United States.

It doesn’t even matter for them for what they declared the intention of somebody in their acts which casused an extensive harm to the system. As demonstrated by Stiglitz, “the IMF did across the globe? Further, the ‘intent’ of an institution whose actions cause systematic harm, seems irrelevant. ” (Rafi Rom, 2004) Recently, many articles have labelled Stiglitz as a leading representative for what have wrongly hailed by politicians, media and scholars similarly like anti-globalization movement. According to me, he is certainly not what they way they represent him.

As he was forcefully removed from the World Bank does not mean that he is not subversive. In Washington, he obtains an enormous amount of credibility amongst the economic and political leaders even if he continuously ridiculed them. Despite the fact of criticising the World Bank and IMF, he still trust the current administration, however, according to him there are few things that needs to be altered. Though his study since last two decades on the economic policies, I think he have proved the point of a number of protestors.

A great part of his image considers that even rational policies exist such as those policies that Stiglitz proposes have never been put into practice by political leaders even if they are his friends. As Rafi Rom (2004) stated that the book Globalization and its Discontents should be read by those people who think that they can cleverly save the protestors of globalization by criticism by providing a number of examples and alternatives. He also asserted that such protestors offer loads of international bankruptcy policies to them to improve safety nets due to unemployment and same is for the criticizers out there.

(Rafi Rom, 2004). Stiglitz has the ability to explain economic principles, especially complex policies, without supporting his readers. People across the globe who object the the World Bank and IMF without knowing the important dissimilarities amid there two entities or their policies that they think should be implemented can use a small amount of knowledge provided by his book. This book can help anyone who desires to see world in a better condition. Bibliography Schonfelder, Bruno. (2006) Stiglitz’ War Against the Wicked Fundamentalists.

[Internet], Available from: <http://www. wiwi. tu-freiberg. de/finanzwiss/images/stories/lehrmaterial/Globalizationanditscritics. doc. > [Accessed 05 December 2008] Eyal Press. (2002) Rebel With a Cause. [Internet], The Nation. Avialable from: <http://www. thenation. com/doc/20020610/press> [Accessed 08 December 2008] Benjamin M. Friedman. (2002) Globalization: Stiglitz’s Case. [Internet], The New York Review of Books. Available from: <http://www. nybooks. com/articles/15630> [Accessed 08 December 2008] Rafi Rom. (2004) On Globalization and its Discontents.

[Internet], Upside Down World. Available from: <http://upsidedownworld. org/GlobalReviewRom. htm> [Accessed 08 December 2008] Sebastian Edwards. (2002) Review of Joseph E. Stiglitz’s Globalization and its Discontents. [Internet], University of California. Available from: <http://www. anderson. ucla. edu/faculty/sebastian. edwards/Stiglitz. pdf. > [Accessed 08 December 2008] George Soros. (2005) George Soros on Globalization. Perseus Books Group. William Russell Easterly. (2001) The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics. MIT Press.

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