The following paper draws on a comparative analysis of two essays written by Joseph E. Stiglitz: The Future of Global Governance (written in 2004 for a conference in Spain; referred to as the “Barcelona” paper) and Democratizing the International Monetary Fund and the World Bank: Governance and Accountability.
First of two parts.
In one of the most celebrated critiques of the flagship institutions of neoliberal globalisation ever penned, the Nobel prize-winning economist Joseph Stiglitz (2004) makes his point clear at the start of his Barcelona paper: “Unfortunately, economic globalization has outpaced political globalization. We are just beginning to develop an international rule of law, and much of the ‘law’ that has developed—for instance the WTO rules governing international trade—are grossly unfair; they have been designed to benefit the developed countries, partly at the expense of the developing countries.”
Stiglitz is unique in that he launched his critiques from the position of an “insider”, or former insider, in the sacred halls of the new world order. He was chairman of the Council of Economic Advisers under US President Bill Clinton and former chief economist at the World Bank, before being fired by the same institution for expressing dissenting views on many of its policies, at the height of the anti-globalisation or alter-globalisation protests at the turn of the millennium (Stiglitz 2002).
Something of a maverick in economic policy circles, Stiglitz soon fell out with the World Bank and its sister institution the International Monetary Fund (IMF), arguing that their brand of neoliberal economics – one based on a blind faith in the ultimate wisdom of the free market and an irrational fear of state intervention of all kinds – was flawed.
In 2002, he wrote the best-selling book Globalization and its Discontents (2002), drawing on his experiences at the World Bank. In it, he condemned the fruits of neoliberal ideology, as expressed in the Washington Consensus and prescribed to the “developing” world through structural adjustment packages (SAPs): fiscal austerity (slashing of public funds for social services), high interest rates, privatisation of state assets, and the liberalisation of trade and capital markets (Stiglitz 2003). The SAPs were packaged as fiscal belt-tightening meant to facilitate the payment of debts incurred by some of the poorest countries in the world. Swift repayment of debts meant good credit status, more confidence from foreign investors and thus better integration into the global market. But the debts themselves had odious origins. Since the 1980s, states would be made to foot the bill for debts owed by the private sector and big banks. Countries like Mexico and Argentina found themselves heavily in debt after taking on debts owed by commercial banks and financial speculators (Harvey 2005, 2011; Klein 2007).
In the case of the Philippines, the growing bill would include billions of dollars in odious debts incurred by the late dictator Ferdinand Marcos, and debts taken on by well-connected business interests that profited from the sell-off of state assets with the lifting of martial law (Bello, et al. 2004). Three decades on, the country is still repaying its debts – and taking on more debts to repay those it made in the past, on interest.
Behind it all were the IMF and the World Bank, which promised to deliver “economic relief” on the condition that states carry out the neoliberal agenda (Klein 2007).
SAPs would have a devastating impact on the economies of the developing South, which soon ceased to truly ‘develop’. As Stiglitz would later argue in his Barcelona paper (2004), austerity measures were premised not on the objective needs of the populations of the countries the IMF dealt with, but on the interests of the financial sector and the central banks, which defined economic stability in their own narrow terms; terms which often clashed with states’ responsibilities to their own citizens, from the redistribution of wealth to the delivery of public goods, and interfered with their management of other spheres of political life (Green 2010, Sen 1999).
Low inflation and debt repayment, not an end to mass unemployment or the redistribution of land, were seen as priorities. The economy was supreme; all other concerns, including the meeting of social needs, were but side shows. Neoliberal globalisation, mainstream economists insisted and still insist, would deliver wealth to all via the perfect workings of the free market (Toussaint 1999). This has not been the case.
The ultimate effect of this neoliberal phase of globalization has been a widespread race-to-the-bottom: since multinational corporations can rove the globe in search of the “best” investment conditions, developing countries have to compete with one another to offer the cheapest labor and resources, often to the point of granting extended tax holidays and free inputs to foreign investors. This has been fantastic for the profits of Western (and now Chinese) multinational corporations. But instead of helping poor countries, as they were supposedly designed to do, neoliberal structural adjustment policies have basically destroyed them. Prior to the 1980s, developing countries enjoyed a per capita growth rate of more than 3%. But during the neoliberal era growth rates were cut in half, plunging to 1.7%. Sub-Saharan Africa illustrates this downward trend well. During the 1960s and 70s, per capita income grew at a modest rate of 1.6%. But when neoliberal therapy was forcibly applied to the continent, beginning with Senegal in 1979, per capita income began to fall at a rate of 0.7% per year. The GNP of the average African country shrank by around 10% during the neoliberal period of structural adjustment. As a result of this, the number of Africans living in basic poverty has more than doubled since 1980 (Hickel 2012).
According to Stiglitz (2002), the IMF contributed, directly or indirectly, to the economic crises that engulfed East Asia and Latin America in the 1990’s. Where SAPs have been imposed, economies have collapsed (Klein 2007). A dogmatic fixation on laissez faire also led to the failure of the ex-Soviet states’ transition to capitalism as well as stagnant growth rates in Sub-Saharan Africa.
Today these same policies are being imposed, in a different form, through austerity measures in Europe (Harvey 2011). Debts accumulated by big banks and corporations prior to the 2008 fiscal crisis are being passed on to consumers, taxpayers, and the working class. Consumer credit, which experienced a period of boom given the reality of falling real wages, rising housing costs and banks willing to push toxic debts on to the next gullible investor, also led to the crash
And the effects are reverberating.
At present, slashes to public funding on basic social services are pushing countries like Spain, Greece, and Portugal into third world levels of poverty and unemployment (Hickel 2014). Over half of Spain’s youth are unemployed. Even in Germany, Europe’s strongest economy, unemployment and homeless rates are higher than they have ever been in two decades. At the same time, billions of euros in bail out money are not being used to invest in industries to create jobs. Instead, corporations and banks – the capitalist class – are sitting on a pile of un-invested cash, which is either hoarded or speculated in the stock market to boost their own shares (Harvey 2011). The financialization of the economies of the North has gone hand in hand with neoliberal policies in the South, and vice-versa (Amin 2010, 1997; Katz 2002). With the lifting of capital controls, investors in Europe have rushed to find safe havens for their capital in Southern banks amid speculative ventures in real estate and hot flows in the stock market. The fiscal rush has artificially boosted the latter’s economies without real investments made on the ground, and is inherently unstable (Chang 2007; Harvey 2005).
Ultimately indebted nations are even less able to pay back their debts. At this point the IMF swoops in with financial rescue packages, in exchange for even deeper cuts in living standards and workers’ real wages.
Recently, a handful of observers celebrated what they took to be a “recovery” in the global economy, illustrating Stiglitz’s (2003) point about the myopic framework of contemporary economics:
The financial markets are more interested in ensuring that they get repaid than in ensuring that there be full employment in Thailand or Indonesia. A debt moratorium is anathema to them. Building up reserves to facilitate the repayment of foreign debts makes sense, even if it requires a major recession in the country. Capital market liberalization opens up new markets for the financial industry, even if it contributes to global economic instability. There is a confluence here of interests and ideology, with both serving to override economic analysis.
The “recovery” being celebrated in reality reflects only minor recoveries in the financial markets: a temporary restoration of investor confidence in the wake of a generous influx of bail-outs from the world’s governments and quantitative easing (money-printing) by the United States Federal Reserve (Harvey 2011). It does not reflect a genuine recovery in any significant sense, which would include reductions in unemployment and rising real wages.
The capitalist crisis is set to continue.
Globalisation (and is Discontents)
It is in this context that Stiglitz’ critiques of the Bretton Woods institution remain relevant, if inadequate. He lays them out in two well-received essays, the Future of Global Governance, delivered at a conference in Barcelona in 2004, and Democratizing the International Monetary Fund and the World Bank: Governance and Accountability, published in 2003.
Both of his papers make the same point: that there is a need for major changes within the International Monetary Fund (IMF), the World Trade Organization (WTO) and the World Bank.
In his Barcelona paper, Stiglitz (2004) outlines the basic flaws of the institutions’ governance structures and the possibility for change within them, given the current constellation of political forces. In the second, Stiglitz (2003) focuses more narrowly on the IMF and more clearly sets out perceived differences between it and the World Bank. He harps on the relative reforms the Bank has made, while admitting that these gains can easily be reversed.
At the heart of his criticisms is their lack of accountability, above all democratic accountability, to the populations of the nations they supposedly serve. In the name of poverty reduction and crisis alleviation, policies are carried out that end up perpetuating both poverty and financial crises.
Another critique turns on their governance structure, dominated as it is by the global powers. The impact of America’s disproportionate influence on international institutions, due in large part to its sheer economic clout, calls their legitimacy into question. Even in the United Nations, the tendency of its corporate lobbyists to impose their own views, either influencing policies made or scuttling them behind closed doors (or open doors) if they go against its business interests, render many international “agreements”, often agreed to by two-thirds of member states, a dead letter.
As the recent debates over Warsaw climate negotiations make clear (EP 2013), decisions in the international arena are still made in favour of a narrow set of elite interests concentrated in the first world, at the expense of the peoples and nations of the third. The United States, as it did in Kyoto, did its level best to water down (Sethi 2013) any meaningful climate treaty even as the Intergovernmental Panel on Climate Change (IPCC) warned that the decisions and actions we take in the next few years could well decide the course of global warming – and the fate of human civilisation on the planet as we know it (IPCC 2014).
The structures of ‘global governance’ remain patently undemocratic.
Indeed, while Climate negotiations reached an impasse, trade deals similar to those Stiglitz criticised, including the Trans-Pacific Partnership Agreement (TPP), have been passed without a whisper of opposition (Africa 2014; Hickel 2014). The TPP grants significant powers to transnational corporations, mostly based in the United States and Europe. New patent regulations will grant even more power to corporations, allowing them to sue Southern governments and industries for such crimes as the production of life-saving medicines.
For another example, we can look at the WTO’s agreement on intellectual property rights (TRIPS), which has armed corporations with unprecedented rent-seeking powers. As a result of TRIPS, developing countries have been forced to pay $60 billion annually – half the aid budget – in extra patent licensing fees, over and above those required by normal laws, for the use of technologies and pharmaceuticals that are often essential to development and public health.
We can see these figures as direct cash transfers from poor countries to rich countries. And this is to say nothing of other forms of extraction that are more difficult to quantify, such as land grabs. Fred Pearce shows that land exceeding the size of Western Europe has been grabbed from developing countries by corporations in the past decade alone. The US, UK, and China are leading this movement by snapping up agricultural land in regions where land tenure laws leave indigenous inhabitants vulnerable to dispossession (Hickel 2013).
Stiglitz’s writings already offer some of the best possible critical analyses available for the Bretton Woods institutions. The next part of this essay will focus instead on the limits of his critiques. For inasmuch as Stiglitz shifts the blame onto individual institutions seen as predominantly responsible for neoliberal globalisation, he fails to link them to broader questions of corporate power and state hegemony that shape economic policy at a global level. For the IMF and the World Bank are in reality part of a network of actors within the global capitalist system which are bound up with, and express the interests of, that system’s dominant classes. It is through the roles they play in response to the crises of capitalism that reveal whose interests they objectively promote (Amin 2010; Katz 2002).
While these are themes he develops in his best-selling book Globalization and its Discontents (2002),Stiglitz stops short of criticizing the processes driving neoliberal globalisation itself, processes that give rise to the necessity of imposing “shock therapy” (Klein 2007) and structural adjustment policies in the first place.
About the Author
CJ Chanco (@CJ_Chanco) A hopeless romantic and obsessive thinker, reader, writer and long-distance runner struggling to understand a world forever torn between cynicism and hope. A former features editor at The Lasallian and an aspiring anthropologist.
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