Joseph E. Stiglitz, "Globalization and its Discontents" (Book Note)

 

The central premise of Globalization and its Discontents is straightforward: pro-globalization policies can yield substantial benefits if implemented judiciously, with due consideration for the unique characteristics of each country. Countries should embrace globalization on their own terms, accounting for their individual history, culture, and traditions. However, poorly designed or universally applied pro-globalization policies can be detrimental, leading to increased instability, heightened vulnerability to external shocks, reduced growth, and elevated poverty.

 

Stiglitz contends that the problem lies in the hasty and inequitable implementation of globalization. Liberalization policies have been introduced too quickly, in an incorrect sequence, and often based on inadequate or flawed economic analyses. Consequently, he argues, we are now witnessing dire consequences, including rising destitution, social conflict, and widespread frustration. Stiglitz places the blame on the IMF, its "market fundamentalists," the "Washington Consensus," and the US Treasury.

 

According to Stiglitz, in the early 1990s, the IMF, World Bank, and the US Treasury collaborated in what he sees as a kind of global economic reform conspiracy—the infamous "Washington Consensus." However, this perspective oversimplifies the situation and overlooks the evolution of reform thinking over the last two decades. In the 1980s and early 1990s, policymakers in many developing nations were often more progressive than the multilaterals or the Treasury. Countries like Argentina, Chile, and Mexico, for instance, implemented reforms based on a "national consensus" that was more imaginative and far-reaching than what Washington bureaucrats were willing to accept at the time. The IMF initially criticized Chile's social security reform, opposed Argentina's currency board, and was skeptical of Mexico's trade-opening strategy during the mid-1980s. Stiglitz contends that the emphasis on how to undertake economic reform originated from a group of developing countries' economists, particularly from Latin America, rather than from the multilaterals.

 

Stiglitz's critique of globalization focuses on three interconnected policy issues: (1) Ignoring crucial aspects of the sequencing and pace of reform during the 1990s, leading to overly fast and improperly ordered implementations. Stiglitz favors a gradualist approach. (2) The significant mistake of advocating and imposing capital account liberalization. (3) The IMF's response to crises, particularly the East Asian crisis, which he deems a disaster that exacerbated problems. Imposing fiscal austerity and raising interest rates, according to Stiglitz, were detrimental mistakes that cost East Asian countries several points in terms of growth. Consistent with his theoretical writings over the past 35 years, Stiglitz frames his criticism around the insights of the theory of asymmetric information.

Stiglitz argues that a different approach, specifically his own, could have led to significantly better social outcomes. While I found his arguments persuasive at times, there were instances where I questioned the seriousness of his proposals. For instance, I was skeptical when reading his suggestion, on pages 129 and 231, that the 2002 Argentine crisis could have been averted by adopting a more expansive fiscal policy.

 

Stiglitz consistently emphasizes the crucial role of speed and sequencing in implementing economic liberalization successfully. While this principle is undeniably important, it is not novel in policy discussions. Adam Smith, in "The Wealth of Nations," recognized the difficulty of determining the appropriate sequencing, attributing it primarily to political considerations. He advocated for gradualism, much like Stiglitz, based on the belief that abrupt liberalization would lead to a significant increase in unemployment.

 

In the early 1980s, the World Bank extensively explored issues related to sequencing and the speed of reform. A consensus emerged on key principles: gradual trade liberalization supported by substantial foreign aid, efforts to minimize unemployment consequences, early management of fiscal imbalances in high-inflation countries, establishment of modern supervisory and regulatory agencies for financial reform, and liberalization of the capital account at the end of the process.

 

However, during the early 1990s, this consensus on sequencing and speed was challenged, with calls for simultaneous and rapid reforms gaining traction in Washington. Advocates argued that this approach was necessary politically to overcome opposition to liberalization efforts. Stiglitz critiques this "rapid and simultaneous" reform strategy, particularly exemplified by Vaclav Klaus. Yet, his criticism fails to address the political economy concerns that motivated Klaus and other reformers in Central and Eastern Europe at the time.

 

In 1992, responding to perceived US pressure on capital account liberalization, a conference organized by Yung Chul Park highlighted broad support for appropriate sequencing and the risks of premature capital account opening. Participants, including Robert Mundell, recognized negative externalities, such as borrowing for consumption rather than investment, potentially leading to unsustainable debt burdens.

 

Stiglitz's contention that a more deliberate approach could have yielded better outcomes echoes longstanding discussions in economic thought, emphasizing the importance of political, economic, and social context in reform implementation.

At the 1992 Seoul conference on capital liberalization, Manuel Guitian, a senior IMF official, was among the few dissenters favoring a swift move toward capital account convertibility. In contrast to Stiglitz's characterization of IMF leadership, Guitian's stance lacked dogma or arrogance. Guitian's paper, titled "Capital Account Liberalization: Bringing Policy in Line with Reality," documented the IMF's evolving views on sequencing and capital account convertibility. Guitian argued that there was no a priori reason to delay simultaneous opening of current and capital accounts.

 

From 1995, several countries started relaxing capital controls, but they adopted different strategies. Some focused on relaxing bank lending, others permitted only long-term capital movements, and countries like Chile employed market-based mechanisms to control capital inflows. Many countries, however, opened their capital accounts without external pressure. Indonesia and Mexico, for instance, had a longstanding tradition of free capital mobility.

 

While Stiglitz acknowledges the importance of sequencing, he does not delve into the nuanced and challenging issue of how and when to remove capital controls. Recent research suggests that, in certain circumstances, a freer capital account positively affects long-term growth. Transparent mechanisms, like Chile's flexible tax on short-term inflows, are considered effective transitional devices, but even these have associated costs.

 

Stiglitz critiques the IMF's handling of the East Asian crisis, citing major mistakes such as closing banks during a financial panic, bailing out private and foreign creditors, opposing capital controls on outflows, and enforcing tight fiscal policies and high-interest rates. Stiglitz argues that China and India's experiences, along with Malaysia's quick recovery without following IMF advice, support his views. However, these arguments are deemed unpersuasive due to oversimplification and failure to account for multiple factors influencing crisis outcomes.

 

Stiglitz's criticisms regarding the IMF's fiscal and interest rate policies during the East Asian crisis are severe but lack empirical support. He contends that the IMF's insistence on contractionary fiscal policies exacerbated the recession and that mandated interest rate increases led to bankruptcies, deepening the confidence crisis. However, these arguments are challenged as the situation in late 1997 constituted major currency crises, not just severe downturns, necessitating a different policy approach to address declining demand for government securities and domestic money.

 

In the midst of a major currency crisis, the primary imperative is to restore confidence. Recurrent bankruptcies, substantial deficits translated into money printing, and rapidly depreciating exchange rates are all factors that fail to contribute positively to achieving this goal. However, a delicate balance must be struck, as large deficits converted into money printing and allowing the exchange rate to depreciate excessively may not be conducive to re-establishing confidence.

 

Ultimately, the decision revolves around trade-offs, specifically how much to permit the exchange rate to depreciate and to what extent, and for how long, interest rates should be increased. The government's objectives play a crucial role in determining the course of action. If the authorities aim to prevent default and runaway inflation, as is typically the case for East Asian governments, allowing the exchange rate to spiral out of control poses significant risks. In most situations, injecting liquidity when the demand for money is dwindling and issuing government debt when there is a mass sell-off of government securities may not be effective in restoring confidence or preventing an inflationary crisis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Saskia Sassen's "Losing Control: Sovereignty in an Age of Globalization" (Book Note)

 

Sassen’s book Losing Control? Sovereiugnity in an Age of Globalisation discusses the evolving dynamics of states and sovereignty in the late twentieth-century capitalist world-economy.  It  addresses the question of whether states are "losing control" in the era of "globalization." Rather than focusing on the economic forces of globalization, as she did in her earlier work "The Global City", Sassen delves into the contradictions and dilemmas surrounding state power and territoriality.

 

Contrary to the hard-line globalist perspective that predicts the decline of states in the face of rising global capital, Sassen embraces a nuanced view. She agrees with proponents of strong globalization who argue that the seventeenth-century interstate system is undergoing a profound transformation. However, she refuses to dismiss the state as a significant player in the world-economy, emphasizing the complex relationship between states and global capital.

 

Sassen introduces a "new geography of power" in the world-economy with three key dimensions. Firstly, national territoriality undergoes a transformation through the dispersal of "factories, offices, service outlets, and markets." Secondly, an international legal regime emerges, partially beyond the control of nation-states, as they relinquish some regulatory functions. This results in the formation of an international "private regulatory system," exemplified by the rise of international commercial arbitration and the global influence of bond-rating agencies like Moody’s and Standard and Poor. The third dimension revolves around the growing significance of economic space, where instantaneous transmission and large-scale global currency trading undermine states’ regulatory capabilities.

 

The evolving geography of power signals not the demise of the state but rather the end of a specific historical manifestation of the state. Diverse forms of sovereignty are emerging, some rooted in states and others in global markets and international agreements. Saskia Sassen argues that the state has not passively succumbed to globalization; instead, it has actively propelled the globalizing process.

 

Furthermore, Sassen asserts that "global" and "national" spaces are not mutually exclusive. Many strategic spaces for global processes are often within national boundaries. The mechanisms for implementing the new legal forms required for globalization are frequently embedded in state institutions. The infrastructure facilitating the global mobility of capital is situated in various national territories. In essence, globalization has partially shifted state sovereignty to transnational organizations, like the World Trade Organization, and partly denationalized national territory through a fragmented and ascendant new legal regime.

 

The transformative impact of globalization on citizenship is evident. Citizenship, once shaped by the French Revolution, is now evolving into corporation-based "economic citizenship" and an international human rights regime. The world-economy is increasingly governed by global capital markets and transnational organizations accountable not to traditional citizens but to "economic citizens" defined as global economic actors.

 

However, the trend toward replacing national with global economic citizenship faces opposition. Sassen identifies three countervailing tendencies. First, there is the potential activation of various international agreements to democratize transnational organizations like the World Trade Organization. Second, national states may advocate for equity and accountability mechanisms among global economic actors through multilateral agreements. Third, social movements may actively resist the erosion of citizenship.

In the concluding discussion of "Losing Control," the focus shifts to the intricate issue of immigration. As "economic globalization denationalizes national economies," there is a simultaneous trend of immigration "renationalizing politics." This paradoxical relationship constitutes a fundamental contradiction in state-capital relations within the "new order." Capital pursues the deregulation of capital flows while simultaneously seeking to regulate the movement of labor. Immigration policy, therefore, serves as a crucial "strategic research site" that highlights the tension between the concept of sovereignty as control over entry and the challenges states face in policymaking.

 

Two external forces, somewhat beyond the control of states, play a significant role in shaping immigration policy. Firstly, globalization tends to increase immigration flows rather than diminish them. For instance, disruptions in peripheral economies due to factors like war in El Salvador or neoliberal economic policies in Mexico have led to a substantial rise in migrants heading to the U.S. Paradoxically, the imperial states that championed globalization now grapple with the challenge of restricting the entry of "foreign" workers whose lives have been adversely affected by globalization. Secondly, the "emergent international human rights regime" poses a constraint on state immigration policy. Since human rights are not contingent on nationality, they have the potential to contest state sovereignty and diminish the significance of citizenship.

 

Sassen's arguments in "Losing Control" are noteworthy. First, states have not simply declined; rather, they have actively played a role in driving globalization, thereby creating social forces that transform both the modern state and the interstate system. Second, globalization is not confined to a realm separate from national space; instead, it materializes within national borders, deeply intertwining the global and national economies. Third, various international regimes, spanning from human rights agreements to the World Trade Organization, have encroached on parts of state sovereignty, marking a shift in the traditional power dynamics.

 

 

 

 

Roland Robertson's "Globalization: Social Theory and Global Culture" (Book Note)

 

Robertson defines globalization as the simultaneous compression of the world and the intensification of consciousness about the world as a unified entity. Departing from empirical generalizations and emphasizing sociological mapping, Robertson's approach delves into the historical role of sociology in shaping global awareness. While empirical data are infrequent, the book serves as a comprehensive survey of how sociologists have tackled the subject. Sociologists, according to Robertson, have played a crucial role in grappling with "globality" and contributing to the understanding of global interactions. The analyses offered by Robertson add depth to the understanding of the complexity inherent in globality.

 

The book revolves around four key focal points: national societies, individuals, international relations within the global framework, and the concept of "humankind." Robertson illustrates how these elements are intricately entwined in intense global interactions. Globalism, as discussed by Robertson, fosters both the particularization of the universal and the universalization of the particular. It has diverse effects, including nostalgic antiglobalism, heightened gender awareness, increased individualism, and influence on intellectual trends like modernism and postmodernism. Additionally, it challenges ideologically based interpretations, with Robertson expressing reservations about Wallerstein's world systems theory. Displaying an open-minded approach, Robertson advocates for a multidisciplinary perspective, aiming to transcend narrow viewpoints.

 

In specific chapters, Robertson provides factual references, such as the exploration of Japanese globality and religion. He suggests that Japan is of sociological interest as it serves a role in the contemporary world where other societies' leaders can learn how to learn about diverse societies. While this claim may be open to debate, Robertson also highlights Japan's unique ability to assimilate foreign elements like Confucianism, Buddhism, and Western skills into its indigenous continuities. Occasionally, he presents snippets of evidence, including a mention of awareness-raising tourism as a significant global industry. In conclusion, Robertson commends sociology for its potential major role in theorizing globality and globalization.

 

However, the use of highly abstract and verbose sociological jargon, coupled with extensive discussions of sociological disputes, makes the book challenging and controversial. Historians might contest the implicit assumption that sociological theories and concepts played a major role in globalization, arguing that power politics and invidious comparisons among states and individuals were more decisive factors. The multidisciplinary approach lacks completeness, overlooking crucial factors like geography and population density. The profound cultural disorientation in developing countries is also not addressed, while Western countries still benefit from cultural continuity. Robertson acknowledges the complexity of globalism but may overlook crucial evidence supporting alternative views, such as world history as a process of global Westernization.