JOSEPH E. STIGLITZ -WHO LAYS THE BLAME ON IMF
Joseph E. Stiglitz, wrote the book Globalization and its Discontents(2002) is an American economist who is well known for his critical view of globalization, free-market economists and some international institutions like the International Monetary Fund , World Trade Organization and the World Bank. In Globalization and its Discontents he focuses on what has gone wrong and what has to do differently and especially focuses on the negative sides of the IMF: According to Stiglitz, the villain of the story of failed development has been the IMF. Stiglitz complains bitterly that the IMF has done great damage through the economic policies it has prescribed that countries must follow in order to qualify for IMF loans, or for loans from banks and other private-sector lenders that look to the IMF to indicate whether a borrower is creditworthy. Stiglitz addresses globalization as a Nobel Prize-winning economist and Washington insider: In 1993 I left academia to serve on the Council of Economic Advisers under President Bill Clinton... From there I moved to the World Bank in 1997... I saw firsthand the devastating effect that globalization can have on developing countries, and especially the poor within those countries. I believe that globalization... can be a force for good and that it has the potential to enrich everyone in the world, especially the poor. But I also believe that if this is to be the case, the way globalization has been managed... needs to be radically rethought.
THE VILLAIN OF THE STORY OF FAILED DEVELOPMENT INTERNATIONAL MONETARY FUND
The positive face of globalization has always been tended to seen as its mediation between developing countries and developed industrialized countries to increase the cooperation between them which creates a story of even development of all world countries instead of a story of failed development. Here, cooperation means the trade of goods and services between these countries. Any country would export its goods and services(which hold the advantegeous of these goods and services in its hand) to foreign countries while importing the goods and services (which it can not take the advantage of them by producing by itself ) from other countries. As a result both developed countries and less-developed countries would benefit from the love- game and reduce their costs while improving their life standarts. Practically, developed countries were seeking for ways to protect their market economies against developing countries while trying to create markets in these countries to serve for their firms. IMF obstinately insisted the experiences of world countries in 1929 World economic crisis to the developing world markets. As a result, devoloping countries emerged which has suffered from inceasing rates of unemployment, poverty and serving as markets for industrialized developed countries. These developing countries has not only experienced economic reforms but also experienced cultural and political reforms. IMF serves not only economic benefits of the actors which control it, but also serves for the cultural and political goals of these actors and design the developing markets in accordence with the benefits of these actors. According to Stiglitz, IMF interventions all followed a similar free market formula. The IMF strongly advocated "shock therapy" in a rush to market economies, without first establishing institutions to protect the public and local commerce. So the failure of the attempts in the countries which are transformed into free-market economies via shock therapylike in Russia isn't suprising. Macroeconomy can be summarized with some key concepts like unemployment, development and inflation. For IMF, the moderaton of inflation and balance of payments are more important than controlling unemployment in a particular country. Because for paying the credit back to IMF a country take from it, this country must economically be self-sufficient, if not, inflation increases. For example, Ethiopia had decreased its military expenditure and had provided backround for equal income distribution and fighting with poverty. Moreover its economic growth and inflation which are the indicators of the power of macroeconomical structure had been positive. However, IMF proped up temporariliy Ethiopia's program by making excuses. The real reason was very apparent: IMF hadn't take Ethiopia under its control and actors of IMF hadn't want to spend for a country which is not serving for their profits. Discourses of IMF for creating a country which don't suffer from inflation and unemployment was groundless. There were promises which IMF hadn't carried out ! The aim of privatization is selling the inefficient business enterprises which are in the hand of state to firms or people which or who are able to transform them into advantageous and benefitical units for economy. State mustn't concerned with affairs which are not its duty and mustn't hamper its fundemental responsibilities. The aim of liberalization and privatization is the same; sources are transmitted from low-yielded usage from high-yielded usage for increasing the income of the country. It can be realized by free trade. But limited capital or lack of enterprises may get rid of completely a country's industry against international competition. To prevent this problem, developing countries must integrate into world economy sequentally, at the right time and slowly. The aim of countries which are making efforts for liberalization, is reaching the potential of untouched markets as soon as possible and taking the most adventageous place. Although foreigners who are making investment decisions in a developing country bring about new technologies and new methods, they may cause the domestic industries to be closed . In their development processes, countries must indicate their improvement speeds and times in accordance with their own conditions; and must decide with their free voliditions instead of IMF' s compulsions. IMF must be provacate and orient towards that way. Currency devaluation of Thailand's currrency 'Baht' resulted in foreign exchange speculations and it turned into a crisis amongst East Asian Countries. The main reason of this crisis is capital account liberalization of IMF on these East Asian Countries. It was a too rapid liberalization period for these countries. Another mistake of IMF is its prevention on the access of sufficient amount of foreign exchange reserves to East Asia Countries to hinder speculators' profits from foreign exchange rates. East Asian Countries were devaluating their currency in order to decrease imports from foreign countries. As a result they were exporting the crisis in their country into their neighbour countries. The pains of this crisis became deeper when IMF forced these countries to increase their interest rates. Essentially, East Asian crisis was a financial system crisis. Banks were not able to provide financing because they were not able to transform credit payments and reel sector firms were not able to money for production; it was creating a vicious circle in the countries. South Asia [especially South Korea and Malaysia] and China succeeded in using macroeconomic policies and has become world's two greatest emerging markets. South Asia repeatedly resisted IMF conditions and China declined any IMF money whatsoever.
Because Russia was not successful in transforming from communism to capitalism, that is, appropriation of democracy and formation of classes was not successful, capitalism couldn't reach the welfare/well-being level in Russia that it had promised. The system was not operating with its fundamental rules in Russia. Underlying reasons are free trade competition, the lack of a liberal construction and the continuation of old legal process. New capitalist system was carrying the footprints of former communist system. Because most of the prices of goods were being determined by state intervention. At that times, aşamalı geçiş tekniği(?) has been applied in Russia. In 1992, it was transformed into shock therapy when most of the prices were set free. It resulted in an increase in the inflation. In order to restrain inflation, interest rates were increased. As a result, savings/dispositions melted and the number of Russians who were able to set up businesses decreased. Because of the unsuccessful transitions, Russia experienced a troubled and difficult period of time. High debts and Asian crisis brought about a crisis in Russia. All of the high level administrators of Russia were communists who were maintaining their former connections. For the integration of new established-capitalist system of Russia into international markets , the need of foreign countries were people who were talented to work with in Russia. In spite of all supports to Yeltsin and his team, their failure created negative views about system. So Amerika and IMF supported Putin instead of Yeltsin. Most of the people which are choosen by America seeked for personal benefits instead of trying to help to make fit on the system.As soon as the prices started to be formed in Russia, international markets started to take meausures against radical price variations and recurrence estimation of prices of goods. Today, what applied to Chinese goods, were experienced approximately ten years before, in the period of Russian Alliminium. For the reforms to be succesful in the countries which transmit into capitalism, there are alternative strategies which bring about different outcomes. Chinese and Poland are axamples which applied different strategies from IMF policies and succeeded in. Poland applied 'aşamalı özelleştirme politikası'(?) and formed the necessary foundations of market economy synchronically while Chinese transformed into personal responsibility system in agriculture in its privatization process and opposing to IMF policies, synchronically Chinese created new business fields in order to maintain social stability.
ECONOMY IS NOT A HARDHEARTED LAWN MOWER
Writing in Public Choice DW MacKenzie critices Stiglitz and claims that Stiglitz mischaracterizes government failures as market failures. While Stiglitz claims that free market fundamentalists in the Washington consensus formed policy based on ideology, Mackenzie claims that his own examples indicate otherwise. Rather than promoting free markets, says Mackenzie, the IMF carried out government intervention, and delivered economic failure. However Stiglitz provides many other examples where the IMF forced weaker government and free market policies such as trade and financial liberalization, privatization, abolition of subsidies and welfare and fees on education and healthcare; that resulted in economic failure. Another criticism to the book comes from Daniel T. Griswold of the Cato Institute. He labels the book a "score-settling exercise distorted by the author's own political prejudices and personal animus." Griswold takes issue with what he claims is Stiglitz's assumption "that protectionism enriches those nations that practice it" and notes that "while he is not questioning free trade, Stiglitz is disparaging the free flow of capital. The book blames the East Asian Financial Crisis almost entirely on one factor: capital account liberalization." Although globalization doesn't provide a decrease in poverty or stability in global economy, successful development histories of some of the countries are based on globalization. Globalization has contributed to the international technology transfer, improvement in health conditions, trade opportunities, democracy, formation of an active global society and so on so forth. If we put aside the negative or positive aspects of IMF, the point of view of IMF on globalization is about financial benefits, I mean interest rates and compensates of debts. Normally, every group in the society, focuses on the part of the reality which is most effective on them. Different models of market models in the world means that there are different capitalist doctrines. Oppositions of anti-globalists are merely based on Washington agreement policies which are imposed by international financial organizations. I think true reforms must be made for institutions like IMF in order to make them a perfect -operating services for general global benefits. As Stiglitz said: Economy would have been tended to seen as a insensitive topic which adresses to a narrow region, but originally good economy policies has the power and the magic to change the life of poor people. Economy is not a hardhearted lawn mower. If it is used in the right way, it can act as a magical stick which changes the life of poor people and the future of the Third World Countries.
Joseph E. Stiglitz,Globalization and its Discontents(2002) http://en.wikipedia.org/wiki/Globalization_and_Its_Discontents http://www.wwnorton.com/catalog/spring03/032439.htm http://human-nature.com/nibbs/02/stiglitz.html