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Globalization and Its Discontents / Edition 1

Globalization and Its Discontents / Edition 1

by Joseph E. Stiglitz, Stiglitz,Joseph
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This powerful, unsettling book gives us a rare glimpse behind the closed doors of global financial institutions by the winner of the 2001 Nobel Prize in Economics. Renowned academic economist Joseph E. Stiglitz served seven years in Washington, as chairman of President Clinton's Council of Economic Advisers and as chief economist at the World Bank. In this book, Stiglitz recounts his experiences in such places as Ethiopia, Thailand, and Russia. He finds repeatedly that the International Monetary Fund puts the interests of its "largest shareholder," the United States, above those of the poorer nations it was designed to serve. This insider's account of global economic policy will be hailed for its courage and honesty. Those seeking to understand why globalization has engendered the hostility of protesters in Seattle and Genoa will find the reasons here. While this book includes no simple formula on how to make globalization work, Stiglitz provides a reform agenda that will provoke debate for years to come.

Author Biography: Nobel Prize winner Joseph E. Stiglitz is professor of economics at Columbia University.

Product Details

ISBN-13: 9780393051247
Publisher: Norton, W. W. & Company, Inc.
Publication date: 06/10/2002
Pages: 192
Product dimensions: 6.50(w) x 9.60(h) x 1.20(d)

About the Author

Joseph E. Stiglitz is a Nobel Prize–winning economist and the best-selling author of Globalization and its Discontents Revisited: Anti-Globalization in the Age of Trump, The Price of Inequality, and Freefall. He was chairman of the Council of Economic Advisers under President Clinton, chief economist of the World Bank, named by Time as one of the 100 most influential individuals in the world, and now teaches at Columbia University and is chief economist of the Roosevelt Institute.

Read an Excerpt

From Globalization and Its Discontents
By Joseph E. Stiglitz


In 1993 I left academia to serve on the Council of Economic Advisers under President Bill Clinton. After years of research and teaching this was my first major foray into policy making, and more to the point, politics. From there I moved to the World Bank in 1997, where I served as chief economist and senior vice president for almost three years, leaving in January 2000. I couldn't have chosen a more fascinating time to go into policy making. I was in the White House as Russia began its transition from communism and I worked at the Bank during the financial crisis that began in East Asia in 1997 and eventually enveloped the world. I had always been interested in economic development and what I saw radically changed my views of both globalization and development. I have written this book because while I was at the World Bank, I saw firsthand the devastating effect that globalization can have on developing countries, and especially the poor within those countries. I believe that globalization— the removal of barriers to free trade and the closer integration of national economies—can be a force for good and that it has the potential to enrich everyone in the world, particularly the poor. But I also believe that if this is to be the case, the way globalization has been managed, including the international trade agreements that have played such a large role in removing those barriers and the policies that have been imposed on developing countries in the process of globalization, need to be radically rethought.

As a professor, I spent a lot of time researching and thinking about the economic and social issues I dealt with during my seven years in Washington. I believe it is important to view problems in a dispassionate way, to put aside ideology and to look at the evidence before making a decision about what is the best course of action. Unfortunately, though hardly surprisingly, in my time at the White House as a member and then chairman of the Council of Economic Advisers (a panel of three experts appointed by the president to provide economic advice in the executive branch of the U.S. government), and at the World Bank, I saw that decisions were often made because of ideology and politics. As a result many wrong-headed actions were taken, ones that did not solve the problem at hand but that fit with the interests or beliefs of the people in power. The French intellectual Pierre Bourdieu has written about the need for politicians to behave more like scholars and to engage in scientific debate, based on hard facts and evidence. Regrettably, the opposite happens too often, when academics involved in making policy recommendations become politicized and start to bend the evidence to fit the ideas of those in charge.

If my academic career did not prepare me for all that I encountered in Washington, DC, at least it did prepare me professionally. Before entering the White House, I had divided my time spent on research and writing between abstract mathematical economics (helping to develop a branch of economics that has since come to be called the economics of information), and more applied subjects, including the economics of the public sector, development, and monetary policy. I spent more than twenty-five years writing about subjects such as bankruptcy, corporate governance, and the openness of and access to information (what economists call transparency). These were crucial issues when the global financial crisis began in 1997. I had also been involved for nearly twenty years in discussions concerning transitions from Communist to market economies. My experience with how to handle such transitions began in 1980, when I first discussed these issues with leaders in China, as it was beginning its move toward a market economy. I had been a strong advocate of the gradualist policies adopted by the Chinese, policies that have proven their merit over the past two decades; and I have been a strong critic of some of the extreme reform strategies such as "shock therapy" that have failed so miserably in Russia and some of the other countries of the former Soviet Union.

My involvement in issues of development dates back even further— to the time I spent in Kenya on an academic posting (1969-71) shortly after its independence in 1963. Some of my most important theoretical work had been inspired by what I saw there. I knew the challenges facing Kenya were difficult, but I hoped that it might be possible to do something to improve the lives of the billions of people there and in the rest of the world who live in extreme poverty. Economics may seem like a dry, esoteric subject but, in fact, good economic policies have the power to change the lives of these poor people. I believe governments need to—and can—adopt policies that help countries grow but that also ensure that growth is shared more equitably. To take but one issue, I believe in privatization (selling off, say, government monopolies to private companies), but only if it helps companies become more efficient and lowers prices for consumers. This is more likely to happen if markets are competitive, which is one of the reasons I support strong competition policies.

Both at the World Bank and the White House, there was a close link between the policies I advocated and my earlier, largely theoretical work in economics, much of it related to market imperfections— why markets do not work perfectly, in the way that simplistic models which assume perfect competition and perfect information claim they do. I brought to policy making my work on the economics of information, in particular, on asymmetries of information—the differences in information between, say, the worker and his employer, the lender and the borrower, the insurance company and the insured. These asymmetries are pervasive in all economies. This work pro-vided the foundations for more realistic theories of labor and financial markets, explaining, for instance, why there is unemployment and why those most in need of credit often cannot get it—there is, to use the economist's jargon, credit-rationing. The standard models that economists had used for generations argued either that markets worked perfectly—some even denied the existence of genuine unemployment—or that the only reason that unemployment existed was that wages were too high, suggesting the obvious remedy: lower wages. Information economics, with its better analyses of labor, capital, and product markets, enabled the construction of macroeconomic models that provided deeper insights into unemployment, models that explained the fluctuations, the recessions and depressions, that had marked capitalism since its beginnings. These theories have strong policy implications—some of which are obvious to almost anyone in touch with the real world—such as that if you raise interest rates to exorbitant levels, firms that are highly indebted can be forced into bankruptcy, and this will be bad for the economy. While I thought they were obvious, these policy prescriptions ran counter to those that were frequently insisted upon by the International Monetary Fund (IMF).

The IMF's policies, in part based on the outworn presumption that markets, by themselves, lead to efficient outcomes, failed to allow for desirable government interventions in the market, measures which can guide economic growth and make everyone better off. What was at issue, then, in many of the disputes that I describe in the following pages is a matter of ideas, and conceptions of the role of the government that derive from those ideas.

Although such ideas have had an important role in shaping policy prescriptions—in development, in managing crises, and in transition— they are also central to my thinking about reforming the international institutions that are supposed to drive economic development, manage crises, and facilitate economic transition. My research on information made me particularly attentive to the consequences of the lack of information. I was glad to see the emphasis during the global financial crisis in 1997-98 of the importance of transparency; but saddened by the hypocrisy that the institutions, the IMF and the U.S. Treasury, which emphasized it in East Asia, were among the least transparent that I had encountered in public life. This is why in the discussion of reform I emphasize the necessity for increased transparency, improving the information that citizens have about what these institutions do, allowing those who are affected by the policies to have a greater say in their formulation. The analysis of the role of information in political institutions evolved quite naturally from my earlier work on the role of information in economics. One of the exciting aspects of coming to Washington was the opportunity not only to get a better understanding of how government works but also to put forward some of the perspectives to which my research had led. For instance, as chairman of Clinton's Council of Economic Advisers, I tried to forge an economic policy and philosophy that viewed the relationship between government and markets as complementary, both working in partnership, and recognized that while markets were at the center of the economy, there was an important, if limited, role for government to play. I had studied the failures of both markets and government, and was not so naive as to think that government could remedy every market failure. Neither was I so foolish as to believe that markets by themselves solved every societal problem. Inequality, unemployment, pollution: these were all issues in which government had to take an important role. I had worked on the initiative for "reinventing government"—making government more efficient and more responsive; I had seen where government was neither; I had seen how difficult reform is; but I had also seen that improvements, modest as they might be, were possible. When I moved to the World Bank, I had hoped to bring this balanced perspective, and the lessons I had learned, to the far more difficult problems facing the developing world.

Inside the Clinton administration, I enjoyed the political debate, winning some battles, losing others. As a member of the president's cabinet, I was well positioned not only to observe the debates and see how they were resolved but, especially in areas that touched upon economics, to participate in them. I knew that ideas mattered but so did politics, and one of my jobs was to persuade others not just that what I advocated was good economics but also that it was good politics. But as I moved to the international arena, I discovered that neither dominated the formulation of policy, especially at the International Monetary Fund. Decisions were made on the basis of what seemed a curious blend of ideology and bad economics, dogma that sometimes seemed to be thinly veiling special interests. When crises hit, the IMF prescribed outmoded, inappropriate, if "standard" solutions, without considering the effects they would have on the people in the countries told to follow these policies. Rarely did I see forecasts about what the policies would do to poverty. Rarely did I see thoughtful discussions and analyses of the consequences of alternative policies. There was a single prescription. Alternative opinions were not sought. Open, frank discussion was discouraged—there was no room for it. Ideology guided policy prescription and countries were expected to follow the IMF guidelines without debate.

These attitudes made me cringe. It was not just that they often produced poor results; they were antidemocratic. In our personal lives we would never follow ideas blindly without seeking alternative advice. Yet countries all over the world were instructed to do just that. The problems facing developing countries are difficult, and the IMF is often called upon in the worst of situations, when the country is facing a crisis. But its remedies failed as often, or even more often than they worked. IMF structural adjustment policies—the policies designed to help a country adjust to crises as well as to more persistent imbalances—led to hunger and riots in many countries; and even when results were not so dire, even when they managed to eke out some growth for a while, often the benefits went disproportionately to the better-off, with those at the bottom sometimes facing even greater poverty. What astounded me, however, was that those policies weren't questioned by many of the people in power in the IMF, by those who were making the critical decisions. They were often questioned by people in the developing countries, but many were so afraid they might lose IMF funding, and with it funding from others, that they articulated their doubts most cautiously, if at all, and then only in private. But while no one was happy about the suffering that often accompanied the IMF programs, inside the IMF it was simply assumed that whatever suffering occurred was a necessary part of the pain countries had to experience on the way to becoming a successful market economy, and that their measures would, in fact, reduce the pain the countries would have to face in the long run.

Undoubtedly, some pain was necessary; but in my judgment, the level of pain in developing countries created in the process of globalization and development as it has been guided by the IMF and the international economic organizations has been far greater than necessary. The backlash against globalization draws its force not only from the perceived damage done to developing countries by policies driven by ideology but also from the inequities in the global trading system. Today, few—apart from those with vested interests who benefit from keeping out the goods produced by the poor countries— defend the hypocrisy of pretending to help developing countries by forcing them to open up their markets to the goods of the advanced industrial countries while keeping their own markets protected, policies that make the rich richer and the poor more impoverished—and increasingly angry.

The barbaric attacks of September 11, 2001, have brought home with great force that we all share a single planet. We are a global community, and like all communities have to follow some rules so that we can live together. These rules must be—and must be seen to be— fair and just, must pay due attention to the poor as well as the powerful, must reflect a basic sense of decency and social justice. In today's world, those rules have to be arrived at through democratic processes; the rules under which the governing bodies and authorities work must ensure that they will heed and respond to the desires and needs of all those affected by policies and decisions made in distant places.

This book is based on my experiences. There aren't nearly as many footnotes and citations as there would be in an academic paper. Instead, I tried to describe the events I witnessed and tell some of the stories that I heard. There are no smoking guns here. You won't find hard evidence of a terrible conspiracy by Wall Street and the IMF to take over the world. I don't believe such a conspiracy exists. The truth is subtler. Often it's a tone of voice, or a meeting behind closed doors, or a memo that determines the outcome of discussions. Many of the people I criticize will say I have gotten it wrong; they may even produce evidence that contradicts my views of what happened. I can only offer my interpretation of what I saw.

When I joined the World Bank, I had intended to spend most of my time on issues of development and the problems of the countries trying to make the transition to a market economy; but the global financial crisis and the debates about reforming the international economic architecture—the system by which the international economic and financial system are governed—in order to make globalization more humane, effective, and equitable occupied a large fraction of my time. I visited dozens of countries all over the world and spoke to thousands of government officials, finance ministers, central bank governors, academics, development workers, people at non-governmental organizations (NGOs), bankers, business people, students, political activists, and farmers. I visited Islamic guerrillas in Mindanao (the Philippine island which has long been in a state of rebellion), trekked through the Himalayas to see remote schools in Bhutan or a village irrigation project in Nepal, saw the impact of rural credit schemes and programs for mobilizing women in Bangladesh, and witnessed the impact of programs to reduce poverty in villages in some of the poorest mountainous parts of China. I saw history being made and I learned a lot. I have tried to distill the essence of what I saw and learned and present it in this book.

I hope my book will open a debate, a debate that should occur not just behind the closed doors of government and the international organizations, or even in the more open atmosphere of universities. Those whose lives will be affected by the decisions about how globalization is managed have a right to participate in that debate, and they have a right to know how such decisions have been made in the past. At the very least, this book should provide more information about the events of the past decade. More information will surely lead to better policies and those will lead to better results. If that happens, then I will feel I have made a contribution.

Copyright © 2002 Joseph E. Stiglitz. All rights reserved.

What People are Saying About This

George Soros

Penetrating, insightful.... A seminal work that must be read.

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Globalization and Its Discontents 4.4 out of 5 based on 0 ratings. 23 reviews.
jftouma on LibraryThing More than 1 year ago
Well written, informative, remained interesting until the very end. Written more as a critique of the IMF as a stubborn and pedantic organization that is not flexible enough to adapt policies to local situations. Doesn't dive too deep into remedies for the challenges like the IMF faces, as I think Stiglitz plans it for a separate standalone book.
cwhouston on LibraryThing More than 1 year ago
Unlike much of the 'anti-capitalist hysteria' surrounding the issue of globalisation, this book has been written by someone who DOES know what he is talking about and as a result, is not anti-capitalist. Perhaps surprisingly, his economic insight is also matched with an easy to follow and highly readable style.The author levels much constructive criticism at the IMF and WTO for the way in which they have treated the developing world over the last ten years but never suggests that globalisation per se is a bad idea. What I particularly appreciated was the effort taken by Stiglitz to present clear and reasoned argument to back up his points of view. I would have liked to see a little more detail on the history of the foundation of the IMF,WTO and World Bank but this is only a very minor gripe.When I borrowed this book from my wife, I had expected, largely due to the title and cover art, that it would be just another incoherent and inflammatory bag of anti-everything nonsense. Fortunately, this is not at all the case. Excellent.
vixen666 on LibraryThing More than 1 year ago
This book is important. Every member of all western governments should be required to summarise its arguments before they can take office.
Anonymous More than 1 year ago
Anonymous More than 1 year ago
I was hoping for a more theoretical work, but if you go in here with your eyes open it's a good book. The point isn't to explain how globalization should work (although Stiglitz does go there) but to recount some of the ways that the developed world has made it harder for poor countries to love this brave new world. Lots of stories from Stiglitz's career, as well as a good review of some of the bigger economic crises of the 1990's. It's not very technical (probably the point), but does get to the heart of why many people in the developing world think the West is trying to keep them poor. If the IMF is a sacred cow to you, don't read this book!
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Anonymous More than 1 year ago
Stiglitz shows how time after time the IMF has made bad decisions and policies. This is a well worth reading book if you are interest in how countries in need are treated by the IMF.
JayHay More than 1 year ago
With everyone so caught up in the positive aspects of globalization, it is extremely important to consider the negative facets of the idea. Stiglitz provides a superb review of the strategic international organizations that have played a detrimental part in the opening of international trade and financial markets. With the World Bank and the International Monetary Fund (IMF) as the backdrop, he writes a convincing work centered on how we need to re-think the application of these organizations. From the beginning Stiglitz draws on his expertise and experience in the national and international policy-making arena to qualify his remarks on the faults of globalization. He focuses on the exploitation of smaller states in the context of an imperialistic West and developing markets that are attempting to find their way. Unlike other books that anechdotally speak to Western imperialism, Stiglitz provides specific examples both anechdotally and theoretically that challenges the current practice of globalization. Rather than creating a West-bashing book that is fatalistic in its conclusion, Stiglitz offers some interesting perspectives on how the World Bank and the IMG can be changed to address the concerns of both the developed and developing worlds. Overall an excellent read and highly recommended, especially for those individuals interested in the negative aspects of globalization.
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Guest More than 1 year ago
As being an economics Ph. D. student in U.S. from a developing country which is in a close relationship with IMF and World Bank, I appreciate this work which helps people to understand what's going on in underdeveloped/developing world. Every single word of this book must be read and understood very well by people from both developped and developing world. Everyone must see the real aim and resulsts of policies imposed by IMF, and how irresponsive and impassive these institutions can be. Joseph Stiglitz knows the issue very well and fully reflects the reality in developing countries. It is not an anti-globalization book, it simply explains the situation. The truth is not close to Stiglitz's account, the truth is Stiglitz's account itself -- unfortunately, it is on the 'bad' or 'wrong' side for some.
Guest More than 1 year ago
i served 18 months in iraq and i've seen many of the same problems in iraq as were see in russia. iraq's have great agricultural capabilities but U.S. trade policies ban them from selling at a price they can afford in the U.S. or other large Western markets. if you think that this is an out of date book look at the policies they are still the same as those that the book condems.
Guest More than 1 year ago
Joseph Stiglitz, formerly of the World Bank, has written an extraordinary and stunning expose of the global financial institutions. As an insider¿s account, it rivals Bernard Connolly¿s brilliant and scathing study of the European Central Bank. Stiglitz berates the `new dictatorships of international finance¿ and writes, ¿Globalization today is not working¿, noting its `devastating effect¿ and concluding, ¿something has gone horribly wrong.¿ He sums up, ¿The IMF has failed.¿ Why? Because, as he shows, the IMF has worsened world economic and political instability and global poverty: its policy of capital market liberalisation has been - and still is - their most important cause. It was especially responsible for the East Asia crisis of 1997-98, which India and China escaped because they still had capital controls. The IMF continues to impose liberalisation despite massive amounts of evidence that it does not bring growth, investment or stability. Why does it do this? Stiglitz writes that the IMF has changed ¿from serving global economic interests to serving the interests of global finance. Capital market liberalisation may not have contributed to global economic stability, but it did open up vast new markets for Wall Street.¿ As a result, the ¿IMF keeps speculators in business.¿ For instance, in 1998 it `spent¿ $50 billion maintaining Brazil¿s exchange rate: where did the money all go? It went into the speculators¿ wallets! He shows how the IMF decides its policy on the basis of market fundamentalism, so land reform is off the agenda, but school fees aren¿t. The East Asian `tigers¿ thrived because they disobeyed the IMF by investing in education, supporting their industries and controlling capital. Stiglitz notes that the European Central Bank is worsening Europe¿s 2001-02 slump by keeping interest rates high. Like the ECB, the IMF pursues deflationary policies even at the cost of slumps. There are other similarities: neither the IMF nor the ECB is responsible to national governments; job creation is off both their agendas, and both are mandated to focus on inflation, not on wages, jobs or growth.
Guest More than 1 year ago
Stiglitz knows this subject from both the inside and in theory. An important book!
Guest More than 1 year ago
This was a book that had to be written. Thank you, Dr. Stiglitz, for writing it. Despite the misguided policies described in this book, there is something to cheer about regarding the consequences of globalization: in recent years per capita income has grown rapidly in the world's two largest poor countries, China and India, so today there are more people living in poor countries with faster-than-world-average income growth than in poor countries with slower-than-world-average income growth. As a result, for the first time in nearly two centuries, the distribution of the world's income is no longer worsening (by all the standard measures of inequality, global income inequality declined in the last decades of the 20th Century). In revising the 'rules of the game' for international engagement, then, we must take care not to undermine the successes of East and South Asia while trying to find policies to stimulate economic growth in the lagging regions of Latin America and especially sub-Saharan Africa.
Guest More than 1 year ago
This was a totally transforming book for me to read. The author was there! That is the main difference between this guy and the other anti-globalization authors I have read. This guy was in the policy debate, but wasn¿t listened to. And now this book is a chronicle of his ¿I told you so¿s¿¿ And I think he has every right to tell them! What a mess. The discussions of the Asian Financial Crisis and the failed Russian economic transition are totally fascinating. The authors experience and knowledge bring the issues alive, and his non-technical approach made it engrossing and entertaining. He does vilify the IMF and the US Treasury Department officials so much that I kept hearing the song of Darth Vader by the end of it when he would discuss them. So I have read a few reviews of the book by other economists (in Foreign Affairs and Business Week), and they don¿t really argue much with his conclusions. This book was awesome to read after reading The Lexus and the Olive Tree. I think they both should be required reading for anyone who wants to understand globalization today.
Guest More than 1 year ago
Balanced perspective and compelling story on the growth and power of multinationals. I also recommend "Multinational corporations in political environments" to understand how efforts to influence them fail.
Guest More than 1 year ago
Joseph Stiglitz, was part of an economic team that managed the greatest economic expansion in american history so he knows what it takes to create an environment for economic growth. Discussing the way the IMF and World Bank have imposed idiotic policies that put poorer countries into recession or that lead to greater instability, he highlights the greatest discontent. An unelected, unnacountable group of market fundamentalists have damaged the lives of millions of people, from Thailand, Argentina, and so on with no relief in sight. Mr. Stiglitz demonstrates the stupidity of some of these decisions, and where the decisions were difficult he highlight the issues that should have tipped the scales towards a more effective approach. A brilliant man, with honest and powerful ideas.
Guest More than 1 year ago
Not as readable or as enjoyable as Tom Friedman's 'The Lexus and the Olive Tree', with quite a few annoying typos, minor inconsistencies and awkward phrases. (Do copy editors still exist in this world?) But a welcome and apparently necessary counterbalance to Friedman's euphoric view of globalization. When we look at anything from close range, as Stiglitz saw the mechanics of globalization, we tend to become disillusioned.... So the fact that this account comes from a (disgruntled?) member of the gang that makes the world go around should not disqualify it as a one-sided story. The 'truth' about globalization is probably somewhere between these two books. I hope it's closer to Friedman's view, but I am afraid it's much closer to Stiglitz's account.
Guest More than 1 year ago
'Gobalization and it's Discontents' is just what it's title sugests: an informed analysis of what has been called gobalization, how it has been conducted by the leading financial organizations, and why it has aroused so great discontent all over the world. It's truly an outstanding book. It's easy to read, well informed and brings a clear message about the importance of intelecyual coherence and democratic participation when adressing problems that can affect the lives of so many people in the wold. It's an indispensible reading for everyone interested in globalization.