the critique from joseph stiglitz. money and globalisation the finance industry lies at the heart of...
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The critique from Joseph Stiglitz
Money and globalisationThe finance industry lies at the heart of
globalisation. Of the total international transactions of a trillion or so dollars each day. 95 per cent are purely financial. Globalisation in not about trade; it is about money.
the financial system now completely dominates the real economy of goods and services
Mellor et al. The Politics of Money. 2002
Joseph StiglitzChief Economist at
the World Bank until 2000
Chair of President Clinton’s Council of Economic Advisors
Professor of Finance and Economics at Columbia
‘Nobel Prize’ in 2001
What is the IMF?‘The International
Monetary Fund (IMF) is an organization of 186 countries. working to foster global monetary cooperation. secure financial stability. facilitate international trade. promote high employment and sustainable economic growth. and reduce poverty around the world’
Trade requires an exchange of currencyA corporation would rather be paid in a
reserve currencySo the importer country wants to have dollars
or euros in its banks to pay for imported goods and services
The IMF was set up to lend countries these reserves so that they could continue to trade
It also collects information about member countries and publishes reports
It also offers technical advice
Country Quota of SDRs %age of total votes
USA 17.09 16.79Japan 6.13 6.02Germany 5.99 5.88France 4.94 4.86UK 4.94 4.86China 3.72 3.66Italy 3.25 3.2Saudi Arabia 3.21 3.17Canada 2.93 2.89Remaining 175 47.8 48.67
What is the World Bank?‘Our mission is to fight poverty with passion
and professionalism’ ‘help people help themselves and their
environment by providing resources, sharing knowledge, building capacity and forging partnerships in the public and private sectors’
‘financial and technical assistance’low-interest loans, interest-free credits and
grants to developing countries
The theory‘Trickle-down economics’No barrier to the
accumulation of wealth by the rich
If the rich become wealthy enough, some of this will trickle down to the less well-off
Applies within and between countries
The practice
The message from the IMFPrivatise—get the state out of the economyLiberalise—open the economy up to global
markets in goods and capitalStabilise—balance the budget by cutting
public spending and increasing taxation: Structural Adjustment Program
PrivatisationCochabamba is Bolivia’s third largest cityTo meet the conditions imposed by the world
bank Bolivia privatised its railways, telephone system, airlines
In 2000 the World Bank refused to renew a $25m. loan unless the water system was also privatised
A 40-year contract for $2.5 billion was signed
In a country where the minimum wage was less than US$70 per month, many citizens were hit with monthly water bills of $20 or more
Law 2029 privatised all water in the country – even rainwater
This led to widespread protests joined by coca growers
Radicalisation led to the election of Evo Morales in 2005
Not a very secure investment for Bechtel et al.
Financial liberalisationPeso pegged to the dollar: Argentina’s
exports became more expensive than those of competitor countries
Pesos exchanged for foreign reserve currencies or sent overseas
The financial crisis in Mexico in 1994. followed by those of the Asian Tigers. Russia and Brazil from 1997 to 1999 undermined confidence in Argentina’s ability to pay her sizeable external debt.
Europeans banned the free flow of capital until the 1970s
Trade liberalisationStiglitz’s questions:
Efficient outcomes from comparative advantage
Need to protect ‘infant industries’
Freeing of trade in services. but only those where Western nations dominate (financial services and information technology). not those where poorer countries could compete (maritime and construction)
Stabilise?William Browder. co-
founder of Hermitage Capital in 1996
Shareholder of Russian gas company Gazprom
In 2006 blacklisted as ‘threat to national security’
This week his lawyer died in custody
Time for a breatherAsk your neighbour:What was the most useful thing you
learned from the lecture?What was the most interesting thing
you learned from the lectureWhat was the thing that was most
difficult to understand?
Expanding the reach of the marketFormer communist
countries making a ‘transition’ to a market economy
China making a transition towards state capitalism
Subsistence economies moving into the global marketplace
The business angleThe rules suit international business. which is
free to move from country to country. Advantages are:
Consistent global legal frameworkLoss of domestic control over capitalEnd of protection of domestic productionSpeculative investment flows
Multilateral Agreement on InvestmentNegotiations launched at the Annual Meeting
of the OECD Council at Ministerial level in May 1995.
The objective was to provide a broad multilateral framework for international investment with high standards for the liberalisation of investment regimes and investment protection
Shift in power from governments to corporations
Negotiations were discontinued in April 1998, however, and they will not be resumed.
Economic ‘shock therapy’‘These countries were told by the West that the
new economic system would bring them unprecedented prosperity. Instead it brought them unprecedented poverty. . . In 1990 China’s GDP was 60 per cent less than that of Russia; by 2000 the numbers had been reversed.’ p. 6
‘Rapid mass privatisation as an economic transition strategy was a crucial determinant of differences in adult mortality trends in post-communist countries; the effect of privatisation was reduced if social capital was high.’
The Lancet, 2009
The results of gangster capitalism
Increases in poverty and inequalityShrinkage of GDPIn 1989 2% of the
population were in poverty; by 1998 it was 23.8%
More than 40% had less than $4 per day
Similar rates in other post-Communist societies
China’s path to the marketBegan with agriculture—a move away from
collective agriculture to ‘individual responsibility system’
Competition more important than privatisationA gradual approachOnce the basis was secure foreign firms were
invited in‘China put creating competition, new
enterprises and jobs before privatization and restructuring existing enterprises.’
Structural Adjustment ProgramsHigh levels of interest rates—makes
indigenous entrepreneurship impossibleRequirement to pay off external debt—no
money for domestic investment in job creation
Cutting of government spending – no possibility to develop the workforce. i.e. human capital
GDP per capita growth
Countries
More than 50%
Chad. Cambodia. Myanmar. Mozambique. Nigeria. Sierra Leone. Tajikistan. Vietnam
25-50% Bangladesh. Burkina Faso. Ethiopia. The Gambia. Ghana. Krygyz Republic. Laos. Madagascar. Mali. Nepal. Pakistan. Sao Tome & Principe. Tanzania. Uzbekistan
0-24% Benin. Kenya. Guinea. Malawi. Mauritania. Niger. Rwanda. Senegal. Uganda. Republic of Yemen. Zambia
Less than 0%
Burundi. Central African Republic. Comoros. Dem. Rep. of Congo. Cote D’Ivoire. Etritrea. Guinea-Bissau. Liberia. Papua New Guinea. Solomon Islands. Togo. Zimbabwe
Stiglitz’s conclusion‘Today, globalization is being challenged around
the world. There is discontent with globalization, and rightfully so. Globalization can be a force for good: the globalization of ideas about democracy and of civil society have changed the way people think. . . But for millions of people globalization has not worked. Many have actually been made worse off, as they have seen their jobs destroyed and their lives become more insecure. They have felt increasingly powerless against forces beyond their control.’
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