joseph e. stiglitz (2002) globalization and its discontents

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Joseph E. Stiglitz (2002) Globalization and Its Discontents GIOVANNI FERRI For three reasons, it wasn’t easy for me to write a review on this book for Economic Notes–Review of Banking, Finance and Monetary Economics. First, Joseph E. Stiglitz (henceforth JES) is an active member of this Journal’s Advisory Board: I could then be accused of favouritism if my review is too positive. Second, the book is not so much about economics as much as it is about the political economy of economic policy making at the international level: A challenging topic indeed, where maybe other scholars possess better theoretical foundations than I. Last but not least, I worked somewhat close to the author during the East Asian crisis, while he served as the World Bank’s Chief Economist: One might therefore hold that any appreciation depends on partisanship. Transparency demands this be stated upfront. Has the ‘‘boy from Gary, Indiana’’ (as JES likes to define himself) grown mad? The question needs to be posed if one reads what Rogoff (2002) contends in his open letter confronting JES on the book under comment. In my view the answer is that, as Mark Twain put it, ‘‘the reports are greatly exaggerated’’. Before we go into some of the details, it is in fact to be mentioned that, on most of what he argues in the book, JES is neither substantially innovating with respect to what he already publicly said in the past, nor is he alone in the economics profession or the world elites at large. Indeed, what the book does is providing for an escalation as to the tone and the terrain of the confrontation. While it is legitimate to complain that this escalation is harmful to elicit sound reform tackling the problems at stake, in my opinion, the success or failure of the book will have to be assessed in the future once it will be possible to fully evaluate whether the change in JES’ strategy paid up or backfired. In the meantime, preliminary evidence (see below) seems to show that the book is being effective in exhuming more open discussion on the debated issues, also at the International Monetary Fund (IMF), the main target of the book’s criticism and allegations. If confirmed, this in itself would be a success as one of the chief accusations in the book is that the IMF erred because its debates were kept behind closed doors. 1 # Banca Monte dei Paschi di Siena SpA, 2003. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA. Economic Notes by Banca Monte dei Paschi di Siena SpA, vol. 32, no. 2-2003, pp. 123–142 Department of Economics – University of Bari – Italy – [email protected] 1 While I will try to keep away from taking a position in the confrontation, what should be stated is that transforming the debate into a personal fight is not helpful. It would be useful if this were avoided on both sides, but particularly on the part of the IMF, which is an institution and not an academician.

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Page 1: Joseph E. Stiglitz (2002) Globalization and Its Discontents

Joseph E. Stiglitz (2002) Globalization and ItsDiscontents

GIOVANNI FERRI�

For three reasons, it wasn’t easy for me to write a review on this book for

Economic Notes–Review of Banking, Finance and Monetary Economics.

First, Joseph E. Stiglitz (henceforth JES) is an active member of this Journal’s

Advisory Board: I could then be accused of favouritism if my review is too

positive. Second, the book is not so much about economics as much as it is

about the political economy of economic policy making at the international

level: A challenging topic indeed, where maybe other scholars possess better

theoretical foundations than I. Last but not least, I worked somewhat close to

the author during the East Asian crisis, while he served as the World Bank’s

Chief Economist: One might therefore hold that any appreciation depends on

partisanship. Transparency demands this be stated upfront.

Has the ‘‘boy from Gary, Indiana’’ (as JES likes to define himself) grown

mad? The question needs to be posed if one reads what Rogoff (2002) contends

in his open letter confronting JES on the book under comment. In my view the

answer is that, as Mark Twain put it, ‘‘the reports are greatly exaggerated’’.

Before we go into some of the details, it is in fact to be mentioned that, on

most of what he argues in the book, JES is neither substantially innovating

with respect to what he already publicly said in the past, nor is he alone in the

economics profession or the world elites at large. Indeed, what the book does

is providing for an escalation as to the tone and the terrain of the confrontation.

While it is legitimate to complain that this escalation is harmful to elicit sound

reform tackling the problems at stake, in my opinion, the success or failure of

the book will have to be assessed in the future once it will be possible to fully

evaluate whether the change in JES’ strategy paid up or backfired. In the

meantime, preliminary evidence (see below) seems to show that the book is

being effective in exhuming more open discussion on the debated issues, also

at the International Monetary Fund (IMF), the main target of the book’s

criticism and allegations. If confirmed, this in itself would be a success as one

of the chief accusations in the book is that the IMF erred because its debates

were kept behind closed doors.1

# Banca Monte dei Paschi di Siena SpA, 2003. Published by Blackwell Publishing Ltd,9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

Economic Notes by Banca Monte dei Paschi di Siena SpA, vol. 32, no. 2-2003, pp. 123–142

� Department of Economics – University of Bari – Italy – [email protected] While I will try to keep away from taking a position in the confrontation, what should be

stated is that transforming the debate into a personal fight is not helpful. It would be useful if this

were avoided on both sides, but particularly on the part of the IMF, which is an institution and not

an academician.

Page 2: Joseph E. Stiglitz (2002) Globalization and Its Discontents

Before substantiating this conclusion, we need to go into some of the

specific elements in the book. This means that we have to synthesize the main

ingredients of the debate, even though this risks being pedantic to the many

observers who are already very well familiar with it.

The bulk of JES’ accusations is that globalisation is a boon only if it is

properly governed, but the International Economic Institutions (IEIs) and,

primarily, the International Monetary Fund (IMF) that should ensure such a

governance have failed the task. The conclusion is that the IMF and the other IEIs

(i.e., the World Bank and the World Trade Organization) have to be reformed to

deliver policies that will make globalisation more equitable and, thus, avoid that

it is perceived by many around the world more as a problem than as an

opportunity. Lacking such reform, JES admonishes, discontents might grow:

Globalisation might be checked and its great potential benefits might go lost.

Most of the book is devoted to chastise the IMF for its failure in three

main areas: (i) crisis management (e.g., the East Asian crisis); (ii) development

of poorer countries (a problem that JES doesn’t see in the IMF agenda); (iii)

transition from planned to market economies (e.g., the problems with Russia).

More generally, the IMF is accused of having undergone a great mutation from

Keynes’ creature to fight global depressions to ‘‘the cockpit of market

fundamentalism’’ and the ‘‘Washington Consensus’’. In this regard, JES

stresses that IEIs need to have a more open mindset rather than rely on a

unique model (there is a plurality of models: There’s no single way to the

market economy) and refrain from prescribing one-size-fits-all policies that

may be harmful. The allegation is that, by prescribing seemingly pro-market

policies that however exacerbate the risks of systemic shocks (e.g., early

capital account opening, premature domestic financial liberalization) and

disregard the need for social safety nets, the Washington Consensus is under-

mining globalisation. Since, according to JES, they do not cater for the benefits

of globalisation to be shared and, to the contrary, produce growing inequality

such policies may have become the most serious obstacle to expand free trade,

the extent of markets and, accordingly, reap larger gains for the world.

In Chapter 3 (Freedom to Choose?), JES identifies the three pillars of the

Washington Consensus (fiscal austerity, privatisation, and market liberalisa-

tion) and contends that ‘‘. . . the problem was that many of these policies

became ends in themselves, rather than means to more equitable and sustain-

able growth.’’ That’s why these policies had to be pursued quickly – and the

assisted countries had to sign in conditionality to this – while there was no

serious attempt to adapt them to local circumstances. First, according to JES,

quick privatisation policies can be criticized on two grounds: (i) expansive

(and not contractionary as done in the past) aggregate demand policies need to

accompany privatisations, with the former creating jobs to match the job

destruction by the latter; (ii) privatisations have to be equitable and transparent

to avoid breeding corruption; in turn, this requires that appropriate legal

structures and market institutions be formed before privatising. Second, still in

124 Economic Notes 2-2003: Review of Banking, Finance and Monetary Economics

# Banca Monte dei Paschi di Siena SpA, 2003.

Page 3: Joseph E. Stiglitz (2002) Globalization and Its Discontents

the author’s view, liberalisation – through the removal of government inter-

ference in domestic markets as well as the elimination of barriers to trade and

capital exchanges with abroad – is designed to promote more efficient market

allocation. But this approach may do more harm than good if liberalisation is

carried out without putting it in its proper context and lacking the proper

institutional set up. For instance, lacking adequate regulation and supervision

of banks, early capital account opening and also domestic financial liberal-

isation are likely sources of instability. Third, according to JES, sequencing of

reforms is crucial or liberalisation will not be successful. In fact, institution

building must precede or at least accompany liberalisation but also there must

be a social consensus in the nation that is undertaking such transformation.

And the social consensus may only rest on the respect of a social contract

whereby benefits will be widely shared. Unfortunately, the Washington Con-

sensus does not worry about the social contract, as it believes in ‘‘trickle down

economics’’, i.e., the idea that growth by itself will heal the problems it

initially causes. But, according to JES, this is not so and even the IFIs have

recognised that poverty reduction must be explicitly addressed in order to

make growth sustainable. However, according to JES, here comes the problem

of the priorities: if poverty reduction is inserted as the 39th item in a list of 40

objectives, maybe it will not get much attention after all and its inclusion

appears driven more by a maquillage intent than by serious concern.

In Chapter 4 (The East Asia Crisis – How IMF Policies Brought the World

to the Verge of a Global Meltdown), JES holds that IMF policies did not work

in managing the East Asian crisis because they were wrong. Approaching the

management of the East Asian crisis with its one-size-fits-all policies of the

Washington Consensus, the IMF founded its intervention on: (i) higher interest

rates; (ii) fiscal austerity; (iii) structural reforms. When the policies failed, ‘‘the

IMF charged the country(s) with failing to take the necessary reforms

seriously. In each case, it announced the world that there were fundamental

problems that had to be addressed before a true recovery could take place.

Doing so was like crying fire in a crowded theatre: investors, more convinced

by the diagnosis of the problem than by the prescriptions, fled. Rather than

restoring confidence that would lead to an inflow of capital into the country,

IMF criticism exacerbated the stampede of capital out.’’ ‘‘Because of this . . .the perception through much of the developing world . . . is that the IMF itself

had become a part of the countries’ problem rather than part of the solution.

Indeed, in several of the crisis countries, . . . people continue to refer to the

economic and social storm that hit their nations simply as ‘the IMF’ . . .’’. This

has much to do with the fact that those liberalisation policies were forced onto

the East Asian countries that – also because of their long impressive growth –

didn’t have social safety nets. In JES’ view, the single most important factor

leading to the crisis was early capital account liberalisation that, in turn, was

pushed onto the countries by the Washington Consensus, representing in that

the vested interests of the financial community.

125Book Review

# Banca Monte dei Paschi di Siena SpA, 2003.

Page 4: Joseph E. Stiglitz (2002) Globalization and Its Discontents

In JES’ recount, there were three rounds of mistakes by the IMF. The first

derived from applying to East Asia the policy menu elaborated for high public

deficit and inflation-driven Latin American crises of the 1980s without taking

into account that, in light of the impending recession, the problem for East

Asia was lack (and not excess) of aggregate demand and also that East Asian

firms were highly leveraged. So, the IMF advised contractionary fiscal and

monetary policies that aggravated the recession by reducing aggregate demand

and trade across the region. Furthermore, instead of attracting capital via

higher yields and stabilising exchange rates, tight monetary policies magnified

bankruptcies of the highly leveraged East Asian corporates and, thus increasing

the risk of default, aggravated the fall in confidence in these countries. The

second round of IMF mistakes had to do with its inadequate understanding of

the policies needed to address bank and corporate restructuring in the face of

macro-driven large scale bankruptcies. Failure to perform a quick and com-

plete closure of endangered banks, uncertainties on the extent and modality of

state intervention triggered major bank runs through the region, disrupting

credit flows and destroying precious informational capital in the banks. In

addition, restructuring strategies were unclear and slow, driving to increased

uncertainty and unneeded bankruptcies. The third round of mistakes was the

IMF’s failure to recognize that the harsh policies it was recommending could

cause damage to the East Asian social fabric – lacking social safety nets so

badly, just thanks to its marvellous growth record – and even generate turmoil

(as was clearly the case in Indonesia). The problem was later admitted – e.g.,

after being cut, food subsidies in Indonesia were restored – but the damage

had already been inflicted.

JES points out that China and Malaysia are the best examples of how Eat

Asian countries could avoid or reduce the negative impact of the crisis by

following policies that were markedly different than what recommended by the

IMF: China did not have free capital movements and Malaysia introduced

temporary capital controls. In addition, JES holds that: (i) via de-leveraging,

IMF policies may have reduced long-term growth in East Asia; (ii) IMF policy

failures – and even the strategy to adjust policies as they prove inappropriate is

very serious, since ‘‘bankrupted firms cannot be un-bankrupted’’ – partly

derived from its insufficient accountability.

At the end of the chapter, JES proposes his seven-point alternative strategy

to manage the crisis: (1) follow expansionary fiscal and monetary policies; (2)

promote quick financial restructuring; (3) but the financial restructuring needed

to be coupled with maintaining finance flows to corporates and a standstill of

scheduled debt repayments; (4) financial restructuring could then be followed

by real restructuring; (5) however, real restructuring should take place only with

special bankruptcy provisions (a ‘‘super-Chapter 11) aimed at the quick resolu-

tion of distress from macro-driven disturbances; (6) strong (temporary) inter-

vention by the government is required; (7) once all the previous points are in

place, firms can effectively benefit from the large exchange rate depreciation.

126 Economic Notes 2-2003: Review of Banking, Finance and Monetary Economics

# Banca Monte dei Paschi di Siena SpA, 2003.

Page 5: Joseph E. Stiglitz (2002) Globalization and Its Discontents

In Chapter 5 (Who Lost Russia?), JES maintains that the deep problems

with Russia’s transition from a planned to a market economy have to be

explained in light of the shock therapy chosen by the country, especially thanks

to the advice of Western ‘‘market Bolsheviks’’ advisers, mostly reflecting US

Treasury/IMF mindset and policies. The main shortcoming of these policies

was their failure to recognise and give adequate weight to social and political

issues fundamental to the transition. Part of the problem was the failure to

understand that institutions with the same name (e.g., a bank) as their Western

homologues existed under the USSR but they played a totally different role.

Thus, the trouble came from disregarding the deep need for institution

building: More attention to this issue could only change the choice from shock

therapy to gradualism, as the success of China testifies.

According to JES, examples of the fiasco of the shock therapy abound.

First, a partial price liberalisation accompanied by stabilisation and ‘‘friendly’’

privatisation played a major role in the advent of ‘‘rent seeking’’ capitalism in

Russia and the situation was only made worse by the early capital account

opening that allowed massive capital flows out of the country. In addition, in

light of its fiscal problems, Russia couldn’t even afford building its needed

safety nets. If the near cause of Russia’s 1998 default was the Asian crisis and

the fall in oil prices, the long overvalued ruble built the background conditions

by depressing the economy, helping the ‘‘oligarchs’’ drive capital out, and

lowering confidence in the country. In the occasion, the IMF led Russia to

resist the speculative attacks by borrowing heavily in foreign exchange, a move

that can be rationalised with an attempt to outsmart the market and/or close the

devaluation option. There was heated debate across 19th Street about making a

further large loan to Russia in July 1998 since some believed that this would

only aggravate the situation. When the default came (in August) this renewed

the global financial crisis. While the oligarchs gained and Western banks were

helped to limit their losses, the burden of the additional loan eventually came

on the shoulders of Russian taxpayers. Finally, the good news was that the wild

devaluation of the ruble revived the economy and this proved that the Russian

economic implosion had to do not only with the lack of supply but also with

the lack of demand induced by (overly) tight policies.

Though Russia had the good company of most other transition economies,

its case is the paramount example of the failure of the transition. The big

persistent drop in GDP was coupled with increased poverty and inequality. JES

asks how much of this could be avoided through better policies. He claims

that: (i) over-zealous anti-inflation policies drove the ruble overvalued and

chocked aggregate demand, provoking de-industrialisation; (ii) privatisation

without proper tax, institutional and corporate governance set ups induced

asset stripping by the oligarchs and even by local governments; (iii) the major

drive to favour the oligarchs came in 1995 when Yeltzin launched a massive

privatisation through a loan-share swap with the banks that were controlled by

his friends; (iv) at the same time, disregard for the enlarging poverty led to a

127Book Review

# Banca Monte dei Paschi di Siena SpA, 2003.

Page 6: Joseph E. Stiglitz (2002) Globalization and Its Discontents

breach in the social contract, in turn this destroyed social capital and trust and

prevented markets from well functioning; (v) the above shows that the problem

with the shock therapy was not in its speed but rather in its wrong incentives:

lack of understanding on institution building led to policies with far reaching

depressing effects on the role of the middle class (the keystone of a market

economy) that were further aggravated by lack of focus on independent media.

In Chapter 6 (Unfair Fair Trade Laws and Other Mischief), JES states that

the problem with the Russian faulty transition and the choice of wrong policies

derived not only from choosing the ‘‘wrong horse’’ (Yeltzin) but also from

trying to avoid public discussion both in the US and at the international level.

JES believes that the debacle was not the result of a deliberate attempt to

undermine Russia – though US/Western interests were taken care of when the

July 1998 loan allowed for the bailing out of the investment banks – but

simply depended on bad economic policies.

In Chapter 7 (Better Roads to the Market), JES further exemplifies his

point by contrasting the success of the transition economies that chose

gradualism (e.g., China and Poland) relative to those that chose the shock

therapy approach (e.g., Russia and the Czech Republic). Specifically, gradual

privatisation was a fundamental ingredient to avoid assets stripping. China

offers an example of good sequencing: (i) start the liberalisation from

agriculture; (ii) set up the right incentive ‘‘at the margin’’ (e.g., additional

output can be sold at the market price); (iii) pay due attention to social stability

(via the two-track system); (iv) within a context of stability and growth, foster

competition before privatisation.

Finally, in Chapter 9 (The Way Ahead), JES holds that the fact that the

IEIs propose the one-size-fits-all policies of the Washington Consensus –

shaped by the ideology of market fundamentalism and refusing government

intervention even when there is a strong case for it – results from the existence

of a major problem with their governance. This is a case of global governance

without global government. To whom are the IEIs accountable? They are

controlled by officials from the developed nations representing specific inter-

ests even within their own countries: finance ministers and central bank

governors for the IMF-WB, trade ministers for the WTO. This leads JES to

conclude that behind the mindset imposing (questionable) Washington Con-

sensus policies is the fact that the IEIs cater for particular interests associated

with a parochial perspective. As such, the IEIs lack representation of and

accountability to groups other than the financial community and the business/

commerce community of developed countries. Les liaisons dangereux between

top US Treasury/IMF officials and big finance companies reinvigorates the

suspect that IMF views and actions are distorted by these specific interests.

And in many instances there is a conflict between pursuing global stability and

catering for these specific interests. Beside, since the mindset behind policies

is pre-established with no open debate – IMF resistance to account for success

stories whose upbringing violated the principles of the Washington Consensus

128 Economic Notes 2-2003: Review of Banking, Finance and Monetary Economics

# Banca Monte dei Paschi di Siena SpA, 2003.

Page 7: Joseph E. Stiglitz (2002) Globalization and Its Discontents

(e.g., the East Asian miracle) is but an example of the danger of shielding

debate behind closed doors – countries receiving support form the IMF feel

left out. Globalisation calls for global institutions addressing global external-

ities: according to JES, major changes are needed in the governance and voting

rights of IEIs. Also more openness and transparency is needed as secrecy

undercuts democracy and accountability. While some changes are occurring

(e.g., more transparency, rethinking the strategy behind the large bailouts) the

pace is too slow. JES makes two proposals: one directly to reshape the IMF, the

other to more broadly reform the international financial system. The former

proposal is to streamline the IMF and make it more accountable by: (i)

refocusing it on its core business of crisis management, while keeping it away

from development and transition issues; (ii) separate its statistical production

from its program management since there may be conflicts of interests between

the two functions; (iii) abandon Article 4 global monitoring in favour of

regional monitoring. The latter is a 7-point proposal: (1) acceptance of the

problems with early capital account opening and of the need to govern short-

term capital flows (a Tobin tax?); (2) need for payments standstill and new

workout procedures (e.g., super-Chapter 11) to deal with macro-driven bank-

ruptcies; (3) phase out the large IMF bailouts since these are major sources of

distortions and moral hazard for creditors; (4) improve banking regulation to

limit short-term lending frenzies (capital/asset requirements may not be

enough); (5) better risk management of exchange rate fluctuations; (6) improve

safety nets; (7) enhance crisis response by maintaining credit flows, avoiding

to depress trade, putting responses in proper social and political context,

mandating the IMF to help countries in crisis keep up aggregate demand.

To get this process of reform moving, JES believes that ‘‘voices must be

raised . . . to address the legitimate concerns of those who have expressed

discontent with globalization, if we are to make globalization work for the

billions of people for whom it has not, if we are to make globalization with a

human face succeed’’.

In my view, this ideological need to mobilise the peoples of the world is

the ultimate motivation behind this book. We may believe this is a wrong

approach, but if we don’t recognise his deep motivation we would fail to

understand while a Nobel Prize winner ventured into such dire straits.

Some criticisms are in order. First, the book is sometimes repetitive and it

could be substantially shorter without loosing much of its contents. Second,

not enough credit is given to some of the changes that are occurring. I’ll give

just one example. Ann Krueger, representing the USA in the top ranks of the

IMF, has made an important proposal to build a new framework to assist

countries unable to meet their debt payments to international financial markets

(thus facilitating re-negotiation; IMF, 2001). Third, personal attacks on IMF

top ranking officials – e.g., the allegation that some of them moved from 19th

Street to Wall Street – are bad taste and debase the essay, rather than making it

more forceful, also because JES’ thesis is not that there is a Wall Street

129Book Review

# Banca Monte dei Paschi di Siena SpA, 2003.

Page 8: Joseph E. Stiglitz (2002) Globalization and Its Discontents

conspiracy but, rather, that an unaccountable IMF has outmoded ideas and

mindset. Fourth, sometimes causality can be reverse with respect to what

envisaged by JES: e.g., did the barter economy in Russia come about because

of tight monetary policy or because hyperinflation (that was later fought with

tight money)? Fifth, a book with exactly the same title was published just two

years ago (McBride and Wiseman, 2000): Even though choosing the same title

is lawful, it would be elegant to acknowledge it.

These criticisms notwithstanding, several points the book makes cannot be

rejected without thorough discussion.

It is important to reiterate that JES is not alone to make allegations of

IMF’s misconduct. After all, if we disregard his pugnacious tones, so much of

what JES writes in this book had not only been already spelled out by the

author in his own speeches and policy papers, but it seems to substantially

overlap with what other respected scholars wrote on the two most noticeable

episodes where IMF policies have been under criticism: The East Asian crisis

and the transition in Russia and other former communist countries. To quote

just a few, we can refer to Blustein (2001), Feldstein (2002), Krugman (1999)

and Radelet and Sachs (2000): It is interesting to note that even this short list

includes economists holding very different perspectives on the balance trade-

off between government and market failures.

Another point is the assessment of the extent to which past errors are

leading to correction. While the IMF has moved to adjust, to some degree in

the right direction (e.g., Krueger’s proposal cited above), not all of its moves

are credible. For instance, one of the main allegation by JES was that the IMF

lacks accountability. Perhaps in response to this criticism, in July 2001, the

IMF established an Independent Evaluation Office (IEO). Unfortunately, up to

now, the IEO is judged ineffective (if not a maquillage) by most respected

scholars. The way the IEO was structured does not conform to the best

received principles: (i) the unit does not have an autonomous budget; (ii) most,

if not all, of its staff come from the IMF; (iii) the unit seems to lack capability

to acquire autonomous information and is thus forced to rely on information

derived from the subject it is supposed to evaluate; (iv) in general, it appears

that its whole incentive structure is not conducive to the IEO taking a strong,

independent (and sometimes confrontational) position vis-a-vis the official

IMF standpoint.

But, coming back to the big picture, as said, the book is about the political

economy of economic policy making at the international level. What does this

cacophonous phrase mean? It means that more often than not, there is no

single policy option to deal with one particular problem. A choice has then to

be made among different policies and the way this choice is made must itself

be cast in an economic framework to consider its tradeoffs. To be sure,

however, different policy choices will help/harm different interest groups.

Transparency and accountability are fundamental at this juncture, and the need

arises for open debate. As said above, in my view, we need not evaluate the

130 Economic Notes 2-2003: Review of Banking, Finance and Monetary Economics

# Banca Monte dei Paschi di Siena SpA, 2003.

Page 9: Joseph E. Stiglitz (2002) Globalization and Its Discontents

book in terms of its analytic contents but, rather, in terms of its impact to elicit

such open debate. In other words, the book doesn’t intend to offer analytic

contributions. Most of JES’ theses in the book are grounded in analytical work

already conducted by himself and others. Naturally, consensus varies across

these theses (e.g., agreement is large on payments standstills and super-

bankruptcy procedures to deal with systemic shocks, while debate is still on as

to the link between tight monetary policy and the exchange rate), but this is

not the point with the book.

Is then JES’ book being effective at stimulating the needed more open

(even harsh) debate? And, is such debate becoming more open at the IMF? To

answer this question, I performed the following exercise. On 8th November

2002, I downloaded form the IMF website open to the public all the documents

having the word ‘‘Stiglitz’’. I obtained 78 documents starting from one dated

26th May 1997 to finish with one dated 30th October 2002. Then I grouped the

documents into three different categories: (i) ‘‘substantive feedback’’, those

documents where IMF (officials) were fighting back JES’ allegations of its

misconduct;2 (ii) ‘‘institutional report’’, all the documents where reference was

made to JES’ institutional engagements; (iii) ‘‘academic citation’’, those

documents where academic reference was made to one or more JES’ publica-

tions. Table 1 presents all of these documents by title according to their

grouping, while Figure 1 pictures the quantitative importance of each one of

the three groups over the twelve half-years between early 1997 and late 2002.

Figure 1 clearly shows a bimodal shape: The first hump crests at 9

documents in the second half of 1999, then the number of documents reduces

as JES returns to academia, but after the book is out the second peak reaches

much higher to 21 documents in the second half of 2002 (even though my

search covers only four of the six months in H2-02) and we can’t even tell yet

whether this is the tip or the phenomenon will still mount in the first half of

2003. What’s more, the composition of the documents by type changes

drastically between the first hump and the second hike. In the second half of

1999 – while JES was Chief Economist and Senior Vice President at the World

Bank – most of the documents were academic citations (8 out of 9), one was

an institutional report, but none of them was a substantial feedback, though

JES was heavily and publicly critical of the IMF even at the time. On the

2 As it happens, substantive feedbacks may take widely diverse shapes. The most natural one

is when Mr. Dawson (Director of the External Relations Department of the IMF) writes a letter to a

newspaper or magazine that has shown sympathy to JES’ ideas. Then, when the situation becomes

more heated, even the Chief Economist abandons his readings to write letters to newspapers.

Perhaps the most special case is that of Mr. Barro Chambrier (Executive Director at the IMF for

Benin, Burkina Faso, Cape Verde, Central African Republic, Chad, Comoros, Republic of Congo,

Cote d’Ivoire, Djibouti, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Madagascar, Mali,

Mauritania, Mauritius, Niger, Rwanda, Sao Tome and Prıncipe, Senegal, and Togo) who, in his

farewell speech to the Executive Board of the IMF confesses he discovered that even his daughter

was reading JES’ book and, though trying, he’s not sure of being successful to convince her that

JES is wrong.

131Book Review

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Page 10: Joseph E. Stiglitz (2002) Globalization and Its Discontents

Table 1: Documents with Word ‘‘Stiglitz’’ in IMF Website Grouped by Motive

Date Substantive feedback Institutional report Academic citation

26 May 1997 (i) Report WB’s ABCDE Conf. +(ii) Program IMF-WB Meetings

1 Sep 1997 (i) Program IMF-WB Meetings +(ii) Program IMF-WB Meetings

21 Jan 1998 Reference by Mr. Saito Director Asia Reg.IMF

23 Feb 1998 Program IMF-WB Meetings20 Apr 1998 Report WB’s ABCDE Conference11 May 1998 Report WB’s ABCDE Conference4 Sep 1998 Journalist’s reference at IMF Press Conference1 Oct 1998 (i) References to two papers +

(ii) Reference to a paper21 Dec 1998 Mr. Mussa questions JES’ views at IMF Press

Conference25 Jan 1999 Report AEA Annual Meeting18 Mar 1999 Program IMF-WB Meetings1 May 1999 Reference to a paper10 May 1999 Report IMF-WB-WTO Meeting24 May 1999 Report WB’s ABCDE Conference1 Jun 1999 Reference to a paper30 Jun 1999 Reference to a paper20 Sep 1999 Reference to a paper23 Sep 1999 Reference at IMF Press Conference24 Sep 1999 Reference to a paper14 Oct 1999 Reference to a paper20 Oct 1999 Reference to a paper22 Oct 1999 Reference to a paper26 Oct 1999 Reference to a paper1 Nov 1999 Reference to a paper1 Dec 1999 Reference to a paper

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Page 11: Joseph E. Stiglitz (2002) Globalization and Its Discontents

21 Jan 2000 Reference to a paper20 Mar 2000 Reference to a paper23 Mar 2000 (i) Reference to a paper +

(ii) Reference to a paper1 Apr 2000 Reference to a paper15 Apr 2000 Letter to Barrons to attack article friendly to

JES’ views8 May 2000 Report WB’s ABCDE Conference1 Jun 2000 Conference calendar19 Sep 2000 Reference to a paper3 Nov 2000 Reference to a paper20 Nov 2000 Report IMF Conference1 Dec 2000 Reference to a paper18 Dec 2000 Reference to a paper22 Jan 2001 Report JES participates to two panels at IMF31 Mar 2001 Reference to a paper2 Apr 2001 Reference to a paper3 May 2001 Letter to The Observer to attack article

friendly to JES’ views1 Sep 2001 Report of two JES’ papers coming out16 Nov 2001 Reference to a paper13 Dec 2001 Executive Board’s review on transparency17 Jan 2002 Journalist’s reference at IMF Press Conference11 Mar 2002 Report JES participates to a IMF Conference14 Mar 2002 Report WB paper citing JES paper16 May 2002 Mr. Dawson attacks JES on Argentina at IMF

Press Conference13 Jun 2002 Mr. Dawson attacks JES in speech at MIT

Club Washington17 Jun 2002 Letter to Les Echos to attack article friendly to

JES’ views18 Jun 2002 Three references in three IEO separate

documents

continued overleaf

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Page 12: Joseph E. Stiglitz (2002) Globalization and Its Discontents

Table 1: (continued )

Date Substantive feedback Institutional report Academic citation

2 Jul 2002 (i) Mr. Dawson attacks JES at IMF Press Brief+ (ii) Open letter by Mr. Rogoff

8 Jul 2002 IMF Survey reports open letter by Mr. Rogoff9 Jul 2002 Two letters to The Toronto Star and The Times

to attack articles friendly to JES’ views16 Jul 2002 Letter to The Guardian to attack article

friendly to JES’ views25 Jul 2002 Letter to Far Eastern Economic Review to

attack article friendly to JES’ views3 Aug 2002 Letter to The Financial Times to attack article

friendly to JES’ views5 Aug 2002 (i) Letter to The New Yorker to attack article

friendly to JES’ views + (ii) IMF Surveyreports Mr. Boorman’s criticism of JES

12 Aug 2002 Reference to a paper26 Aug 2002 Letter by Mr. Rogoff to Vedomosti to attack

JES’ views on RussiaReference to a paper

27 Aug 2002 Letter to Le Figaro to attack article friendly toJES’ views

1 Sep 2002 Reference to a paper2 Sep 2002 Letter to Le Monde to attack article friendly to

JES’ views12 Sep 2002 Letter by Mr. Camdessus to Nouvel

Observateur to attack JES’ views on RussiaReference to a paper

19 Sep 2002 Journalist’s reference at IMF Briefing4 Oct 2002 Letter by Mr. Rogoff to Le Monde to attack

JES’ views30 Oct 2002 IMF Executive Director discovers his daugther

reads JES book

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Page 13: Joseph E. Stiglitz (2002) Globalization and Its Discontents

contrary, in the second half of 2002 – with the book out – the driving force

has been substantial feedbacks (16 out of 21).

From this evidence we may draw two conclusions. First, the IMF has

moved from a strategy of ‘‘malignant neglect’’ (when JES was the World

Bank’s Chief Economist and in the first two years he was back to academia) to

one of ‘‘substantive feedback’’ to fight JES’ allegations. Second, even though

some of the IMF’s substantive feedbacks loom around personal accusations,

the debate has been taken to the open: It’s no longer behind closed doors.

Thus, to use a boxing term, was the book a ‘‘hit under the belt’’? In light

of what I argued, it’s difficult to say but even if we believe that it was, we

should recognize that the belt was set rather high and that the hit seems to be

successful.

To finish with another allegory, as those who are familiar with Siena, Italy

(the founding place of this Journal) know well, July the 2nd (together with

August 16th) is a very special date for this medieval city. After a long

preparation behind closed doors, horses come to the open career in the magic

Piazza del Campo and the fighting among the many city parishes will soon

come to an end: The Palio prize will be awarded before dusk. In coming to the

public arena with the most vibrant and substantive feedback yet from the IMF

to JES, Prof. Rogoff probably didn’t notice that he was riding on July 2nd. Is

there any recondite prophecy? As people know, the Palio race is full of tricks:

Horse-back-riders can try privately bribing rivals before the race starts and, if

that fails, can fight and even hurt each other during the race; sometimes riders

Figure 1: Documents with Word ‘‘Stiglitz’’ in IMF Website by Half-year and MotiveSource: Author’s calculations on data downloaded on 8 November 2002 from: http://www.imf.org

and listed in Table 1.

135Book Review

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Page 14: Joseph E. Stiglitz (2002) Globalization and Its Discontents

Table 2: Documents with Word ‘‘Stiglitz’’ in IMF Website as of 8 November 2002

Date Substantive feedback Institutional report Academic citation Book out JES Chief Econ Intermediate Period

30 Oct 2002 1 0 0 1 0 04 Oct 2002 1 0 0 1 0 019 Sep 2002 0 1 0 1 0 012 Sep 2002 1 0 0 1 0 012 Sep 2002 0 0 1 1 0 02 Sep 2002 1 0 0 1 0 01 Sep 2002 0 0 1 1 0 027 Aug 2002 1 0 0 1 0 026 Aug 2002 1 0 0 1 0 026 Aug 2002 0 0 1 1 0 012 Aug 2002 0 0 1 1 0 05 Aug 2002 1 0 0 1 0 05 Aug 2002 1 0 0 1 0 03 Aug 2002 1 0 0 1 0 025 Jul 2002 1 0 0 1 0 016 Jul 2002 1 0 0 1 0 09 Jul 2002 1 0 0 1 0 09 Jul 2002 1 0 0 1 0 08 Jul 2002 1 0 0 1 0 02 Jul 2002 1 0 0 1 0 02 Jul 2002 1 0 0 1 0 018 Jun 2002 0 1 0 1 0 018 Jun 2002 0 1 0 1 0 018 Jun 2002 0 1 0 1 0 017 Jun 2002 1 0 0 1 0 013 Jun 2002 1 0 0 1 0 016 May 2002 1 0 0 1 0 014 Mar 2002 0 1 0 1 0 011 Mar 2002 0 1 0 1 0 017 Jan 2002 0 1 0 1 0 0

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Page 15: Joseph E. Stiglitz (2002) Globalization and Its Discontents

13 Dec 2001 1 0 0 0 0 116 Nov 2001 0 0 1 0 0 11 Sep 2001 0 1 0 0 0 13 May 2001 1 0 0 0 0 12 Apr 2001 0 0 1 0 0 131 Mar 2001 0 0 1 0 0 122 Jan 2001 0 1 0 0 0 118 Dec 2000 0 0 1 0 0 11 Dec 2000 0 1 0 0 0 120 Nov 2000 0 1 0 0 0 13 Nov 2000 0 0 1 0 0 119 Sep 2000 0 0 1 0 0 11 Jun 2000 0 1 0 0 0 18 May 2000 0 1 0 0 0 115 Apr 2000 1 0 0 0 0 11 Apr 2000 0 0 1 0 0 123 Mar 2000 0 0 1 0 0 123 Mar 2000 0 0 1 0 0 120 Mar 2000 0 0 1 0 0 121 Jan 2000 0 0 1 0 0 11 Dec 1999 0 0 1 0 1 01 Nov 1999 0 0 1 0 1 026 Oct 1999 0 0 1 0 1 022 Oct 1999 0 0 1 0 1 020 Oct 1999 0 0 1 0 1 014 Oct 1999 0 0 1 0 1 024 Sep 1999 0 0 1 0 1 023 Sep 1999 0 1 0 0 1 020 Sep 1999 0 0 1 0 1 030 Jun 1999 0 0 1 0 1 01 Jun 1999 0 0 1 0 1 024 May 1999 0 1 0 0 1 010 May 1999 0 1 0 0 1 0

continued overleaf

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Page 16: Joseph E. Stiglitz (2002) Globalization and Its Discontents

Table 2: (continued )

Date Substantive feedback Institutional report Academic citation Book out JES Chief Econ Intermediate Period

1 May 1999 0 0 1 0 1 018 Mar 1999 0 1 0 0 1 025 Jan 1999 0 1 0 0 1 021 Dec 1998 1 0 0 0 1 01 Oct 1998 0 0 1 0 1 01 Oct 1998 0 0 1 0 1 04 Sep 1998 0 1 0 0 1 011 May 1998 0 1 0 0 1 020 Apr 1998 0 1 0 0 1 023 Feb 1998 0 1 0 0 1 021 Jan 1998 0 1 0 0 1 01 Sep 1997 0 1 0 0 1 01 Sep 1997 0 1 0 0 1 026 May 1997 0 1 0 0 1 026 May 1997 0 1 0 0 1 0

23 27 28Correlation 0.587 �0.425 �0.187Standarddeviation

0.490 0.483 0.439

Nobs 78 78 78Year Substantive feedback Institutional report Academic citation1997 0 4 01998 1 5 21999 0 5 112000 1 4 82001 2 2 32002 19 7 4

Substantive feedback Institutional report Academic citationH197 0 2 0H297 0 2 0

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Page 17: Joseph E. Stiglitz (2002) Globalization and Its Discontents

H198 0 4 0H298 1 1 2H199 0 4 3H299 0 1 8H100 1 2 5H200 0 2 3H101 1 1 2H201 1 1 1H102 3 6 0H202 16 1 4

Substantive feedback Book out Jes Chief Econ Intermediate PeriodH197 0.000 0.000 1.000 0.000H297 0.000 0.000 1.000 0.000H198 0.000 0.000 1.000 0.000H298 0.250 0.000 1.000 0.000H199 0.000 0.000 1.000 0.000H299 0.000 0.000 1.000 0.000H100 0.125 0.000 0.000 1.000H200 0.000 0.000 0.000 1.000H101 0.250 0.000 0.000 1.000H201 0.333 0.000 0.000 1.000H102 0.333 0.500 0.000 0.000H202 0.762 1.000 0.000 0.000Correlazione 0.847 �0.583 0.019Rango

Substantive feedback Book out JES Chief Econ Intermediate PeriodH197 7 3 1 5H297 7 3 1 5H198 7 3 1 5H298 4 3 1 5H199 7 3 1 5H299 7 3 1 5H100 6 3 7 1

continued overleaf

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Page 18: Joseph E. Stiglitz (2002) Globalization and Its Discontents

Table 2: (continued )

Date Substantive feedback Institutional report Academic citation Book out JES Chief Econ Intermediate Period

H200 7 3 7 1H101 4 3 7 1H201 2 3 7 1H102 2 2 7 5H202 1 1 7 5Correlazione dirango

0.699 �0.629 0.105

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Page 19: Joseph E. Stiglitz (2002) Globalization and Its Discontents

miserably fall to the ground. But the win comes with the horse, not with the

rider. Even though there is no guarantee that the best horse (and not that of the

most powerful parish) will win the race, sometimes this happens . . . at least at

the Palio.

141Book Review

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Page 20: Joseph E. Stiglitz (2002) Globalization and Its Discontents

References

P. BLUSTEIN (2001), The Chastening: Inside the Crisis that Rocked the Global Financial

System and Humbled the IMF, New York, Public Affairs Books.

M. S. FELDSTEIN (2002), ‘‘Economic and Financial Crises in Emerging Market

Economies: Overview of Prevention and Management’’, NBER working paper No.

W8837, March.

IMF (2001), IMF Survey, 30, no. 23, December 10.

P. KRUGMAN (1999), The Return of Depression Economics, New York-London, Norton.

S. MCBRIDE - J. WISEMAN (2000; eds.) Globalization and Its Discontents, New York–

St. Martin’s Press & London–Macmillan Press.

S. RADELET - J. SACHS (2000), ‘‘The Onset of the East Asian Financial Crisis’’, in Paul

Krugman (ed.) NBER Conference Report Series. Currency Crises, Chicago-

London, University of Chicago Press.

K. ROGOFF (2002), An Open Letter to Joseph Stiglitz, July 2nd, www.imf.org.

142 Economic Notes 2-2003: Review of Banking, Finance and Monetary Economics

# Banca Monte dei Paschi di Siena SpA, 2003.