"Globalization and Its Discontents" by Joseph Stiglitz

“Globalization and Its Discontents” is a great book if you want to understand the issues impacting global trading. Not as technical as the other book recently read (Fair Trade for All), this one quite clearly explains the pitfalls of the IMF and World Bank (as well as the United States who is the principal factor in both institutions) in their dealings with developing nations.

While this book is less technical than the first, they both zone in on the same problems.

Professor Stiglitz underlines the rigid thinking of the international bodies that want to apply standardized economics to each nation regardless of their differences. Market liberalization through privatization, rapid financial and capital market liberalization, an emphasis of low inflation are principles that work if the society is well structured, i.e., relatively full employment, strong institutions of banking and law, insurance system to protect workers during transition periods. However, in developing nations, these conditions are not present. Therefore, the prescriptions and conditions demanded by IMF are generally self-defeating. Nations become worse than before they received assistance.

Professor Stiglitz wants IMF and the other international economic institutions to attend to more than the interests of the developed industrial nations and the financial institutions. Helping developing nations requires attention to the state of the nation’s institutions, the level of employment, and other pertinent indicators of ability to transition to a growth economy.

The inflow of major funding can be a danger unless interest rates are realistic and the local financial institutions are effective. It is important that nations have appropriate bankruptcy laws that will effectively deal with defaults (without jeopardizing the entire nation). Local banking institutions need to be well-developed to appropriately determine credit worthiness of the borrower and the ability to deal with defaults.

When it is all said and done, there is a need for the international economic institutions to assign the people of these nations as its top priority. People should be better for financial assistance. They should not be poorer.