Ex-World Bank chief economist Stiglitz’s Globalization and its Discontents is quite the flawed masterpiece. It’s too breezy in its outrage (it even uses excalamation marks to express mock horror!) and too personal in its attacks for the tome to stand as the authoritative indictment of the Washington Consensus; the prose skips about frantically like so many grasshoppers, and often the same points are repeated in consecutive chapters, in case we didn’t get it the first time. But what a plague it has unleashed! The last two chapters especially come together to deal a body blow to the IMF that would make any WWF smackdown come alive. The IMF has begun responding in kind–Charles, were you there at the book launch?

Most salient point to take away from Stiglitz’s invective is that gradualism is better than shock therapy, and that the IMF never understood this because they are either stupid or in bed with Wall Street (they get to choose). A dry, footnoted exposition of this argument would likely have convinced me more, but then again I probably never would have read that in the first place. Stiglitz accuses the IMF of mission creep from its original mandate–which was just to provide pooled liquidity to countries with temporary cash-flow problems in the absence of global governance–and here he is most convincing, in part because the argument is framed from the perspective that since the IMF is such a believer in free markets, it should have known better than try to outbluff those free markets when it repeatedly and disastrously insisted on defending overvalued currencies during both the East Asian and Russian crises.

But what’s with the title? Stiglitz is not against globalization, as the book’s name implies, but against how the globalization process has been managed by the IMF. By the last chapter I was convinced the book was originally supposed to have been called “Globalization with a Human Face” but that this would have made him sound like an apologist to the intended audience–the anti-globalization movement. Stiglitz is in fact performing an economic high-wire act–fiercely criticizing one pillar of the Washington Consensus, but doing so in the hope of shielding the other pillar, the World Bank.

Will he succeed? There is very little about the World Bank at all in this book, and it’s a conspicuous ommission that will surely invite scrutiny. This exchange has just begun, and the IMF isn’t taking the blows sitting down. But read the book and get front-row seats.

P.S: The Economist’s review of this book.

[Mon, Jul 08 2002 – 14:53] Felix (www) (email) For those of you not familiar with exactly what the “Washington Consensus” is, it’s a list of ten principles outlined by John Williamson in 1990. Here they are:

Fiscal discipline

Public expenditure prioritization, e.g. killing “white elephants” (uneconomic investment projects)

Tax reform

Financial liberalization

Unified and competitive exchange rate

Trade liberalization

Liberal foreign direct investment regime

Privatization

Weeding out regulations which do not serve the public interest, and strengthening those that do, such as banking supervision.

Secure property rights without excessive transaction cost.

I see no way in which the World Bank is in any way a “pillar” supporting any of these principles. The World Bank might have some degree of conditionality built into its programs — it recently put a hold on a project in Uganda because of rife corruption associated with it — but it doesn’t force countries to jump through one Washington Consensus hoop after another before getting any money, in the way the IMF does.

(Actually, since Bank money is usually contingent on the country in question having a Fund programme in place, you can blame the Bank a little, but everybody knows the Bank has no control over the IMF’s conditions.)

[Mon, Jul 08 2002 – 16:19] Stefan Geens (www) (email) Your last graph should have been the first: Stiglitz outlines how World Bank aid has indeed often been contingent on countries first securing IMF funding, hoop-jumping and all. He doesn’t ask the obvious question, though–why does/did that need to be the case? And, isn’t it a wonderful way of letting somebody else doing the dirty work. Pillar, I say.

[Tue, Jul 09 2002 – 08:52] Charles Kenny (www) (email) I wasn’t there, but here’s the link to the video:

http://www.worldbank.org/wbi/B-SPAN/sub_stiglitz.htm

It makes entertaining, if at points slightly nausiating, viewing. Stiglitz comes across as the egotistical scatter-shot rambler we knew him for, Rogoff as whiney, self defensive and stuck up.

Apparently both sides ‘won’, in that Rogoff, formerly viewed with some suspiscion by his colleagues as a Harvard prof. on a two year jaunt away from Boston to muck up the Fund research program, is now a hero, and Stiglitz, who made some pretty nasty ad hominem attacks in the book, can now appear the victim himself (see yesterday’s op-ed by him in the London Times).

Of course, both sides are wrong and fairly repulsive. Stiglitz’s claims that he tried oh-so-hard to talk with the Fund during the crisis and only went public as a last resort is about as beleivable as Rogoff’s claims that the IMF is open, transparent, willing to admit mistakes and always keen to talk to critics. Stiglitz’s arguments that all would have gone well if Russia had listened to his contradictory advice is about as coherent an argument as Rogoff’s that the IMF did brilliantly in East Asia, while learning from its mistakes in East Asia and doing things very differently now.

Its pathetic how defensive the IMF is about this stuff –it isn’t the victim here. Its also pathetic that the economics profession is in such desperate shape that someone like Stiglitz could win the Nobel prize. Although I’m looking forward to Russell Crowe playing the part of the semi-sane young whiz who starts having delusions that he is vital to the US government, that there is a conspiracy keeping him from carrying out his mission involving some of his closest colleagues, etc etc. Could win an Oscar.

[Tue, Jul 09 2002 – 14:21] Felix (www) (email) God, the last thing that any country needs is two sets of hoops to jump through — one from the IMF and the other from the World Bank. They’re sister institutions, and the Bank would be even more wasteful than it is at the moment were it to try to replicate the Fund’s macroeconomic work and set conditions itself. Much better that it try to have some kind of say in the Fund’s conditionality — that way everybody’s singing from the same songbook.

As for the book launch, having watched the video there’s no doubt that Stiglitz came out on top. Rogoff, as far as I could make out, was 90% personal attacks to 10% economic theory, while Stiglitz — ego and all — was the other way around. Do I believe that the IMF wouldn’t listen to Stiglitz during the Asian crisis and basically told the Bank to go away and shut up when they wanted dialogue? Yes, I do. If Stliglitz has an ego, then Fischer and Camdessus have even bigger ones.

[Wed, Jul 10 2002 – 09:45] Charles Kenny (www) (email) Felix– I agree that, from an outside perspective, Rogoff ‘lost’ –in that it was pretty much all ad hominem. But I think his audience was internal, and from that perspective he did great. Apparently, the plaudits are coming thick and fast from his colleagues.

[Wed, Jul 10 2002 – 10:52] Felix (www) (email) Which just goes to show, doesn’t it. Obviously, by “internal” and “his colleagues” you mean the IMF alone, and not the Bretton Woods institutions in general. In other words, Stiglitz is right and Rogoff is wrong: the Fund really doesn’t care what the Bank thinks.