Joseph E. Stiglitz: The Roaring Nineties: A New History of the World's Most Prosperous Decade, New York: W.W. Norton & Company, 2003
Joseph E. Stiglitz: Globalization and its Discontents, New York: W.W. Norton & Company, 2002
Joseph E. Stiglitz and Ha-Joon Chang eds.: The Rebel Within: Joseph Stiglitz and the World Bank, London: Anthem Press, 2002
Joseph E. Stiglitz was one of the speakers at the World Social Forum in Mumbai, January 2004. The appearance of the economics professor from Columbia University, New York, is a remarkable development at such a meeting, though not surprising at all. In the recent years, Stiglitz became a leading critic of the global market economy, and its guiding policy package, the so-called Washington consensus. Having received the Nobel Prize in 2001, he attracts a lot more attention than many other progressive economists and social scientists without such an award. Earlier he was professor at Stanford, and in 2000 he admitted to accepting the invitation of Columbia because from New York he can fly to various parts of the world more easily for guest appearances.
Stiglitz was known as a theoretical economist in the 1980s, and became an economic advisor, and then chief advisor for President Bill Clinton. Later he was appointed to be senior vice-president and chief economist at the World Bank, just a few blocks down Pennsylvania Avenue from his earlier work. The insider experience he collected during this period, embedded in his solid theoretical foundations, makes him an indispensible source of analysis for those who study the operation of the contemporary world economy.
The two books written by Stiglitz after he left the World Bank can be seen as a pair. Globalization and its Discontents falls into the sea of books on globalization, i.e. the problems of the peripheral and emerging economies within the unequal structures of the world system. The Roaring Nineties tells us about the development of the US economy in the last two decades. By the time the latter came out, the first was published in close to thirty languages all around the world. The second book may expect similar success, particularly in a period when the US presidential elections are making more and more people interested in what went wrong in the United States recently.
The two books do not only complement each other. The way economic policy changed course in the late 1970s and early 1980s in the US created a completely new and certainly disadvantageous environment for the less developed world. On the other hand, the crises of the peripheries hit back on the core of the world economy subsequently, like in the case of the Russian financial crisis in 1998. Thus it may well happen that various subjects or ideas in one book find their origins or explanations in the other.
The greatest value of Globalization and its Discontents is that it explains the background and consequences of the so-called currency crises of the 1990s. Seemingly prosperous economies, like Mexico, Thailand, South-Korea, Russia and Brazil, suddenly found themselves in a storm of financial speculation and capital flight that reduced the external value of their currencies by 20-30 per cent or more. Mainstream economic analysis and press coverage always blamed it on the victims themselves, but Stiglitz argues that the source of the crises is the very idea that had been meant to cure the problems of less developed economies. This was an attempt to diminish the economic role of the state in these countries, and financing them through the markets instead of commercial banks that had been the source of the debt crisis in the 1980s. Wholesale privatization and financial liberalization, however, did not make these economies more dynamic and stable, or just temporarily. Prudent macroeconomic management and discipline in public finances were not enough to avoid destabilization. When euphoria was suddenly replaced by panic, the exit of foreign investors left behing collapsing currencies and economies. The countries hit by such crises had to carry the costs of adjustment while the runaway investors were bailed out through generous loans from the IMF. Stiglitz believes globalization could work, but the institutions that guide it need to become smarter, and greater autonomy should be given to the policy makers of the developing world. He blames the IMF and other promoters of the Washington consensus not only for creating such an unstable environment but also for prescribing inadequate policies for the countries knocked out by the capital flight and panic.
The Roaring Nineties draws a paralel between the economic boom of the 1920s and the 1990s. Stiglitz claims that in both cases success was built on sand, the US economy was much weaker than it was indicated by rising stock market prices, and the eventual collapse was inevitable. This is therefore the story of the greatest bubble in world economic history. Since Stiglitz was an economic advisor for the President during the early phase of the boom, he needs to be self-critical for not seeing the problems early enough and not doing enough for preventing the later turmoil. Indeed, he admits certain mistakes, though most of his criticism is directed against the Reaganites, i.e. the chief architects and engineers of deregulation and liberalization that resulted in a degeneration of US capitalism. Another target is Alan Greenspan, chairman of the Federal Reserve Board (the central bank of the US). Despite early disagreements on economic policy, Clinton’s team managed to work with the head of the Fed. The administration reduced the enormous public deficit accumulated by Ronald Reagan and the elder George Bush, and Greenspan lowered the interest rates in exchange. Seemingly, Greenspan thus supported the administration coming from the rival political group to his own. However, when the Republicans returned in 2001, it became clear that the head of an independent monetary authority can be even more friendly with an administration that is closer to his social and political preference. Altogether, Stiglitz is more than proud of the job creating performance of the Clinton administration, and regrets some of their efforts for the reduction of the deficit when he can see how easily that acheivement was eliminated by the subsequent Bush administration. He ends his book with an outline of the ’new democratic idealism’ that could compare to a left-wing social democratic programme in Western Europe.
From a scholarly point of view, Stiglitz does not produce novelties in these two books. The adversities and perversities of the global market economy, and of the policies of the IMF and the World Bank have been detected by many other economists, inluding Lance Taylor, Frances Stewart, Jan Kregel, John Weeks and Susan George. Hard and soft versions of Reaganomics have been critically analysed by leading authors from Lester Thurow and Robert Reich to Dean Baker and Arthur MacEwan. Stiglitz, however, brings up a good deal of inside information about the operation of the Washington decision making system, and justifies much of the earlier critique from outsiders. This is something his former colleagues, and particularly those in the IMF, could not forgive him, and attempted to demolish his credibility through hostile personal assaults.
One of the points where defenders of the IMF-regime attack Stiglitz’s credibility is that he is being wise after the event, having left his offices. When he was in a decision-making position, he was part of the problem he now appears to be a critic of. This is, however, not a fair criticism. Stiglitz’s views did evolve in the recent years to some extent. However, together with President James Wolfensohn, he was an engine of a renewal project at the World Bank in the mid1990s. Wolfensohn focused on public relations while Stiglitz was dealing with the substance. As opposed to the so-called Washington consensus, he developed a ’post-Washington consensus’, in which a greater room was allowed for public sector involvement in the market economy and small scale projects in the generation of economic growth and jobs in underdeveloped economies.
His time in the World Bank is now documented in a volume (The Rebel Within) edited jointly by Stiglitz himself and Cambridge University professor Ha-Joon Chang. The two editors gathered the most important of Stiglitz's speeches and provide a comprehensive introduction to his thoughts. The book, which includes nine of Stiglitz's most revealing speeches, reflects his central themes. These include the failure of shock therapy and transition economics, the limits of capital market liberalization, the myopia of the Washington consensus, the role of knowledge in markets, the process of developing market institutions, and the primacy of openness and worker participation.
A more polite defence argument from the IMF side is that Stiglitz is strong on microeconomics, which is supported by his own theoretical research, while on issues of macroeconomics, which is the area of the IMF, his comments are less valuable. This is, however, more a manoeuvre than an argument. The artificial separation of macroeconomics from microeconomics is a liability of our science that is usually observed by second year students already. On the other hand, financial crises that emerged after Stiglitz first clashed with the IMF publicly, like the one in Argentina, demonstrate that Stiglitz’s macroeconomics is better than that of the IMF dispite the Fund feels consecrated for the pursuit of that science.
And, Stiglitz seems to be open towards more complex criticisms of the market system than his own. A few years ago, he wrote a preface to a new edition of The Great Transformation, written by Karl Polanyi during world war two in England about the rise and fall of laissez-faire in the previous one century and a half. Most contemporary Polanyians would be more sceptical than Stiglitz about the potential benefits of a reformed and smarter globalization. Nevertheless, the rejection of ’market fundamentalism’ is certainly an idea that creates a common ground between the former and present professors of Columbia University.
In a way, Stiglitz targets the policies of the capitalist system and not its structures. He is a post-Keynesian in a sense, because he suggests that more intelligent people with more democratic commitment in a more transparent and accountable decision making mechanism within the ministries and multilateral institutions can run the capitalist system in a way that could benefit a lot more people than today. He wants the IMF and the World Bank to grow up to the original Keynesian ideals. For straight opponents of capitalism, criticizing particular policies and institutional arrangements is just a starting point for a more complex rejection of the system itself. Nevertheless, it seems to be an inevitable starting point. Stiglitz’s scholarly memoirs are invaluable guides for those who want to understand what happened in the world economy in the 1990s and what the consequences have been.
The reviewer, László Andor, is a Hungarian economist and teaches at the University of Economic Sciences in Budapest. He is the author of Hungary on the Road to the European Union : Transition in Blue (Praeger, 2000) and Market Failure: Structural Adjustment in Eastern Europe (Pluto, 1998)