FI-press-l Fourth International Press List
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Globalisation and Its Discontents (New York and London: W.W. Norton &
Company, 2002) by Joseph Stiglitz
Reviewed by Tony Smith
Joseph Stiglitz is the author of dozens of seminal papers in the
most prestigious journals of mainstream economics. He has been a
cabinet member in the Clinton administration, chair of the President's
Council of Advisors, and senior vice president and chief economist of
the World Bank. And, oh yes, he won the Nobel Prize. It is a remarkable
development indeed when a economist of Stiglitz's stature proclaims
that in many ways the critics of neoliberalism have a deeper
understanding of the global economy than elite policy makers:
Globalization today is not working for many of the world's poor.
It is not working for much of the environment. It is not working
for the stability of the global economy. (214)
It is not surprising that most reviews of Stiglitz's book in
progressive publications have been quite enthusiastic. Nonetheless,
it is as important to comprehend the limits of his perspective as it
is to appreciate the force of his criticisms.
Stiglitz's arguments can be grouped under three main headings.
He exposes a series of profound flaws in the theoretical framework
of neoliberalism. He provides considerable empirical documentation
of the practical failures of neoliberal policies. And he attempts
to explain why the neoliberal agenda continues to be pursued, despite
its fairly obvious shortcomings. The theoretical foundation for
neoliberalism is the dogmatic belief that markets automatically
lead to optimal results whenever they are allowed to operate without
interference. Government ownership of enterprises, and restrictions
on trade and investment, are taken to be paradigmatic instances of
external obstructions undermining this remarkable property of
markets. The policy implications follow at once: publicly owned state
enterprises must be privatised, trade barriers must be removed, capital
markets must be deregulated, government spending must be kept within strict
limits, and so on, and all of these transformations should be undertaken as
rapidly as possible.
Stiglitz, in contrast, insists that markets function properly if and
only if a suitable set of background institutions is already in place.
In the absence of adequate laws enforcing competition, privatisation will
result in oligopolies and monopolies that harm the interests of consumers.
The unemployment that inevitably follows the dismantling of protectionist
trade barriers will generate immense social suffering if adequate safety
nets and job creation programs have not been established. While wealthy
economies can handle stampedes of capital inflows and outflows, these
stampedes will wreck havoc on smaller developing economies. When economic
downswings occur, their duration and harmfulness cannot be minimised
unless the state is capable of undertaking expenditures to stimulate
the economy. The main policy implication that follows from Stiglitz's
alternative theoretical framework is the need for sequencing.
Privatisation should only occur after an effective set of antitrust
laws been put into place. Openness to trade should only be instituted
after an apparatus addressing the social costs of free trade has been
established. And capital controls should only be dismantled after a
national economy has attained a critical mass. In Stiglitz's view the
empirical evidence clearly supports his perspective. He provides a
comprehensive account of the International Monetary Fund's interventions
in response to financial crises in East Asia and Eastern Europe in the
late 1990's. The Fund encouraged the premature deregulation of capital
markets in these regions, which often led to stampedes of speculative
capital into already overheated stock and real estate markets.
When the all but inevitable crashes and reverse stampedes of capital
outflows occurred, austerity programs were then imposed by the Fund (98
ff.). Governments were forced to restrict credit and spending, despite the
fact that downswings are precisely the time when access to credit and
government spending are most needed.
Motivated by the fear that currency devaluation would raise the cost of
imports and lead to inflation, the IMF also provided funds to troubled
economies to help them maintain the given exchange rate. As Stiglitz
notes, these funds in effect bailed out international investors, while
granting local elites an opportunity time to protect their financial assets
by capital flight on a massive level (95). Soon enough the exchange rates
were devalued anyway. The subsequent burden of paying back these I.M.F.
loans then fell on the very group that benefited least from them, working
men and women.
Finally, privatisation programs were vigorously pursued in Russia and
elsewhere despite the fact that only local gangster capitalists had funds
available for the purchase of privatised assets, and despite the fact that
the on-going economic slowdown enabled these gangsters to buy privatised
enterprises and natural resources for a song.
Why were neoliberal policies pursed (and continue to be pursed today with
only minor modifications) when they are so obviously inadequate from the
standpoint of both theory and historical experience? Stiglitz's main
explanation invokes the overwhelming power of ideology. Defenders of the
'Washington Consensus' are so convinced by the tenets of market
fundamentalism that they literally cannot conceive of any alternative or
accept any negative evidence. They apply its precepts in any and all
circumstances, however inappropriate they might be in the particular
circumstances at hand, and however dismal their past record of success.
Stiglitz, however, also draws our attention to the numerous ex- IMF and US
Treasury Department officials who have taken ludicrously lucrative
positions in the very financial firms that profited most from their
policies. One would have to be naive indeed, he implies, to think that
this 'revolving door' between government and Wall Street has absolutely no
effects on policy making. To my knowledge no 'insider' has ever come
closer to conceding that Marx's dictum that the state is the executive
committee of the ruling class just might have a grain of truth to it.
Stiglitz extends Marx's point to include the international agencies such as
the I.M.F. as well:
"Many of its key personnel came from the financial community, and many of
its key personnel, having served these interests well, left to well-paying
jobs in the financial community. Stan Fischer, the deputy managing
director who played such a role in the episodes described in this book,
went directly from the IMF to become a vice chairman at Citigroup, the vast
financial firm that includes Citibank. A chairman of Citigroup (chairman
of the Executive Committee) was Robert Rubin, who, as secretary of
Treasury, had had a central role in IMF policies. One could only ask, Was
Fischer being richly rewarded for having faithfully executed what he was
told to do?" (208)
Stiglitz's analysis echoes that presented by Theodore Veblen in the
beginning of the twentieth century. In Veblen's account of the capitalism
of his day, the most significant social division was that between producers
(industrialist entrepreneurs and the workers they employed), on the one
hand, and financial speculators, on the other. While the actions of the
former bring about long-term technological progress, the latter are
primarily concerned with short-term profits from trades in financial
assets. The more power and prestige claimed by financiers relative to
producers, the less likely it is that society will undertake the long-term
investments in fixed capital necessary for social dynamism. Veblen's
central thesis, in brief, was that there can be a tension between what is
rational from the standpoint of financial capital and what is rational from
the standpoint of society as a whole. Institutional reforms must be
undertaken to ensure that the operations of financial capital are strictly
subordinate to industrial development.
In an exactly parallel fashion Stiglitz argues that the neoliberal policies
pursed by the U.S. Treasury Department and the I.M.F. have furthered the
interests of financial capital to the detriment of the overall social
rationality of the global economy:
"Trade liberalization accompanied by high interest rates is an almost
certain recipe for job destruction and unemployment creation - at the
expense of the poor. Financial market liberalization unaccompanied by an
appropriate regulatory structure is an almost certain recipe for economic
instability - and may well lead to higher, not lower, interest rates,
making it harder for poor farmers to buy the seeds and fertilizer that can
raise them above subsistence. Privatization, unaccompanied by competition
policies and oversight to ensure that monopoly powers are not abused, can
lead to higher, not lower, prices for consumers. Fiscal austerity, pursued
blindly, in the wrong circumstances, can lead to high unemployment and a
shredding of the social contract." (p. 84).
Institutional reforms must be undertaken restricting the financial sphere.
His suggestions include :
* Standstills on debt repayment when financial crises occur, giving
otherwise healthy firms an opportunity to recover from financial crises
(130).
* Special bankruptcy provisions that kick in when exceptional macroeconomic
disturbances break out, providing management a chance to restructure ailing
companies (130).
* Greater reluctance by the I.M.F. to lend billions in bail out packages.
* Improved regulation of banking, including, for example, restrictions on
speculative real estate lending.
* The use of short-term capital controls and "exit taxes" to protect
countries against "the ravages of speculators" (211).
* Granting more seats at the I.M.F. to countries from poor regions in the
global economy.
* More open discourse at the I.M.F., the World Trade Organisation, and
other international agencies.
* A narrowing of focus at the I.M.F. to managing crises, leaving policies
of development and transition to other institutions such as the World Bank
* The developed countries and international financial institutions should
provide loans enabling developing countries to buy insurance against
fluctuations in the international capital markets.
* Improved safety nets.
* Debt relief and a more balanced trade agenda.
Many of these policy proposals are deserving of support. But I believe
that the 'institutionalist' critiques of Veblen and Stiglitz are beset by a
series of profound difficulties. A first point to note is the manner in
which institutionalists, no less than the market fundamentalists they
oppose, use fundamental categories such as 'money' and 'capital' in an
uncritical fashion. Neither Veblen nor Stiglitz comprehend that money is
the alien form of appearance of abstract labor, or that capital is the
alien form of appearance of collective social labour. And so neither calls
into question the reign of the money fetish and the capital fetish over
human life.
Even if we put this absolutely crucial point to the side, it is still
astounding that Veblen categorises 'producers' as a homogenous group,
failing to appreciate the immense class divide between industrial capital
and wage labour. In Stiglitz's account class divisions within the
industrial sector of the global economy are occluded as well. It is true,
of course, that global financial markets and international agencies often
harm the interests of industrial capital and their workers simultaneously.
I.M.F. austerity programs, for instance, force otherwise profitable firms
into bankruptcy and wage labourers into unemployment. But one of the most
profound historical developments associated with globalization today is the
formation of cross-border production chains. These chains were
established by transnational capital in the hope of implementing a 'divide
and conquer' strategy vis-a-vis the global workforce. General Motors
workers in Michigan for example, face a plausible threat of production
being shifted to plants in Mexico; workers in these Mexican plants face the
threat of capital flight to Guatemala, or now even Vietnam or China. In the
absence of effective organizing on the international level, the balance of
power in the capital/wage labour relations tends to shift in favor of
capital, with increased economic insecurity and a higher rate of
exploitation resulting. From a class perspective Stiglitz's ultimate
policy objective can be described as the systematic reproduction of the
capital/wage labour relation on the global level, freed from the irrational
disruptions imposed by the financial sector. This is equivalent to the
systematic reproduction of exploitation on the global level.
It must also be emphasized that even if for the sake of the argument we
imagine a capitalist world market purged of financial excesses, it would
still be characterised by uneven development. A systematic exploration of
this topic is not possible here. A brief discussion must suffice.
The heart of inter-capital competition is the drive to appropriate surplus
profits through temporary monopolies from product or process innovations.
The research and development process is obviously a crucial element in
innovation. Units of capital with access to advanced (publicly or privately
funded) R&D are best positioned to win this form of surplus profits. They
are thus also best positioned to establish a virtuous circle in which
surplus profits enable a high level of future R&D funding, which provides
important preconditions for the appropriation of future surplus profits,
and so on. In contrast, units of capital without initial access to advanced
R&D tend to be trapped in a vicious circle. The resulting inability to
introduce significant innovations prevents the appropriation of surplus
profits, which in turn tends to limit participation in advanced R&D in the
succeeding period. This then limits future innovations and future profit
opportunities.
This fundamental dynamic of capitalist property relations has profound
implications. Units of capital with the greatest access to advanced R&D
almost by definition tend to be clustered in wealthy regions of the global
economy. Units without such access tend to be clustered in poorer regions.
The former are in a far better position to establish and maintain the
virtuous circle described above, while the latter have immense difficulty
avoiding the vicious circle. When units of capital in poorer regions
engage in economic transactions with units of capital enjoying temporary
monopolies on process and product innovations, they thus necessarily tend
to suffer disadvantageous terms of trade. In other words, there is a
redistribution of the value produced in the production and distribution
chain from the periphery of the global economy to the centre. In this
manner the drive to appropriate surplus profits through technological
innovation - an inherent feature of capitalist property relations - tends
to systematically reproduce and exacerbate tremendous economic disparities
in the world market over time.
In Stiglitz's account of the world market there is no hint of a systematic
tendency to uneven development. At crucial places in the book he refers to
the historically unprecedented rates of economic growth and increases in
per capita income attained in a number of East Asian countries in recent
decades. He clearly implies that this 'East Asian miracle', based on the
ability of industries in these countries to compete successfully in global
export markets, provides a devastating refutation of the uneven development
thesis. The heart of Stiglitz's position is the claim that in principle
all poor countries can enjoy success in the world market, if only they
follow intelligent policies and are not impeded by the dogmas of
neoliberalism.
A first difficulty Stiglitz must address has to with the fact that the
relative handful of countries that have escaped from poverty in the last
decades did so through 'the development state' model, which is
characterised by three main features. First, savings in the national
economy are 'intermediated', that is, deposited in the national banking
system. Second, the allocation of capital to the non-financial sector of
the economy is determined in a process of formal and informal negotiations
between banks, state agencies, and industrial corporations. Third, the
banks hold a high portion of the equity of the corporations to which they
lend. The problem is that this model is now in the process of being
dismantled.
Stiglitz fully comprehends the extent to which this model is under now
attack by the policy elites in the U.S. and the I.M.F., who hope to force
the countries that have implemented it to open their financial sectors to
Wall Street. But he both underestimates and overestimates this factor. He
underestimates it in the sense that he fails to comprehend just how central
the dismantling of the developmental state model is to the United States,
the hegemonic power in the global system. Peter Gowan correctly places
this development in the context of the 'great global counteroffensive' by
the U. S. in response to the demands for a New International Economic Order
articulated by third world states in the late 1960's and 1970's. The debt
crunch of 1982 provided the opportunity to launch the counter-offensive in
much of Latin America and Africa, aiming at the following two objectives:
1) To replace a national industrial strategy for development through import
substitution, and the development of the internal market, with a strategy
based upon western MNC direct investment and exports from the target
country to the world market.
2) To replace a state-centred financial and industrial system within the
country with private financial markets, ownership of economic assets in the
hands of private capital, deregulated labour markets and a strong role for
western FDI [Foreign Direct Investment] and portfolio investment.
In East Asia, the continuing Cold War motivated the U.S. government to
accept high levels of exports from countries that allowed neither imports
from U.S. manufacturers (unless they were needed by their exporting firms)
nor portfolio capital investments from the U.S. With the end of the Cold
War this arrangement ceased being acceptable to U.S. political and economic
elites.
From this standpoint the neoliberal project does not merely reflect the
temporary power of one faction of capital in the state apparatus. It
represents the fundamental interest of the hegemonic power in the world
market. And from this standpoint it is not sufficient to complain that the
U.S.-controlled IMF has imposed policies that had the unanticipated
consequence of leading to slump rather than growth, for "The IMF approach
requires slumps rather than growth as the favoured context for
restructuring since the slump provides powerful pressures on key economic
actors and it destroys the social power of labour in economic and political
life."
Lacking a theory of hegemony and hegemonic interests in the global economy,
Stiglitz underestimates the force of U.S./I.M.F. pressure to dissolve the
developmental state model. But he also overestimates it in other respects.
He implies that if only this pressure could somehow be neutralised all
would be well, and the 'miracle' could recommence in East Asia and
elsewhere. This drastically downplays the extent to which the transition
away from the bank-centred financial systems of the developmental state
model is a general trend of the present historical epoch. It is supported
by most leading sections of both industrial and financial capital in almost
all regions of the world market, quite apart from the machination of U.S.
and I.M.F. policy makers. Wealthy depositors throughout the global economy
now seek better rates of return from international capital markets than
they can attain from deposits in national savings systems. The biggest
corporations prefer reliance on impersonal markets to the much more
intrusive oversight that arises when they are dependent on a specific bank
for credit. The biggest banks in the global economy wish be freed from
long-term ties to corporations, in order to avoid being brought down when
those corporations have difficulty adjusting to rapidly changing
technological and economic environments. The increasing number and scope of
cross border production chains and cross border mergers and acquisitions
also make the developmental state model less feasible in the global
economy. And the promise of profitable opportunities to extend extending
cross-border production chains and participate in cross border mergers and
acquisitions in the future makes this model less attractive to more and
more units of capital.
Another crucial consideration when attempting to assess the claim that the
successes of the developmental state model in East Asia refute the theory
of uneven development is the systematic tendency to overaccumulation crises
in the world market. This issue is also far too complex to discuss
adequately here. For our purposes it must suffice to note that while the
drive to appropriate surplus profits necessarily tends to lead more
efficient plants and firms to enter a given sector, established firms and
plants do not all automatically withdraw when this occurs. Their fixed
capital costs are already 'sunk', and so they may be happy to receive the
average rate of profit on their circulating capital. They also may have
established relations with suppliers and customers impossible or
prohibitively expensive to duplicate elsewhere in any relevant time frame.
Further, their management and labour force may have industry-specific
skills. Or governments may provide subsidies for training, infrastructure,
or R&D that would not be available to them if they were to shift sectors.
When a sufficient number of firms and plants do not withdraw as a result of
these factors, the result is an overaccumulation of capital, manifested in
excess capacity and declining rates of profit. In more traditional Marxist
terms, insufficient surplus value is produced to valorise the investments
that have been made in fixed capital. In certain circumstances this
dynamic may lead to an economy-wide fall in profit rates for an extended
historical period.
When overaccumulation crises break out, previous investments in fixed
capital must be devalued. At this point the entire system becomes convulsed
in endeavours to shift the costs of devaluation elsewhere. Each unit,
network, and region of capital attempts to shift the costs of devaluation
onto other units, networks, and regions. And those who control capital
mobilise the vast economic, political, and ideological weapons at their
disposal in an attempt to shift as many of the costs of devaluation as
possible onto wage labourers through increased unemployment, lower wages,
and worsened work conditions. As the concentration and centralisation of
capital proceeds in the course of capitalist development, both
overaccumulation and the resulting need for devaluation necessarily tend to
occur on an ever-more massive scale. Global turbulence and generalised
economic insecurity increasingly become the normal state of affairs.
These considerations strongly reinforce the thesis that the so-called 'East
Asian Miracle' does not refute the theory of uneven development. While it
may be true that at some points in time some developing countries may enjoy
great success in certain export markets, it does not follow that all
developing countries can do so at any time in nay market. As more and more
developing countries enter into global export markets, excess supplies
necessarily tend to arise. In other words, the more the developmental state
model succeeds, the closer it is to failing. Also, the East Asian miracle
was at least partially premised on exports to the United States that could
be absorbed due to a historically unprecedented rate of credit expansion.
The limits of this credit expansion - that is, the failure of this credit
expansion to remove overaccumulation difficulties -have revealed the limits
of the ability of U.S. markets to absorb exports from East Asia.
Stiglitz does not once refer to the overcapacity problems that afflict
almost every major sector of the global economy today, or to the fact that
only massive devaluations of capital on the global level can resolve these
problems. As a result he fails to appreciate the extent to which the
policies of the I.M.F. are rational from the standpoint of the dominant
capitals and states. The devaluation of capital occurs through processes
such as firms going out of business and being bought up by competitors.
When the IMF imposes conditions forcing corporations to fold and countries
to open their economies to outside investors, this is part of a rational
strategy to shift the costs of devaluation to these vulnerable corporations
and countries. To ask leading capitals and states - and the international
agencies they control - to act otherwise is to ask the capitalist world
market to not be the capitalist world market.
Thus far I have been arguing that capitalist rationality would still
conflict with social rationality, even if we assume for the sake of
the argument that financial crises can be avoided. Even then the
systematic tendencies to uneven development and overaccumulation
crises would continue to beset the capitalist world market. But
there are good reasons to believe that Stiglitz's hope is a fantasy
that will never be fulfilled. Financial crises, like uneven
development and overaccumulation crises, are not contingent
occurrences in the capitalist global market. They are not due
to the power of ideology over economists and public policy experts, nor are
they adequately explained by the revolving door connecting the I.M.F. and
the U.S. Treasury Department to Wall Street. They are instead rooted in
the logic of capitalist property and production relations.
The financial sector is intimately implicated in both the formation of
overaccumulation crises. Flows of financial capital from across the world
market tend to be centralised in a few points at the centre of a global
financial order, and then allocated across borders. With credit money and
fictitious capital the provision of funds can be a multiple of the
temporarily idle profits, depreciation funds, and precautionary reserves
pooled in the finance sector. In this manner financial capital "appears as
the principal lever of overproduction and excessive speculation in
commerce." Once an overaccumulation crisis commences, the rate of
investment in sectors suffering overcapacity problems slows significantly.
A large pool of investment capital is formed once again, now seeking new
sectors with a potential for high future rates of growth (that is, with an
expectation of being able to appropriate future surplus value for an
extended period of time in the future). When such sectors are found,
financial capital from throughout the world market tends to flow in their
direction. If the flows of investment capital to these new sectors are high
enough, a systematic tendency to capital asset inflation results.
Expectations of future earnings eventually become a secondary matter, as
financial assets are purchased in the hope of profits from later sales of
these assets. This tendency is then reinforced as previous (paper) gains
in capital assets are used as collateral for borrowings to fund further
purchases of capital assets, setting off yet more rapid capital asset
inflation. Throughout the course of this speculative bubble it remains
the case that financial assets are in essence nothing but claims on the
future production of surplus value. When it becomes overwhelmingly clear
that the ever-increasing prices of these assets are ever less likely to be
redeemed by future profits, the speculative bubble collapses, and a
financial crisis ensues.
The intertwining of the tendencies to overaccumulation crises and financial
crises implies that the impact of concentration and centralisation on the
former extends to the latter as well. The devaluation of loans and
fictitious capital following in the wake of financial crises necessarily
tends to occur on an ever-more massive scale. The pressure on units,
networks, and regions of capital to shift the costs of this devaluation on
to other units, networks, and regions thereby increases as well. Most of
all, capital's attempts to shift as much of the cost as possible onto wage
labourers and their communities intensify.
Now let us reconsider the list of Stiglitz's policy proposals given
earlier. Would they transform the financial sector so that it would not
play a role in the formation of overaccumulation crises? No. Would they
rule out speculative bubbles in the financial sector? No - many of the
measures Stiglitz calls for were already in place in the U.S., and they did
not present one of the greatest speculative bubbles in history from
arising. Would any of these measures prevent the greatest burdens of
financial crises from being inflicted on the very groups that benefited
the least from financial excesses, working men and women and their
communities? No. Finally, and most importantly perhaps, is there any
item on this list that would reverse the structural mechanisms generating
uneven development? No. These problems are all rooted in the system of
property and production relations that defines capitalism. To recognise
this is to recognise the limits of Stiglitz's framework, however admirable
and even courageous his break from neoliberalism has been.
--
Un autre monde est possible！
Eine andere Welt ist moeglich！
Otro mundo es posible！
Un altro mondo e' possibile！
Um outro mundo e' possivel！
Another world is possible！
--
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