Globalization and Its Discontents Revisited

Joseph Stiglitz published Globalization and Its Discontents in 2002 and it sold a million copies, which is a remarkable thing for a book about the IMF’s conditionality framework. Four years on, the events he used as case studies have evolved in ways that neither fully vindicated his critique nor refuted it. The world, as usual, is more complicated than the polemic.

Start with the most theatrical data point. On January 3rd, Argentina wired $9.53 billion to the IMF—the entire outstanding balance, in a single payment, three years ahead of schedule. Kirchner held a press conference. The language was unambiguous: Argentina was buying back its sovereignty. The heterodox recovery that followed the 2001-02 default and peso devaluation had produced GDP growth of roughly 9% per year for three consecutive years, unemployment fallen from 22% to 11%, and real wages rising. The IMF program that Argentina abandoned in 2001 had recommended fiscal adjustment and peso defense. Neither proved necessary for the recovery that followed. This is, to put it gently, an awkward data point for the institution.

The IMF’s own Independent Evaluation Office released a report in 2005 reviewing the Fund’s role in Argentina that conceded what most outside economists had been saying for years: the exchange rate peg was unsustainable and the Fund continued endorsing it past the point of reason. The IEO report is written in the careful language of institutional self-criticism, which makes it more damning, not less. When bureaucracies admit error in passive voice, something serious went wrong.

Bolivia is the freshest case. Evo Morales was inaugurated in January—the first indigenous president in the country’s history, elected on a platform of nationalizing natural gas. The May 1st decree is formally still weeks away as I write this, but the direction is not in doubt. Morales is coordinating with Chavez in Venezuela, whose PDVSA will likely handle some of the technical assistance after the foreign companies are renegotiated. The IMF and World Bank have been essentially irrelevant to this political economy; their leverage over Bolivia was exhausted years ago in the water privatization debacles of Cochabamba.

Then there is Doha. The Hong Kong ministerial in December 2005 produced a commitment on agricultural export subsidies that EU Trade Commissioner Peter Mandelson described as historic and developing-country negotiators described as inadequate. Both are approximately right, which is to say the agreement advanced almost nothing. The farm subsidy gap between what the EU and U.S. offer and what would constitute genuine market access for South Asian and African agriculture remains very large. The April deadline for a framework agreement is not going to be met. Pascal Lamy is holding press conferences in Geneva and going nowhere.

The Washington Consensus—John Williamson’s 1989 list of ten policy prescriptions—was never exactly what critics said it was. Williamson himself spent much of the 1990s pointing out that privatization-and-deregulation was a distortion of what he actually wrote. But the institutional practices of the Fund and the Bank during the 1990s were close enough to the caricature that the distinction stopped mattering politically. Stiglitz’s book captured something real about the gap between the models Washington used and the political economies those models were applied to.

What fills the vacuum now is unclear. The “post-Washington Consensus” that Dani Rodrik and others at Harvard have been sketching emphasizes institutional quality, second-best solutions, and diagnostic approaches that take country specificity seriously. This is sensible economics. It is also, by design, less marketable than a ten-point list. The pink tide across Latin America—Lula in Brazil, Kirchner in Argentina, Morales in Bolivia, Chavez in Venezuela, Bachelet winning in Chile in January—represents something, but it does not represent a common economic program. They agree on what they reject more than on what they propose.

The financial sector angle on all of this is worth holding onto. One reason the IMF lost leverage in Latin America is that countries accumulated reserves and reduced their exposure to short-term external debt after the crises of the late 1990s. The self-insurance logic works: if you have $30 billion in reserves, you do not need a $15 billion standby. The perverse implication is that countries that could most benefit from IMF technical assistance now have the least incentive to accept the conditionality that comes with it. The question of what development finance looks like in that world is something our post on the Mexican banking system’s unfinished reform touches on from a different angle. The intellectual framework for what comes after the consensus is laid out more directly in the Easterly-Sachs debate—our piece on planners versus searchers in development aid covers the terms of that argument. And Friedman’s broader point about the political conditions under which liberal reform becomes possible connects these debates to something older and harder, which is the question Benjamin Friedman raises about the moral prerequisites of economic growth.