Globalisation is at the top of the agenda this weekend as world leaders gather in Johannesburg for the concluding sessions of the World Summit on Sustainable Development, writes Cliff Taylor
The UN, the summit's host, has set lofty goals for the gathering of around 100 leaders and some 60,000 other participants. It wants to find ways to spread the benefits of globalisation more evenly and ensure that growth in future is more sustainable and doesn't take such a heavy toll on the environment.
Are the participants really committed or will the conference end in no more than another woolly communiqué? Recent history provides few grounds for optimism, with the major world powers either slow or just plain unwilling to address issues like debt relief, fossil fuel pollution or fair trade practices for the developing world. Since the last Earth Summit in Rio, world production has grown by 50 per cent, but inequalities have also grown. Some 2.8 billion people must still survive on less than $2 a day and the target of providing 0.7 per cent of GNP as development aid to poor countries has been ignored. Trade practices which are deeply unfair to poorer countries remain in place.
Overall, the economic progress of so-called "developing countries" in recent years has been mixed to poor; growth in China has benefited the world's most populous country, but much of sub-Saharan Africa remains stuck in grinding poverty and is now threatened by famine. Meanwhile environmental degradation continues, the latest manifestation being a three kilometre thick "Asian brown cloud" of haze over South-Asia.
Are world leaders and global institutions really preparing to tackle these issues? Anyone who reads Joseph Stiglitz's Globalisation and its Discontents would not be encouraged to think so. Stiglitz, a Nobel prize-winning economist, worked on US president Clinton's council of economic advisers and as chief economist in the World Bank through a key period in the late 1990s. His verdict on the way the West intervenes to tackle economic and financial crises in the developing world is clear. It is that the international institutions, driven by a combination of ideology and the self-interest of the developed world, have time and again made things worse by insisting on policies which are deeply inappropriate to the less-developed countries. And Stiglitz is quite clear who the villain of the piece is: the International Monetary Fund, which sits directly across 19th Street in Washington from where Stiglitz worked in the World Bank.
The IMF and World Bank were established at the Bretton Woods conference after the second World War, designed to finance the re-building of Europe and stave off further 1930s-style depressions. Along with the World Trade Organisation - formerly GATT - they're the key international institutions overseeing economic globalisation and stability. Coming from an intellectual heavyweight and former insider, Stiglitz's criticisms have led to considerable controversy in Washington, neatly summed up by an IMF insider's verdict that his analysis was "vastly improved by hindsight".
The thesis of the book is not that globalisation itself is "wrong"; it has helped "hundreds of millions of people attain higher standards of living, beyond what they, or most economists, thought manageable but a short while ago". But for many, he argues, globalisation has simply not worked, creating poverty and instability and bringing about a backlash that can only grow unless change comes quickly.
"The problem is not with globalisation, but with how it is managed," says Stiglitz , laying most of the blame at the door of the IMF, but also with the US Treasury and other international institutions.
Since the 1980s, the globalisation process has been driven by a neo-liberal ideology which was popular in the Reagan/Thatcher years: an ideology which calls for the free market to be given its head by liberalising financial flows, privatising businesses, dismantling trade barriers and withdrawing the State as much as possible from the economy. It also favours a strict approach to maintaining budgetary and monetary stability. A central part of the Stiglitz thesis is that the "free market" does not always work and that expecting that - after a rapid withdrawal of the State - Adam Smith's famous invisible hand can on its own foster growth and stability in less developed economies is simply nonsense.
The picture Stiglitz paints is of an IMF which blindly applied this free-market ideology in Africa, Asia, South America and Russia, with little thought to the wider political and economic consequences. The evidence he presents is compelling. The author's first experience with the World Bank was in 1997 when Ethiopia, under President Meles, was looking for assistance as it sought to develop after years of war and instability. Despite a coherent programme, the IMF was putting conditions on a loan to Ethiopia which would have involved heavy spending cutbacks and a rapid opening of its financial system.
Stiglitz and others succeeded in brokering a compromise, but it is a pattern which re-occurs again and again, a key point being that if a country doesn't agree to IMF conditions then nobody else is likely to lend it money either.
The core of the book examines the East Asian crisis of the late 1990s which was to spill over into Russia and Latin America and at one stage had respectable commentators fearing a global deflationary spiral. Stiglitz argues forcefully that the policies imposed by the IMF were a key catalyst in that crisis. It started with the collapse of the Thai currency, the baht, in July 1997 and spread through most of the region before enveloping Russia and parts of Latin America.
For some years before this the international institutions and the US government had pressured the East Asian "tiger" economies to open up their financial markets completely. This, they argued, would promote growth and stability - it also, of course, allowed western capital to avail of profitable opportunities. It is this liberalisation which Stiglitz maintains "was the single most important factor leading to the crisis". By allowing the free flow of capital such policies left the economies open to a speculative "run" - and this is precisely what happened as currency after currency was attacked by financiers hoping to make a quick profit from a devaluation.
Stiglitz feels that further mistakes - again driven by what he calls the "Washington consensus" ideology - were made once the crisis broke. The IMF sought to prop up currencies under pressure with massive loans, while trying to get the governments involved to cut spending to keep budgets in balance. As IMF money propped up currencies, the better-off - and international investors - had a chance to get their money out and into dollars, a trend known in the jargon as "capital flight" which was repeated shortly afterwards in Russia before the rouble devalued. Meanwhile high interest rates put in place to defend the ailing currencies added to the spiral of decline by sending many businesses to the wall.
PRECISELY the same mistakes were made in Russia, he argues, impoverishing the masses and enriching a cadre of "oligarchs" who benefited from a privatisation programme which sold off state assets for half-nothing in the name of "reform". Again massive loans were extended in an ultimately unsuccessful attempt to defend the rouble.
Is he merely accusing the IMF of incompetence? This is part of his argument, but he also points to how its policies frequently supported western financial and business interests. Investment bankers profited from privatisation programmes, financiers from open markets and western businesses from access to the markets which have not been reciprocated as the US and EU maintain huge subsidies to sectors such as agriculture to the disadvantage of the developed world. Stiglitz stops short of calling it a plot. But it is clear that he believes that the institutions and the US Treasury are unduly influenced by Wall Street and big business.
His argument is that a much more gradualist approach must be taken to globalisation. Countries should not be pressed to open up their financial markets or dismantle trade barriers overnight. To do so is a recipe for impoverishment and instability. Instead markets should be opened up gradually and only - crucially - when the mechanisms and institutions needed to underpin a free market are in place. No point opening up a financial market when there is no proper banking regulation, or privatising when the rule of law does not adequately protect private property.
He also argues that the balance in the international institutions must be changed. Now they are dominated by the big countries, particularly the US, but in future the developing world must have at least an equal say. A collection of voices - the anti-globalisation lobby, environmentalists, academics like Stiglitz and the developing countries themselves - have put this issue firmly on the agenda.
Stiglitz writes powerfully throughout the book, marshalling his arguments and backed up by direct personal experience. It is not a balanced economic assessment - nor does it pretend to be. The roots of the East Asian crisis, for example, go beyond the role of the IMF and into a wider range of issues and arguments not dealt with in detail in the book. The causes of famine and poverty in Africa are many - war, corruption, history and a host of other factors all play a part. This book is not a detailed assessment of these issues: it is a highly critical look at the role played by the west in addressing them.
The book has already sparked considerable debate in Washington about IMF reform. Whatever about the details of this debate, it is hard to argue with the book's conclusion that globalisation now faces a crisis and that capitalism is at a crossroads - the latter even more so following the crisis of confidence in financial markets in the US which has occurred since this book was written. Stiglitz's central argument, based in large part on his academic work, is that the free market does not always work, that the " trickle- down" of wealth to the poor is not automatic and that there is always the temptation for the richer countries to look after their own interests first.
The outcome of the Johannesburg summit will be one indication of whether the considerable pressure on the big players to take a new approach is yet having any impact.
Cliff Taylor is an Irish Times journalist