Globalization and Its Discontents

Globalization and its discontents is a book of remarkable insight. The author draws

upon his experiences as chief economist at the World Bank to explain major events in the

global economy of the 1990s. The primary episodes that this book analyzes are the Asian

Crisis and Russia’s post Soviet reforms. Empirical analysis by economists typically relies on

formal statistics. Professor Stiglitz avoids this in his book, and much to his credit. Written

history helps fill out the empirical record and enhances our understanding of economic

processes. The author took full advantage of his position to write about important changes

in the global economy.

Professor Stiglitz also has much to say about how political factors affected policy at the

IMF, US Treasury, and the World Trade Organization. He claims (p XIII) that ideology and

bad economics thinly veiled the actions of special interests. Private interests lobbied

successfully for alleged privatization and liberalization, resulting in crises. Free market

ideology served as intellectual cover for these interests in efforts to justify alleged

misadventures in privatization. Professor Stiglitz claims that experience with these policies

refute the case for rapid privatization, and indicate a need for stronger and more open

international governance.

The examples in this book do support important theoretical arguments regarding

political economy, but not as its author intends. The primary deficiency of this book is in its

understanding of Public Choice concepts. Professor Stiglitz refers specifically to Rent

Seeking, which he describes as a theory of “how Special interests use tariffs and other

protectionist measures to increase their incomes at the expense of others” (p. 13). He

associates this theory with ideological fervor and claims that market failure arguments better

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explain problems in developing countries. This attitude towards Rent Seeking is peculiar for

two reasons. First, what he describes is more like the collective action problem of Mancur

Olson than Rent Seeking. Second, the author supplies numerous examples of collective

action problems in the global economy of the 1990’s1.

On page 19, Stiglitz asserts that trade ministers and the WTO and finance ministers and

central