Joseph Stiglitz's Debating Globalization - Essay Example

?Introduction Globalization, in short, is often connected with the way how the technology, production and communication have been interconnected witheach other. This interconnectedness however has also resulted into the spilling off of the cultural and economic values of the Western countries - mostly importantly of United States of America on the other less developed countries. It is because of this reason that globalization is often considered as a result of the IMF and The World Bank driven agenda to create global free markets for both the goods and services. Different intellectuals, over the period of time, have attempted to define and discuss the overall phenomenon of globalization and how it is affecting the world at large. Joseph Stiglitz is considered as one of the major voices in the world speaking against the potential detrimental nature of the overall process of globalization. His main arguments therefore suggest that globalization can be good if it is executed properly by taking into the consideration of the individual characteristics of each country. (Friedman, 2002). He is of the opinion that the countries should be allowed to embrace globalization on their own terms rather been enforced on them. He also argues that if the pro globalization policies are not being carried out properly, it is quite possible that the countries can become more vulnerable to the external shocks and this can create economic instability as well as resulting into a decline in growth and increase in poverty. (Stiglitz, 2002). This paper will discuss and explore the ideas of Joseph Stieglitz on globalization and will present a critical intellectual biography of Joseph Stiglitz. Intellectual Biography Ideas Stiglitz has worked on different issues and presented his ideas on diverse range of ideas ranging from economics to political economy. He is often considered as a New Keynesian for his views on the better role of government in running the overall affairs of the economy. He is therefore also considered as neo-liberal thinker because of his strong opposition of the corporate led globalization. He is often considered as critical of IMF and World Bank- two of the most important institutions advocating the globalization and help fulfilling the overall agenda of globalization. (Stiglitz, 2003). His major ideas on globalization are based on his theory of information asymmetry and how the lack of correct information can result into the development of incomplete markets at the global level. He is therefore particularly of the view that advocating globalization in such economies where markets are not fully developed and information is not available can result into more poverty and economic inequality rather than creating prosperity. He is also considered as quite critical of IMF because of its ignorance that the overall process of globalization may not work in the presence of inadequate institutions as well as the incomplete markets. (Stiglitz, 2003). His ideas on globalization therefore are based on the presence of more transparent institutions and greater role of Western countries in helping the less developed countries to better integrate themselves into the global economy. His economic ideas are also mostly considered as New Keynesian. Trade In order to understand the Stiglitz ideas on the free trade and its role in the globalized world, t is important to consider the overall arguments in favor of free trade. The advocates of the globalized and free trade believe that free markets and trade can actually increase the overall opportunity set for the countries and they can readily benefit from this. What is however, important to consider that as per Stiglitz this is not the case? Though he believes that this may be a text book approach however, in reality free trade and markets do not necessarily result into the growth. The overall arguments are based upon the notion that the free trade and investment can only result into the growth when they are competitive. Since the markets of the developing countries are still undeveloped and non-competitive therefore free trade may not provide the desired results to the developing countries and may not achieve the growth targets. He presents two different examples of reputation and agency problem to outline as to how the under-development and the lack of competitiveness of the markets can actually result into the worse outcome for the countries rather than gaining benefits from the free trade. Since the globalization increases the overall size of the markets in global and domestic levels therefore this can actually lead the so called innocent economies into more competition and inefficient allocation of resources. The overall arguments of Stiglitz for free trade therefore are based upon the information asymmetries and how this can actually hurt the under-developed markets. Foreign Direct Investment & Financial Flows Stiglitz’s views on the foreign direct investment and how it can be of help to the developing countries under the umbrella of globalization are also radical in nature. He argues that FDI can significantly result into the transfer of knowledge and capital however, he is critical of the overall abuse of power by the large multinational corporations due to their overall market power and strength in the international market. His views therefore are directly linked with how the FDI is actually being used by the large corporations to exert their influence on the policy making process of the vulnerable governments. (Mold, 2004). He is also of the opinion that the greater role of FDI in the development of a country can often increase its dependence on the foreign workers rather than developing its own indigenous entrepreneurship class. He cites the examples of Japan and Korea as two countries who achieved significant economic progress without the help of the foreign investors and by developing their own local class of entrepreneurs to cater to the emerging economic needs. (Mold, 2004). His major critique on the role of FDI therefore is based upon how the large multinationals create price distortions and discourage the local competition. This therefore significantly result into further under-development of the local markets and make them dependent upon the international expertise and skills. The abuse of power by the international organizations and the resulting distortions in the information, prices and competitiveness of the local businesses as a result of increased FDI is therefore are his major arguments in this regard. (Stiglitz, 2006). It is also important to understand that Stiglitz is quite critical of the liberalization of the capital markets. Unregulated banking, under-developed capital markets, to Stiglitz, therefore are risky and increase the overall riskiness of the investments made in such markets. The overall argument therefore is again based upon the under-development of the markets and how it can actually lead to more inefficiencies rather than creating economic welfare for the countries. (Stiglitz, 2003). He is of the view that losing control over the inefficient and imperfect markets therefore can result into the greater risk and lower growth. Higher risk taking therefore can also force the lenders to demand higher interest rates therefore creating further pressures on the availability of the credit in the market. The overall benefits of the financial flows across the borders therefore may not result into the effective achievements of the desired growth targets by the countries by opening up their capital markets. (Stiglitz, 2003). His views are also critical in the sense that he argues that in an imperfect market where the interest rates are higher and capital markets are underdeveloped, the domestic firms will rely mostly on their internal finance and therefore resulting into the inefficient allocation of capital across the economy. (Stiglitz, 2004) He further argued that the de-regulation of the capital markets and further allowing of the financial flows to freely enter and exit in the global markets therefore can further result into inefficiencies and lack of growth if capital markets are not fully developed. Migration, environment instability and global governance His arguments in terms of migration and environment are not too strong or rather he hardly touched on them. What is however, critical to note that he has presented his ideas on the instability and global governance in more elaborative manner? He is of the opinion that the non-economic factors are more significantly affected if the globalization is allowed to work freely and in its current form. Due to the sheer market power of the large organizations and their overall bargaining power, they can exert their influence over the policy making process in the under developed countries. It is because of this reason that the local governments become more answerable to the international organizations rather than to their own public. This therefore can significantly create the disability in the governments of the developing countries and thus forcing them to fall victims of the international pressure. (Stiglitz, 2005). In terms of global governance, he argued that the globalization is taking place in the midst of the global institutions but without the global government. This difference therefore may not allow the emergence of true globalization as no country may be ready to surrender its sovereignty in order to reap the economic benefits of the globalization. According to him, this is the biggest problem which the overall spread of globalization can face and may restrict its widespread growth. He has also echoed his voice against the increasing role of institutions like IMF and The World Bank in the overall affairs of the developing countries.( Nayyar, 2002). Conclusion Globalization is a very diverse phenomenon and its explanations and discussions can range from different perspectives including the social, cultural, political as well as economic. Many intellectuals have put forward different arguments from different perspectives and outlined as to how the globalization can work and under what conditions and how it may not work. Joseph Stiglitz is considered as one of the major critics of the globalization in its current form. His overall ideas are based on the arguments that since the markets in the developing countries are imperfect and due to asymmetries of the information; the globalization may actually result into the lack of growth and increased risk. Exposing the developing countries to the bigger market space therefore can loosen their overall competitiveness and therefore can render them more vulnerable. His ideas are also powerful in the sense that he openly deplored the role of large multinational organizations, IMF and World Bank. He argues that the policies adapted by IMF and World Bank are not resulting into the economic welfare of the developing countries and forced globalization can actually further weaken the governance mechanisms in these countries. He argues that due to large market power of the multinational organizations, developing countries specially can be forced to make changes in their policies in order to make them more conducive for the large multi-national organizations thus making the governments more answerable to such MNEs rather than to their own public. He also argued that the free financial flows and FDI may not result into the development of local knowledge and entrepreneurship. References 1. Friedman, B (2002). Globalization: Stiglitz’s Case [online]. [Accessed 15th Feb 2011]. Available from: . 2. Mold, A (2004). FDI and Poverty Reduction: A Critical Reappraisal of the arguments [online]. [Accessed 15th Feb 2011]. Available from: . 3. Nayyar, D (ed). (2002). Governing globalization: issues and institutions. Oxford: Oxford University Press 4. Stiglitz, J (2002). Development Policies in a world of globalization [online]. [Accessed 15th Feb 2011]. Available from: http://www.sfiec.org.br/artigos/economia/DEVELOPMENT POLICIES IN A WORLD OF GLOBALIZATION-joseph-stiglitz.pdf 5. Stiglitz, J (2003). ETHICS, MARKET AND GOVERNMENT FAILURE, AND GLOBALIZATION [online]. [Accessed 15th Feb 2011]. Available from: . 6. Stiglitz, J (2003). Globalization and growth in emerging markets and the new economy. Journal of Policy Modeling. 25, pp.505-524. 7. Stiglitz, J (2003). Globalization and Its Discontents . New . ed. New York: Penguin 8. Stiglitz, J (2003). Globalization and the economic role of the state in the new millennium. Industrial and Corporate Change. 12 (1), pp.3-26. 9. Stiglitz, J (2004). Capital-market Liberalization, Globalization, and the IMF. Oxford Review of Economic Policy. 20 (1), pp.57-71. 10. Stiglitz, J (2005). The overselling of globalization [online]. [Accessed 14th Feb 2011]. Available from: . 11. Stiglitz, J (2006). Making Globalization Work [online]. [Accessed 14th Feb 2011]. Available from: . Read More