May 28 2009

Globalization according to Stiglitz

by at 10:28 am under Uncategorized

The Washington Consensus “one size fits all” mentality was a cookie cutter strategy (or a reform package) adopted by Washington to deal with the economic problems of developing countries. These problems were mainly managed by institutions such as the International Monetary Fund (IMF), World Bank and the U.S. Treasury Department.

Joseph Stiglitz, uses his personal insight and experience gained during his time with the World Bank to critique the Washington Consensus because it does not provide for those countries. Stiglitz also won the Nobel Prize for Economics in 2001 for his observations and applications of the critiques to the global economy. In his book, Globalization and its Discontents, it is obvious this one-size fits all mentality was meant to be a quick fix for underdeveloped countries used to save money—but it definitely fell short of its purpose.

The Washington Consensus was a set of 10 economic policy strategies used to determine the needs of these countries, and the relationships between these institutions and developing countries. The term “Washington Consensus” was coined in 1989 by economist John Williamson. The consensus standard was founded on “three pillars”: fiscal austerity, privatization and market liberalization (pg. 53).

Fiscal austerity is required when a government’s deficit spending is perceived to be unsustainable, privatization is the handing off of business from government to private sector and market liberalization is the freeing up of the markets. The Washington Consensus policies were originally designed to address economic problems in Latin America which were having a direct effect on the United States Economy. In most cases these Latin American countries were operating with large deficits and without any understanding of fiscal responsibility. “Fiscal austerity pushed too far” resulted in recessions and blocked the success of struggling businesses (pg.54).

Stiglitz argues that the Washington Consensus was narrow and skewed in favor of the rich, making it immoral—and definitely not focused on poverty ridden developing countries. The Washington Consensus was a collaboration of several events and ideologies including the collapse of the Soviet Union and the increasing focus on a global infrastructure and pride in the capitalistic system after the end of the Cold War. In the late 1980s and early 1990s there were needs for a global approach. However the goals the IMF was pursuing were in conflict with the needs of underdeveloped countries. In the Preface Stiglitz states “I saw decisions were often made because of ideology and politics” (pg. x.). Washington Consensus policies paid little attention to issues of distribution and fairness and often attacked problems with money—and forgot to create a support system which created reusable investments and long-term project (pg. 78). In addition, imposition of Western ideologies and business structure often neglected the importance of community and family networks—a safety net in the process of development—when creating development plans (pg. 83).

Stiglitz said that if the debate was “behind closed doors” and not open to the input of others (pg. xvi). Debate is important for planning, but for some reason the Washington Consensus was formulated without a process of debate. The Washington Consensus was the ideology that Western plans and Western money could be successful in countries without Western infrastructure or education. In order to alleviate problems in developing countries, one must consider the relationships within those countries as well as low cost solutions.

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