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By Joseph E. Stiglitz
Review of On Globalization by George Soros
"Seeking to explain what is wrong with globalization . . . special interests in the United States benefit from the current arrangements. . . . Global civil society has, at times, been able to overcome these established forces."
"Anyone who has watched the change in attitudes, both inside the institutions and in the general public, over the past five years must recognize the power of global civil society. It is now a commonplace that the international trade agreements about which the United States spoke so proudly only a few years ago were grossly unfair to countries in the third world. . . . practically all the people I see recognize the inequities and hypocrisies of American government policies."
"Soros is one of the growing band of experts who, while recognizing the power of globalization to increase wealth, also recognize its adverse effects. His indictment is simple: globalization has hurt many people, especially the poor in the developing world. Globalization has distorted the allocation of resources in favor of private goods at the expense of public goods. And global financial markets are prone to crisis."
" . . . while the links between poverty and terrorism are complicated, few would deny that poverty, and especially high unemployment rates among young men, provide fertile ground on which terrorism can grow. Ensuring that globalization will be more helpful to the poor thus becomes not just a moral imperative but also something that should be viewed as a matter of self-interest."
" . . . the IMF, the WTO, and the World Bank. . . . All of them take an important part in the unfolding drama of globalization, and they accordingly bear much of the blame for its failures. As Soros says, 'They are being operated for the benefit of the rich countries that are in control, often to the detriment of the poor ones....'"
"Globalization entails more interdependence, and interdependence requires cooperation. Soros makes a convincing case for the need for larger expenditures on global public goods, including health and economic development. Just at the time when we have urgent need for international economic institutions such as the IMF and the World Bank, confidence in these institutions is at its lowest. The solution is not to abolish them, but to reform them . . . "
The SDR Proposal
" . . . the US has benefited from the increased demand for dollar reserves, while the developing countries have paid a heavy price to obtain them."
" . . . the sum of the world's trade deficits must equal the sum of the surpluses; so if a few big countries, like Japan and China, insist on having a surplus, the rest of the world must have a deficit. . . . And as a country finds itself with a large deficit, it may face a crisis. If investors sell its currency, its central bank may be forced to push up interest rates in order to keep the currency from falling precipitously. The high interest rates may slow the country's growth and cause a recession."
"The only thing that keeps the system working at all is that the United States, the richest country in the world, has become the "deficit of last resort." This is the ultimate irony: the financial system allows the United States to live year after year beyond its means, buying abroad far more goods than it sells, even as the US Treasury, year after year, lectures others on why they should not do so. And the total value of the benefits that the US gets out of the current system exceeds, by a considerable amount, the total foreign aid the US gives. What a peculiar world, in which the poor countries are in effect subsidizing the richest country, which happens, at the same time, to be among the stingiest in giving assistance in the world."
Reform of Foreign Assistance
" . . . much of today's international assistance is hampered by the requirement that it pass through governments, whose agendas and interests do not always coincide with helping the poor of the world."
The Global Financial System
"It is not surprising that some of Soros's most penetrating insights concern the global financial system. . . . The problem, he rightly points out, is with their fundamentalist market ideology, a faith in free, unfettered markets that is supported by neither modern theory nor historical experience. . . . Those views have been far more muted following the failures and scandals of recent years, including the Enron debacle; the publicly orchestrated but privately financed bailout of Long Term Capital Management; and the revelations of the criminal use of secret offshore banking accounts."
"Soros explains that the case for free movements of capital is far less clear than that for free trade. He could have gone further: the evidence is that liberalizing capital markets does lead to increased risk but does not lead to increased economic growth. Soros explains something that most observers of the recent stock market bubble know intuitively, but that market fundamentalists deny: 'Financial markets, left to their own devices, are liable to go to extremes and eventually break down.' . . . Those who believe in market fundamentalism 'are reluctant to accept that the system may be fundamentally flawed when it is working so well for those who are in charge.'"
"Soros rightly notes the marked slowdown of flows of funds to the emerging markets after the 1998 crisis. 'Taking resident lending, portfolio investment, and private credit flows together, there has actually been a net outflow from emerging markets since 1997, going from positive $81.7 billion in 1996 to a negative $106 billion in 2000, offset by slightly larger inflows of foreign direct investment and by official financing.' This is an odd situation, and for anyone who believes that the key problem of development is lack of finance, it is deeply troubling."
"Markets may provide discipline, but they are fickle and erratic disciplinarians, overlooking important sins at some times, and at other times punishing countries for sins of others."
International Trade and the World Trade Organization
" . . . when goods from rich countries can flow without restriction to the poor countries, the poor countries may find it extremely difficult to build up their economies, because of the strong competition from imports. Meanwhile, the well-to-do countries that officially praise free trade frequently use tariffs and subsidies to limit imports from poor countries, depriving them of the trade they need to relieve poverty and pursue their own economic growth."
"'The WTO opened up a Pandora's box when it became involved in intellectual property rights. If intellectual property rights are a fit subject for the WTO, why not labor rights, or human rights?'"
Global Values
"Global leadership requires not only being against something; it requires being for something. We have an alliance against terrorism. We should also have an alliance for more global justice and a better global environment. Globalization has made us more interdependent, and this interdependence makes it necessary to undertake global collective action. The United States must take the lead to provide global public goods—including law and order. It should be working to bring about reforms in the world economic order, away from the 'Washington consensus'—the ideologically driven 'model' of market fundamentalism. But as Soros also points out, for the US to be a leader will require some deep changes:
We must abandon the unthinking pursuit of narrow self-interest and give some thought to the future of humanity.... [We need] a reassertion of morality amid our amoral preoccupations. It would be naive to expect a change in human nature, but humans are capable of transcending the pursuit of narrow self- interest. Indeed, they cannot live without some sense of morality. It is market fundamentalism, which holds that the social good is best served by allowing people to pursue their self-interest without any thought for the so-cial good—the two being identical —that is a perversion of human nature."
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