free market ideology and the Washington Consensus vs. those who see an important role for both government and the private sector...Stiglitz is pro-government intervention
Washington Consensus: (encouraged by IMF...not encouraged by Stiglitz...or anyone with common sense it would seem but I will leave that up to you)
-focused on minimizing the role of government
-emphasizing privatization
-trade and capital market liberalization
-deregulation
-put little emphasis on equity
-"based on a theory of the market economy that assumes perfect information, perfect competition, and perfect risk markets- an idealization of reality which is of little relevance to developing countries in particular" (28).
"The alternative view, which I hold, sees government having a more active role, in both promoting development and protecting the poor" (Stiglitz 27).
"What separates developed from less developed countries is not just a gap in resources but a gap in knowledge, which is why investments in education and technology- largely from government- are so important" (28).
"The most successful countries have been those in Asia, and that in most of the Asian countries, government played a very active role" (29).
"Globalization- in the form of export-led growth- helped pull the East Asian countries out of poverty" (30).
-able to take advantage of globalization without being totally taken advantage of by globalization
-China followed its own policies (not the ones recommended by the IMF) and saw growth
-government invested heavily in education and infrastructure
-"also went beyond the usual list of what governments typically do. Governments in East Asia played a large role in planning and in advancing technology, choosing which sectors their countries would develop rather than leaving it up to the market to decide" (32).
-China's high savings rate (another key to it's success)
So the IMF seems to be retarded:
Asia and china for the most part have restricted short-term capital flows..but during the 1980's many East Asian countries succumbed to pressure from the IMF and the US treasury and opened up to the free flow of capital...for a while this was good and then it fled out resulting in a big crisis...
"The IMF policies failed to stablize the currencies; they only succeeded in making the economic downturns far worse than they otherwise would have been..." (35)
-critics would argue that the IMF is just protecting the lenders
-"The capital market liberalization pushed by the IMF made matters worse because it made it easier for the oligarchs who had stripped assets from the corporations they controlled to take their money offshore, to places where secure property rights were already established" (39)...the importance of property rights and secure, trustworthy institutions are extensively discussed by North
-The IMF and Washington Consensus have an even worse track record in Africa...For example "In Ethiopia, for instance, the Fund went so far as to demand that the country ignore foreign assitance in assessing whether it's budget was balanced; in effect, foreign assistance went to increase reserves, not to build hospitals or schools or roads. Not surprisingly, the policies failed to bring growth. But the burden of debt remained" (41).
shock therapy into market economy(as evidenced by Russia and China's Great Leap Forward in the 1960's) = a no go
a more gentle and slow transition = much better idea
"the tortoise has outpaced the hare" (40)
-India (although open to FDI)also restricted short-term capital flows and has been successfully developing and growing
-reaped the benefits of long term investments
-success alot like China's with an emerging middle class
-both rec. importance of technology and education
(Asia graduates three times as many engineers and scientists as the US)
-success requires social and political stability
-East Asia has come to reject the Washington Consensus market fundamentalism which totally opened up the countries
Basically, Latin America fully embraced the WC and they failed big, big time
East Asia did not fully embrace the WC but rather had an actively involved government along with the market and was very successful
China...an example of Globalization that Works
Why? Their "Comprehensive Approach to Development" (48)
-China changes the focus of its attention as needed as it moves through various stages of development; for example it shifted from focusing on attracting foreign investment to developing domestic entrepreneurs (48)
-government had a large role to play]
-Each stage= a different mix of government and market that is balanced relative to the current circumstances
Four Pillars of a successful development strategy as evidenced by East Asia
1.market
2.government
3. individuals
4. communities
Challenges to this plan: 1.corruption (of the host government or trade organizations or really anyone involved)
2. IMF (which according to Stiglitz undermines democracy when "monetary policy is taken out of the hands of democratic politcal processes and turned over to experts" (56)
3. The world is not flat and it is actually (in some ways) becoming less flat
4. The rules of the game are tilted against developing countries because the global trade and financial regimes give developed countries an advantage
Kind of comes down to a final question...
who is to blame for East Asia's success or for Latin America's failure??
Is it the IMF and trade agreements or the host government?
Getting the Magic Formula for Successful Development-
Well, as evidenced by China and India the government intervention is crucial, so the host government is important and is either postively or negatively impacting...but the IMF has encouraged and implemented policies that have led to crises even in China which is now growing successfully, so the IMF is obviously a problem too. I would say that they are both to blame because they are both neccessary. If one or the other is not functioning properly development is not going to be successful. The magic formula is dependent on the stage, the circumstances, the pace, and demands a particular balance of government intervention and market.
**This chapter was particularly interesting to me because during our session we will be talking about whether globalization works...and according to this chapter, I am representing an example of successful globalization, none other than China...
***Interestingly, the authors of FL Chapter 26 do not think that East Asian countries are good examples of sustainable development and they are part of the "lost decade" due to "recent labor unrest and ecological destruction" (FL, 392). I undoubtedly side with Stiglitz on this one.
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