Joseph Stiglitz's Making Globalization Work - Chapter 2

The world isn’t flat, as Thomas Friedman suggests, and governments need to enable developing countries to gain a proper level of living, says Joseph Stiglitz. He writes that economic development can only be achieved when multiple groups get together to fix the problem. These groups include markets, government, non-governmental organizations, cooperatives, and not-for-profit organizations. Development cannot come about without synthesizing these groups’ efforts.
Stiglitz argues that the Washington Consensus is a misguided idealistic policy that has been proven a failure, particularly in Latin America. The Washington Consensus essentially calls for privatization, minimal government involvement in markets, few trade barriers, and deregulation. He shows that adopters of this philosophy obtained early growth only to fall into years of stagnation. Meanwhile, leftist regimes in Brazil and Venezuela provide fine health care and education, meaning a higher standard of living.
His seemingly favorite success story of government intervention is the growth of East Asia. Their governments allowed markets to work in a regulated manner and they made sure that benefits were widely shared. As well, Asian savings rates are consistently above 25%.
He argues that varying economic strategies should be applied in different circumstances. For example, Russia failed miserably when it rapidly privatized it’s markets because there was no solid legal system to enforce property or tax laws. But when eastern European countries joined the EU, they had quick growth because they joined an organization that provided a solid legal framework.
Stiglitz overarching philosophy for development can be summarized in the following paragraph. Development requires social and political stability. Economists need to focus on equity, not just GDP. Local community allocation of resources is most efficient. And to the West he says: don’t undermine foreign democratic systems and limit opportunities to join in corruption. Finally, since the world is set up to help the rich, let’s make policies that tilt the playing field in favor of the poor.
I agree with Stiglitz’s idea that no one economic strategy will work in every situation. We must act in different ways for various situations. I also agree that local governments do need to be at least somewhat involved in their own markets if development is going to occur. However, Stiglitz seemed to praise the Malaysian government for its affirmative action policies for native Malaysians and against Chinese-Malaysians. He seems to be so focused on equitable outcomes that he forgets about laws of equality. I completely disagree that any government should have any policies explicitly discriminating against a race of people.
Finally, I disagree that policy should be made that favors developing countries and opposes rich countries. This is completely disregarding the economic law of incentives. The reason some countries are rich is because they are productive. We want to create incentives to be productive because productivity is the basic goal of economics. Thus, policy should reflect that we are all created equally and we are equally responsible for our own productivity. Some countries will always be poor because their people are unproductive, their geography is not conducive to current economic demands, their governments are corrupt, etc. Economists need to be able to accept that poverty will never be abolished, so let the productive rise up and the unproductive stay put.