Wednesday, November 16, 2011

Book Reviews: Why Globalization Works by Martin Wolf and Making Globalization Work by Joseph Stiglitz

Problems of Globalization: Martin Wolf and Joseph Stiglitz
Micah Wonnenberg

February 21, 2009

Wolf on Globalization: Free Market Fundamentalism

Martin Wolf’s book Why Globalization Works provides the reader with an argument that, despite frequent criticism of it, capitalist economic globalization is a positive force in the world, and it should be adopted more widely and comprehensively in order to maximize the world’s wealth production. Perhaps the most adequate definition of globalization for Wolf’s purpose is: the “free movement of goods, services, labor and capital, thereby creating a single market in inputs and outputs; and full national treatment for foreign investors (and nationals working abroad) so that, economically speaking, there are no foreigners” (14). There is a political aspect in that political boundaries become less restrictive as markets integrate distinct economic regions. Summed up, liberal economic globalization means movement in the direction of greater integration. This results in “increased impact of economic changes in one part of the world on what happens in the others” (15). Other non-economic consequences of globalization, which Wolf does not fully address, include changes in cultural, social, and political values (19).


Wolf supports a globalization driven by a liberal market economy. A liberal society values individual freedom, meaning that its foundation is “the right of all individuals to own and use property freely, subject to well-defined, law-governed constraints” (25). For Wolf, it is natural that this commercial freedom in turn liberates the cultural and intellectual spheres, because merchants value practicality, rationalism, and freedom of inquiry: “the basis of the west’s greatest achievement—modern science” (25).

Constitutional democracy, the rule of law, and a degree of regulatory competition all encourage a properly functioning liberal economy within a state. Liberal democracy, married to a liberal market economy, is “the only system of governance for which harmonious and co-operative inter-state relations is a natural outcome” (33). International peace is ensured because “Trade is far cheaper than empire” (34).

For Wolf, globalization opens the doors to wealth for all: “There are almost limitless opportunities for positive-sum interaction among human beings” (97). Since only liberal markets can provide access to wealth, they should be spread across the world. More globalization is needed, not less. If states have not lifted themselves out of poverty, it is their fault for not adopting liberal international trade policy. If globalized states are suffering, it is because of the actions of the state. Globalization is to be viewed as a great positive-sum market in which ongoing growth is to be expected.

Wolf frames his argument as a defense against the critics, who he labels “Antiglobalization.com” (7). In this way he controls the parameters of the debate, but he does not offer an exhaustive list of criticisms, nor does he explain them away so neatly. The arguments he provides are founded on certain assumptions, including that people everywhere highly value material goods and therefore problems of globalization are problems of unequal distribution of those goods. But his view of the world is skewed. Wolf is an economist with a mastery of numbers and insider knowledge of the engines of capitalist growth, but after reading his book, one gets the impression he does not often venture outside the world of statistics. Not everyone in the world wants to be like western countries. Indigenous populations might want to be left alone. That is their right, but for Wolf, the ideas of self-sufficiency, local production, and collectivism are “absurd” (194). He haughtily warns that these ideas will lead to environmental ruin, rising inefficiency, and food shortages (196). Yet globalization as we have seen it has been accused of fostering these problems as well. The arrogance with which Wolf presents his market fundamentalist views on globalization and the liberal market economy would be more endurable if current events were not doing so much to prove his vision wrong.

Wolf on the Role of the State

Distance and space still matter, so territorial control and states matter (16). Wolf argues that even though technology allows greater state control of physical objects crossing their borders, it is important that states do not assume too much authority in regulation of markets, domestic or international. The nature of the state itself decides to what extent it will take advantage of the opportunities presented by globalization. According to Wolf, market failures are usually domestic, so a state’s own policies are often to blame when development weakens (87). Central planning of the economy is “ludicrous,” because state planners are out of touch with consumers’ tastes, cut corners in quality, and backwards in the way they view innovation (59-60). The state should focus on its ability to provide public goods, remedy market failures, and offer aid to people for whom the market increases suffering beyond what “society find tolerable” (61). Government must manage its debts properly, protect private property, and generally act with “credibility, predictability, transparency, and consistency” (65). Wolf envisions a state at the service of capitalism, cleaning up its messes and assuming unattractive responsibilities through public debt. Governments must let businessmen do as they please and not interfere, because it is the merchants who have crafted western civilization with practicality, rationalism, and freedom of inquiry. Since they are the bedrock of society, the state should not excessively interfere with their dealings.

Wolf on the Environment

“Stopping growth is not an option” (189). When reading Wolf’s take on the relationship between globalization and the environment, Edward Abbey’s quote comes to mind: “Growth for the sake of growth is the ideology of the cancer cell.” It is also the ideology that drives market capitalism, and I would argue that there are significant setbacks to pursuing it so single-mindedly. However, when it comes to a force affecting our planet’s environment, within which exists everything that Wolf holds dear, Abbey’s quote is especially appropriate. Wolf concedes that “economic activities create environmental spillovers” (190). How does he suggest we deal with global environmental crises? After “people become richer,” the problem will take care of itself, but only on a local scale. Rising incomes might lead people to pick up litter on their lawns, yet “global harms” can be expected “to rise continuously” (189). What sense does that make? A global harm is a local harm. Apparently, environmental crises must wait until the whole world is wealthy, and then they will be dealt with. Is Wolf oblivious to the fact that environmental harm often is the very roadblock to wealth that many populations face?

Wolf’s free market fundamentalism borders on fanaticism. He comes across as a priest of the religion of the globalized international market. It is everything to him, including the savior of the people from its own excesses: “The market must be used to remedy the harm the market would otherwise do” (190). A good place to start fighting environmental destruction, he offers, is the removal of “harmful subsidies,” such as those provided to farmers and fishers (190). When referencing concerns about the energy and pollution costs of global transport, Wolf’s arguments become more ludicrous than any of globalization’s critics. Many of these concerns, which are “greatly exaggerated,” “are not related in any significant way to trade” (190). In fact, he claims, “the absence of trade can be directly harmful to the environment.” In an age where food often travels more than 2,000 miles en route to the dinner table, Wolf would have us believe community supported agriculture and farmers’ markets represent the real threat to the environment. The only threat they represent, incidentally, is that their horrid “localization” takes control of food provision out of the hands of globalized capitalism.

Wolf treats his imagined critics’ arguments with disdain, but it becomes clear in his book that he does not fully appreciate their nuances and depth. It is as if, in the face of a rising “antiglobalization.com” backlash, he jotted down the protesters’ slogans without bothering to dig deeper into the interrelated causes and grievances. Employing his vast knowledge of abstract economic theory, a toolbox stocked with impressive statistics, and a conceptual model of free market capitalism, he tests the slogans. Having dismissed them as folly, he prescribes trade liberalization for everything.

In the real world, things can happen vary differently then they do in a theoretical laboratory. There are a range of troubles facing globalization that he avoids, from First Nations’ rights to the dilemma posed by pirate attacks on trade routes in international waters. Though he surgically picked apart economic arguments against it, globalization has affected the world in many other non-economic ways. To embrace it on a purely economic basis might seem rational, but without incorporating political, cultural, religious, and other social perspectives, Wolf’s argument for liberal market, capitalist globalization is incomplete and unconvincing. Bolivians are not “Sad about the State,” they are resisting the privatization of water services. Iceland is certainly “Traumatized by Trade,” but its suffering is a result of the very prescription for financial liberalization that Wolf offers in “Fearful of Finance” (286-287).Wolf’s input is arrogant, narrow, and abstract, so it is unsurprising that his output, Why Globalization Works, has been proven inadequate and inaccurate by the events in the five years since its publication.

Stiglitz on Globalization: The System Can Be Fixed 


A broader view is needed to tackle the problems posed by the way economic globalization has been managed, and Joseph Stiglitz offers a helpful analysis in Making Globalization Work. He acknowledges five broad categories of concerns: “the rules of the game that govern globalization are unfair;” globalization “advances material values over other values such as a concern for the environment or for life itself;” globalization has “undermined democracy.” In contrast with Wolf’s suggestion that globalization is a game which everyone can win, Stiglitz recognizes that: “there is plenty of evidence from both developing countries and developed countries that there are many losers in both” (9). Most importantly, Stiglitz takes into account the complexity of the uneven growth of political and economic globalization: “We have a chaotic, uncoordinated system of global governance without global government, an array of institutions and agreements dealing with a series of problems, from global warming to international trade and capital flows” (21).

Stiglitz takes a closer, more sympathetic look at globalization’s problems than Wolf. He indicts the latter’s free market fundamentalism: “The Washington Consensus prescription is 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.” Because “Economic theory is not monolithic,” “policies based on that [Washington Consensus] model are likely to go awry” (29). Because no one has access to perfect information and risk markets are not always available, “unfettered markets do not lead to economic efficiency.” Because he takes into account globalization’s nuances and the multiple overlapping and interconnected levels on which it operates, Stiglitz would seem less caught off guard than Wolf by the current international financial crisis. Since he incorporates problems and appreciates complexity, his descriptions of globalization carry more weight.

Stiglitz on the Role of the State

For Stiglitz, the state is active in the protection of its citizens against the negative aspects of globalization. Since the free market can not on its own ensure prosperity for all, or even most people, it is up to governments to make sure trade is fair. Like Wolf, he agrees that the nature of each individual state plays a role in deciding what opportunities globalization offers. Access to international markets worked greatly to the benefit of East Asian countries, but it was carefully managed by the individual state governments (31). These states did not believe that liberalizing trade would by itself take care of the problems it created. Instead, they wisely recognized free market capitalism’s faults, while also perceiving the benefits of markets. Stiglitz is not anti-market, but he believes that they need to be better regulated, and so he sees the role of the state in providing this oversight.

Like Wolf, Stiglitz believes in some restrictions on the power of states to subsidize industries, such as the agricultural subsidies in the US (86). There are other developed-country tariffs that are designed to discourage “industrializing, by placing higher tariffs on manufactured goods than on raw materials; the more manufacturing involved, the higher the tariff” (87). While intellectual property rights are important for states to protect, there is a moral argument for some patents such as formulas for lifesaving medicines to be subsidized—but that is in order for developing countries to be able to afford them (120).

Stiglitz on the Environment


Stiglitz takes the scientific community seriously when it warns of imminent danger to our planetary ecosystem. He does not believe that across-the-board maximum wealth generation will magically fix complex environmental problems. Although he does not deny the private sector has a role in protection of some valuable resources, he is also not convinced that privatization will successfully do this. It is not guaranteed that the state will always be able to conserve resources either: “historically, neither the private nor the public solution has consistently promoted both efficiency and equity” (164). If a state is harmed by the environmental actions of another state--for instance, by polluting upstream water in an international river—“there is little that the injured party can do.”

What is needed therefore is collective action to protect humanity’s collective ecosystem. Since Earth’s atmosphere is one of the most obvious collective resources, every state has a stake in preserving its quality. Perhaps the issue of global warming of the atmosphere will be the catalyst that drives serious collective environmental regulation. It is the responsibility of each state government to take action to ratify the various treaties on environmental protection, such as the Kyoto Protocol (169). Besides taxes on pollution emissions and other familiar suggestions, Stiglitz does not offer much in the way of specific action forward, but he does advise that an international environmental regime “will require periodic revision,” possibly to “tighten the targets” as improved technology allows (183).

Wolf and Stiglitz on the International Monetary Fund

The one thing that neither Wolf nor Stiglitz can deny is that the International Monetary Fund is not without fault, and there is much room for improvement in its policies and structure. Wolf calls the IMF “myopic, hidebound, arrogant, demanding, and incompetent” (281). He disagrees with how “it has, in effect, assumed responsibility for running many developing countries, particularly small and poor ones” (288). Because the managers at the IMF can not do better than markets or domestic governments in planning economies, the Fund is a one-trick “hedgehog” pretending to be a more clever “fox” (289). Its intrusions into sovereign states’ economies and politics create political confusion. Although the Fund has failed spectacularly in some respects, Wolf believes the world would be much worse off without it (295).

According to Stiglitz, one of the most pressing matters to ensure fair globalization is the democratization of international institutions. Currently, the heads of the IMF, as well as the World Bank, are selected solely by European and US governments. This creates problems especially when the IMF plays a role in the creation of bankruptcy legislation for states—while also being the creditor (287). Also, Stiglitz points out that that some countries that received “A+” ratings from the IMF experienced complete economic meltdowns a few years later (17). This can also be seen as a result of the ideological faith that drives free market fundamentalists—it does not always correspond with reality.

In 2008 the world economy began to suffer a series of economic shocks which few economists predicted. Martin Wolf wrote in his book that “it is almost impossible to believe that the outcome will be another 1930s,” yet that is exactly what people are comparing our current crisis to (310). Stiglitz warns more sternly against instability caused by the liberalization of capital markets, which have in part (as far as I can tell) been the cause of this crisis. What is most clear is that the free market fundamentalist models that Wolf used to test criticisms of globalization were inadequate because they were based on arrogant, abstract assumptions. If we are to understand where globalization is headed in the future, we should follow Stiglitz’ example and incorporate nuance, complexity, and non-economic factors into our models.

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