BOOK REVIEW : MAKING GLOBALIZATION WORK

Making Globalization Work

By Joseph E. Stiglitz.

358 pp. Penguin Book. Rs. 267/-.

Fifteen years ago, the world seemed headed irresistibly toward economic integration. Developed, developing, formerly Communist and even still-Communist nations (like China and Vietnam) had embraced markets and plunged into the global economy.

Joseph E. Stiglitz, a former Yale, Princeton and Stanford professor, spent most of the 1990s atop the commanding heights of this globalizing economy, first as the chairman of Bill Clinton’s Council of Economic Advisers and then as chief economist at the World Bank. After returning to academia with a position at Columbia, Stiglitz became one of three recipients of the 2001 Nobel Memorial Prize for his research on the economics of information.

Now, as enthusiasm about economic integration has waned, Stiglitz has emerged as one of globalization’s most prominent critics. Even while he was at the World Bank, he clashed repeatedly with his counterparts at the International Monetary Fund and the United States Treasury over what he called their “market fundamentalism.” His “Globalization and Its Discontents” (2002) included sharp criticisms of international economic institutions, in particular the I.M.F. for its handling of the East Asian financial and currency crises of 1997-98.

The book, which sold widely, was hailed by globalization skeptics and hotly debated by economists, some of whom found Stiglitz’s criticisms exaggerated, unfair and unduly personal. Still, the novelty of an eminent economist and former high-ranking public official making a passionate assault on the international economic order put Stiglitz at the center of the globalization debate.

His new book extends the discussion of “Globalization and Its Discontents” but largely avoids the polemical tone. One can, in fact, judge these two books by their covers. The earlier work showed a flame streaking across a stark black background. The soft white jacket of “Making Globalization Work” features three earth-eggs resting in a vulnerable nest. Stiglitz appears to have gone from flamethrower to mother hen. Even the title suggests a transition from flashy dissent to constructive engagement. And indeed, this book is a concise and enlightening treatment of international economic problems, along with much less convincing proposals for reform.

Stiglitz walks the reader through a series of issues, from trade and intellectual property rights to global warming and the role of the multinational corporation. Each of the book’s chapters frames a problem, provides some analysis and proposes solutions. On page after page, Stiglitz argues that globalization holds out great promise as a force for good, but that the rules of the present international economic order are designed and enforced by the rich nations to serve their interests. As a result, they are inequitable and inefficient.

Developed countries manipulate international trade rules to protect their factories and farmers from more efficient producers in the developing world, Stiglitz tells us. Multinational corporations evade responsibility for the damage they do. Meanwhile, the international financial system, led by the I.M.F., rewards improvident lenders (the wealthy) and penalizes hapless debtors (the poor).

Stiglitz often invokes the concept of negative externalities: the costs that some individuals, firms or nations impose on others. A factory that skimps on pollution control, for instance, may increase its profits, but it harms the rest of society. The polluter is responding to incentives without having to pay the cost of its activities. Similarly, interest groups in developed nations benefit from favorable treatment by their governments, but these favors victimize people in developing nations who are trying to compete. It is bad enough, Stiglitz says, that thousands of wealthy American cotton farmers get billions of dollars in government subsidies; it is even worse that this depresses the world price of cotton, further impoverishing millions of African cotton farmers.

When the pursuit of private gain causes social losses, government should force the perpetrators either to stop or to help repair the damage, Stiglitz argues. This is the rationale for pollution control, fisheries management, public health restrictions and other familiar regulatory measures. “Making Globalization Work” calls repeatedly for action to avoid or redress the impact of externalities — in trade, corporate activity, the environment and financial and monetary affairs.

Stiglitz uses his command of economic logic to good effect, offering clear discussions of dozens of complex issues, from patent law to abuses in international trade. Many critics complain that drug companies overcharge poor countries, but Stiglitz goes further and makes a convincing case that this is not only immoral but also economically inefficient. Poor countries should be charged less than rich countries: if people willing to pay for medicines are unable to buy them, an existing demand goes unmet, which, in economic terms, is wasteful. Drug companies’ pursuit of private gain results in an inefficient allocation of resources and a social loss. Stiglitz won the Nobel for exploring how uncertainty and poor information can make markets fail. Here he takes evident pleasure in showing how an examination of incomplete markets can make corrective government policies desirable.

Many of Stiglitz’s criticisms are uncontroversial. He is hardly alone in believing that economic opportunities are not widely enough available, that financial crises are too costly and too frequent, and that the rich countries have done too little to address these problems. But he can be one-sided, as in his unstinting praise for East Asian development policies that often repressed labor and restricted democracy, and in his tendency to absolve developing-country governments of almost all blame for their problems. He is even weaker in his policy proposals.

Stiglitz argues throughout that powerful special interests have distorted the world economic order and the international institutions that run it. His preferred solutions are large-scale reforms in existing international institutions and the creation of new institutions like a global reserve system — to make trade fairer, to allocate reserves more equitably, to discourage despotism and corruption. But why would the national governments that, after all, still run the world want to do any of these things? And why should we expect new institutions to be any less biased, any less subject to special-interest pressures, than existing ones?

It is hard to disagree with Stiglitz’s intentions. Yet he seems to assume that bumping policies up to the international level will make world economic institutions less captive to the special interests he abhors — though democratic control of policy is more likely at a national than an international level, since most national politicians must face elections. Even if focusing on national policies (for example, what the United States should do in the I.M.F.) is difficult, it may be a more promising avenue for reform than Stiglitz’s new and improved international organizations.

“Making Globalization Work” is an optimistic book, offering the hope that global society has the will or the ability to address global problems and that international economic integration will ultimately prove a force for good. Certainly Stiglitz is right that the world would benefit from a concerted effort to address problems of the environment, poverty and disease. However, his proposals are almost utopian in their reliance upon good will, enlightened public opinion and moral imperatives to overcome selfish but deeply entrenched private or national interests that do not share his goal of making globalization work for as many countries and as many people as possible.

Stiglitz has given us a well-written and informative primer on the major global economic problems. He helps his readers understand exactly what is at stake. Nonetheless, for all its good intentions, “Making Globalization Work” is probably not a workable blueprint for the future.

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Book Review : ON ETHICS AND ECONOMICS BY AMARTYA SEN

In the foreword to the book, John M. Letiche writes, "this small book is a 'treasure-chest' for economists, philosophers and political scientists interested in the relations between contemporary economics and moral philosophy." Written in a clear, crisp and stimulating style, Prof. Amrtya Sen provides more than a terse synthesis of the relevant literature on ethics and economics. Here he shows the contributions that general equilibrium of economics can make to the study of moral philosophy; the contributions that moral philosophy and welfare economics can make to mainstream economics; and the harm that the misuse of the assumption of self-interested behavior has done to the quality of economic analysis.

Description and Summary

First of all, this book is a collection of his three lectures conducted abroad. He has divided the book into three main chapters and discusses various aspects in economics and ethics. In the first lecture, he goes in to the thoughts of Adam Smith, the father of economics. Here, he discusses the rational behavior & self-interest and the relationship of Adam Smith with Self-interest maximization. "Self interest dominates the majority of men." As Smith explains in The Theory of Moral Sentiments, Prudence is the union of two qualities of 'reason and understanding', on the one hand, and 'self-command', on the other. The notion of 'self-command', which Smith took from the Stoics, is not in any sense identical with 'self-interest' or what Smith called 'self-love'. As Smith himself puts it, 'man, according to Stoics, ought to regard himself, not as something seperated or detached, but as a citizen of the world, a member of the vast commonwealth of nature'. One of the passages of Adam Smith that has been quoted again and again by the latter-day Smithians, is quoted by Sen is the following: "it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their sel-love, and never talk to them of our own necessities but of their advantages."

In the second lecture, Sen makes some economic judgement related to moral philosophy. First of all, he says that interpersonal comparisons of utility make no sense and are indeed totally meaningless. Second, Sen compares the pareto optimality & economic efficiency, well-being & Agency, Valuing & value and the relationship between self-interest and welfare-economics. Sen continues that if economic efficiency were the only criterion for economic judgement, and if the various conditions imposed by the so-called 'Fundamental Theorem of Welfare Economics' were to hold, then there would be in general no welfare-economic argument for anyone to behave in a way other than that required for self-interest maximization. Such behaviour on the part of all will indeed produce pareto optimality, and the attempt on the part of anyone to the part from self-interest maximization would, if it would do anything, only threaten the achievement of 'economic efficiency', i.e. Pareto optimality. Therefore, if welfare economics is in fact put in this extremely narrow box, and if the structural assumptions were to hold (including ruling out non-market interdependences), then there would indeed be no welfare-economic case against self-interested behaviour. Here Sen discusses that the impoverishment of economics related to its distancing from ethics affects both welfare economics and predictive economics.

In the third and final lecture, he goes into the demands of the systematic ethical evaluation, and the role of consequences, freedom and rights in this evaluation. Here, he discusses how the conceptualization of personal achievement and advantage in welfare economics has been deeply influenced by the utilitarian view of the person and how this influence continues to be important even in the post-utilitarian phase of welfare-economics.

In this elegant critique, Amartya Sen argues that a closer contact between welfare economics and modern ethical studies can substantively enrich and benefit both disciplines. He argues further that even predictive and descriptive- economics can be helped by making more room for welfare economic considerations in the explanation of behavior, especially in production relations, which inevitably involve problems of cooperation as well as conflict. The concept of rationality of behaviour is thoroughly proved in this context, with particular attention paid to social interdependence and internal tensions within consequentialist reasoning. In developing his general theme, Sen also investigates some related matters; the misinterpretation of Adam Smith's views on the role of self-seeking; the plausibility of an objectivist approach that attaches importance to subjective evaluations; and the admissibility of incompleteness and of 'inconsistencies' in the form of over completeness in rational evaluation. Sen also explores the role and importance of freedom in assessing well-being as well as choice. Sen's contributions toeconomics and ethics have greatly strengthened the theoretical bases of both disciplines; this appraisal of the connections between the two subjects and their possible development will be welcomed for the clarity and depth it contributes to the debate. It's interesting how ethics and their practice seem to fall along the lines of events that tend to produce profits, and are therefore, more easily justified than not, to the point of being made a part of the law that governs ethics as well as processes. This aspect of human tendencies to favor profits as ethical under any circumstances may well have given rise to the Enron's, Worldcom's, etc., that often also produce the exonerations of bankruptcies where privileges of "restarts" are common, under different names, or through acuisition/mergers where social responsibilities are thrown by the wayside and efforts to salvage the more profitable opportunities are typical of commercial justice. The inconsistency that these ethics represents is often difficult to rationalize in rational minds.

Critical evaluation

Through this lectures, he was trying to argue that welfare-economics can be substantially enriched by paying more attention to ethics, and that the study of ethics can also benefit from a closer contact with economics. He argued that even predictive and descriptive economics can be helped by making more room for welfare-economic considerations in the determination of behavior. He didn't try to argue that either of these exercises would be particularly easy. They involve deep-seated ambiguities, and many of the problems are inherently complex. But the case for bringing economics closer to ethics does not rest on this being an easy thing to do.

Conclusion

Professor Amartya Sen, who became the first Asian to win the Nobel prize for economics today, has won acclaim as "conscience keeper" of the world of economics by probing into ethical and philosophical questions relating to inequality and causes of poverty and famine. The Indian Express dated on 15, October 1998 revealed Amartya Sen as a 'conscience keeper' of world of economics. The Times of India dated on 15, October 1998 says that Prof Sen's distinctiveness as an economist rests on the fact that he has ranged far and wide over the vast terrain covered under the rubric of economics. His diversity not only embraced different areas of economics but also bridged what, for most practitioners of the science, is an unbridgeable chasm -- that between the theoretical and the practical, combining empirical work with policy orientation. His contribution has been substantive to all the areas he has touched upon: social choice, definitions of poverty and welfare indices, causes of famine, and most importantly, the restatement of what indeed is development. Recognition of his outstanding insights to the science of economics has come in the form of a Nobel prize.

Book Review by Deepak Bhatt, 25.10.2012, 06:00 a.m.