Global Policy Forum

The Way Ahead


By Joseph Stiglitz

September 9, 2003


Today, globalization is being challenged around the world. There is discontent with globalization, and rightfully so. Globalization can be a force for good: the globalization of ideas about democracy and of civil society have changed the way people think, while global political movements have led to debt relief and the treaty on land mines.

Globalization has helped hundreds of millions of people attain higher standards of living, beyond what they, or most economists, thought imaginable but a short while ago. The globalization of the economy has benefited countries that took advantage of it by seeking new markets for their exports and by welcoming foreign investment. Even so, the countries that have benefited the most have been those that took charge of their own destiny and recognized the role government can play in development rather than relying on the notion of a self-regulated market that would fix its own problems.

But for millions of people globalization has not worked. Many have actually been made worse off, as they have seen their jobs destroyed and their lives become more insecure. They have felt increasingly powerless against forces beyond their control. They have seen their democracies undermined, their cultures eroded.

If globalization continues to be conducted in the way that has been in the past, if we continue to fail to learn from our mistakes, globalization will not only not succeed in promoting development but will continue to create poverty and instability. Without reform, the backlash that has started will mount and discontent with globalization will grow.

If financial interests have dominated thinking at the International Monetary Fund, commercial interests have had an equally dominant role at the World Trade Organization. Just as the IMF gives short shrift to the concerns of the poor -- there are billions available to bail out banks, but not the paltry sums to provide food subsidies for those thrown out of work as a result of IMF programs -- the WTO puts trade over all else. Environmentalists seeking to prohibit the importation of goods that are made using techniques that harm the environment -- with nets that kill an endangered species, or electricity produced by generators that pollute the air -- are told that this is not allowed: there would be unwarranted interventions in the market.

While the institutions seem to pursue commercial and financial interests above all else, they do not see matters that way. They genuinely believe the agenda that they are pursuing is the general interest. In spite of the evidence to the contrary, many trade and finance ministers, and even some political leaders, believe that everyone will eventually benefit from trade and capital market liberalization. Many believe this so strongly that they support forcing countries to accept these 'reforms,' through whatever means they can, even if there is little popular support for these measures.

The greatest challenge is not just in the institutions themselves but in mind-set: Caring about the environment, making sure the poor have a say in decisions that affect them, promoting democracy and fair trade are necessary if the potential benefits of globalization are to be achieved. The problem is the institutions have come to reflect the mind-sets of those to whom they are accountable. The typical central bank governor begins his day worrying about inflation statistics, not poverty statistics; the trade minister worries about export numbers, not pollution indices.

We cannot go back on globalization; it is here to stay. The issue is how can we make it work. And if it is to work, there have to be global public institutions to help set the rules. I have argued that there needs to be a change in mind-set. But the mind-set of an institution is inevitably linked to who it is directly accountable. Voting rights matter, and who has a seat at the table -- even with limited voting rights -- matters. It determines whose voices get heard. The IMF is not just concerned with technical arrangements among bankers, such as how to make bank check-clearing systems more efficient. The IMF's actions affect the lives and livelihoods of billions throughout the developing world; yet they have little say in its actions.

Governance at the WTO is more complicated. Just as at the IMF it is finance ministers that are heard, at the WTO it is the trade ministers. No wonder, then, that little attention is paid to concerns about the environment. Yet while the voting arrangements at the IMF ensure that the rich countries predominate, at the WTO each country has a single vote, and decisions are largely by consensus. But in practice, the United States, Europe, and Japan have dominated in the past.

The most fundamental change that is required to make globalization work in the way that it should is a change in governance. Short of a fundamental change in governance, the most important way to ensure that international institutions are more responsive to the poor, to the environment, to the broader political and social concerns that I have emphasized is to increase openness and transparency.

We have come to take it for granted the important role that an informed and free press has in reining in even our democratically elected governments: any mischief, any minor indiscretion, any favoritism, is subject to scrutiny, and public pressure works powerfully. Transparency is even more important in public institutions like the IMF, the World Bank, and the WTO, because their leaders are not elected directly. Though they are public, there is no direct accountability to the public. But while this should imply that these institutions be even more open, in fact, they are even less transparent.

It's not easy to change how things are done. Bureaucracies, like people, fall into bad habits, and adapting to change can be painful. But international institutions must undertake the perhaps painful changes that will enable them to play the role they should be playing to make globalization work, and work not just for the well-off and industrial countries, but for the poor and developing nations.

The developed world needs to do its part to reform the international institutions that govern globalization. We set up these institutions and we need to fix them. If we are to address the legitimate concerns of those who have expressed a discontent with globalization, if we are to make globalization work for the billions of people for whom it has not, if we are to make globalization with a human face to succeed, then our voices must be raised. We cannot, we should not, stand idly by.


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