Globalization and its Discontents | Study Guide

Joseph Stiglitz

Download a PDF to print or study offline.

Study Guide
Cite This Study Guide

How to Cite This Study Guide

quotation mark graphic


Course Hero. "Globalization and its Discontents Study Guide." Course Hero. 26 Apr. 2019. Web. 16 June 2019. <>.

In text

(Course Hero)



Course Hero. (2019, April 26). Globalization and its Discontents Study Guide. In Course Hero. Retrieved June 16, 2019, from

In text

(Course Hero, 2019)



Course Hero. "Globalization and its Discontents Study Guide." April 26, 2019. Accessed June 16, 2019.


Course Hero, "Globalization and its Discontents Study Guide," April 26, 2019, accessed June 16, 2019,

Globalization and its Discontents | Quotes


To the [IMF], a liberalized financial system was an end in itself [representing] its naive faith in markets.

Narrator, Chapter 2

The IMF viewed the liberalization of capital markets, or trade in a nation's currency, as an unquestionable good and a key element of its free-market economic world view. The author calls this belief "naive" because the IMF demanded national currency be open to global trade before any regulatory safeguards were put in place in the developing country.

Without regulation, speculation in a nation's currency can lead to wild swings in the currency's value, as happened in Thailand. When speculators sell the currency, its value plummets, leading to a severe economic decline or economic crisis in the client country.


The lack of [local] knowledge is of less moment because it take[s] a 'one-size-fits-all' approach.

Narrator, Chapter 2

The IMF was successful in using contractionary, anti-inflationary policies to fix hyperinflation in Latin America, so it decided to impose these same policies in every country that needed its help.

The IMF's anti-inflationary policies became the liberalization orthodoxy imposed on all client nations. This one-size-fits-all policy failed spectacularly in developing countries in recession. These nations needed expansionary policies to grow their economies, but the IMF insisted they adopt the contractionary policies that had worked before in completely different circumstances. The IMF regimen proved that one size does not fit all, and policies that help in one situation can do immense harm in a different economic setting.


[Conditionalities] went beyond economics into areas that properly belong in the realm of politics.

Narrator, Chapter 2

IMF conditionalities constrict a government's ability to enact policies to the point where the government is powerless to maintain economic and social programs that help citizens. These conditionalities essentially override the democratic process in the client nation. Austerity measures rob an elected government of its power to serve the people who elected it. The government no longer has input into key decisions, such as those pertaining to agriculture and industry, that affect jobs and, if neglected, lead to poverty and widespread unemployment.


The United States could [ignore the IMF] ... because it was not dependent on [it].

Narrator, Chapter 2

This quote addresses the inherent inequities in IMF lending policies. Developing nations require an assurance from the IMF that they are creditworthy. Without such assurances, they are denied loans from the IMF and all other lending institutions. This is the main reason client nations bow to draconian IMF demands.

However, rich and powerful Western nations can ignore IMF requests for austerity because they are creditworthy enough to secure loans from anywhere in the world. The servile dependence of developing nations and the hubristic independence of rich Western nations are key to the inequities inherent in the IMF and its work.


Privatization needs to be part of a more comprehensive program ... Timing (and sequencing) is everything.

Narrator, Chapter 3

Privatization is too often imposed on a country before it has established regulatory institutions to ensure that privatized entities are run properly and for the good of the economy and the people. The problem is often one of timing (of forcing privatization too quickly) and sequence (of privatizing companies before there is a regulatory framework in place).

Unfortunately, liberalization economists frown on regulation, so safeguards are ignored while privatization is pushed forward. Both regulatory institutions and privatization must be part of a comprehensive program of economic reform.


The hypocrisy of those pushing for trade liberalization ... has reinforced hostility to trade liberalization.

Narrator, Chapter 3

The IMF's hypocrisy arises from its bias in favor of developed nations. The IMF demands trade liberalization in developing countries even when the free market has a negative effect on their economies. When free trade policies have a potentially negative impact on key Western industries, however, free trade policies are ignored. This is the hypocrisy that makes forced liberalization in client countries so unwelcome.

Western countries use all sorts of barriers to free trade, from tariffs to subsidies, to ensure their key industries remain profitable and are protected from foreign competition. Trade barriers are anathema to the IMF, which will not tolerate them in any form in client nations. Thus, the global system of free trade is based on a hypocritical double standard, one that benefits Western countries and one that harms developing nations.


Emerging markets are ... forced open ... through the threat of sanctions or the withholding of assistance.

Narrator, Chapter 3

The forcible imposition of free trade, of opening all or most of a developing nation's markets, is often a conditionality that precedes the offer of a loan from the IMF. Any nation that balks at liberalizing trade in any of its economic sectors may be threatened with the withholding of a needed loan or with punitive sanctions, both of which may cripple its economy. If the nation is in an economic crisis, its subservient position gives it no room for negotiation or discussion.

The IMF is not interested in why particular economic sectors should not be exposed to unfettered free trade. For the client country, all sectors of the economy the IMF demands be open to free trade must be opened, regardless of the effect on the nation's economic growth and employment.


The IMF [blundered] ... forcing liberalization before safety nets were put in place.

Narrator, Chapter 3

The IMF forces liberalization policies on a client country before the required regulatory frameworks and anti-poverty safety nets are created and functioning. When liberalization leads to the failure of local businesses or agriculture, a large portion of the population may fall into poverty.

The IMF's austerity measures prevent the government from creating a social safety net before draconian IMF policies are enacted. Its removal of government from the decision-making process robs the government of the capacity to implement rules and regulations to ease the way toward reforms. If creating safety nets to ease the effects of reform is the first step in economic liberalization, there will be less economic and social disruption and instability—and fewer IMF blunders.


There were ... billions for corporate welfare but not ... millions for welfare for ordinary citizens.

Narrator, Chapter 4

This quote reveals the bias and inequities inherent in the way the IMF operates. When the IMF gives a loan or bailout to a client nation, most of that money is paid to incorporated Western banks in repayment of previous loans. So the financial sector of the industrialized West benefits to the tune of billions of dollars in debt repayment. But austerity measures imposed on client country governments ensure that little of the loan money remains to provide even the most basic services to citizens. While Western banks get billions, the IMF denies the client nation's government of the few million dollars it needs to pay its workers' pensions or to provide social services, such as food assistance or education, to ordinary people. Western bankers become richer while the poor in the developing country become poorer.


Riots do not restore business confidence. They drive capital out of a country.

Narrator, Chapter 4

A key tenet of liberalization states that government is inefficient, should be severely limited, and should be denied involvement in the economy. The IMF believes that a shrunken and ineffective government will attract foreign investment into the client nation. The IMF also imposes austerity measures on a client nation's government, leaving it with too little revenue to provide for its citizens. In many cases, the government is forced to cancel programs that subsidize food prices so that its poorest citizens can afford to eat. IMF policies generally forbid subsidies of any kind in a client nation. With no subsidies, poor people in the developing nation cannot afford to buy food, and widespread hunger may lead to food riots.

The IMF believes Western investors will be attracted to a client country whose government, too, has been starved. Instead, the social and political instability on display during food riots scares foreign investment away from the developing nation.


One attribute of ... success cases ... is ... they are 'homegrown' ... sensitive to the needs ... of their country.

Narrator, Chapter 7

The IMF has always denied officials and experts from client countries access or input into its decision-making process. Its dependence solely on Western financial experts frequently makes its policy program for a client country wholly unsuited to the needs of that country or to its unique culture and conditions.

This is yet another variation on the one-size-fits-all fixation of the IMF. In this quote the author emphasizes the importance of incorporating the policy suggestions of the developing nation into the plan for its economic growth or the cure for its economic ills. Only when the IMF takes into account the homegrown policies crafted by officials and citizens of the client nation and makes them part of the assistance program will this program truly meet the country's needs. What's important is the process of inclusion to successfully address or correct a client country's economic needs.


Many ... countries that have taken a ... gradualist policy have succeeded in making ... reforms more rapidly.

Narrator, Chapter 7

The IMF almost always insists that its liberalization policies be implemented before or immediately after a loan is granted. This rapid liberalization disrupts the client country's economy and society, and such disruption often leads to instability.

Developing nations in transition or crisis that ignore the IMF's breakneck pace of reform realize better economic and social results from the programs they implement gradually, after regulation and safeguards have been put in place and after citizens experience the benefits of gradual change. Poland and China are just two examples of countries in transition that implemented reforms gradually after they were accepted by citizens and seen as economically beneficial.


Successful transitioning countries were pragmatic—they never let ideology ... determine policy.

Narrator, Chapter 7

It is not only the pace of change (rapid versus gradual) that affects the success of economic transition. Flexibility in terms of the types of policies implemented is also vital. The IMF always imposes its rigid liberalization ideology as the one and only panacea for economic reform. In many cases, as in Russia, this ideological rigidity leads to economic disaster.

In this quote the author states that being pragmatic, or taking into account the realities or conditions on the ground, is the best way to approach economic policy. If liberalization works to ease or enhance transition, a pragmatist will recommend it. But where liberalization policies are believed to be counterproductive or harmful, other policies are introduced.


A bailout in the event of a crisis is like 'free' insurance.

Narrator, Chapter 8

This quote reveals the problems associated with moral hazard. When investors know that their investment is guaranteed, by the IMF for example, investors are far more willing to make unwise and risky investments.

The moral hazard arises because the investors do not do the research needed to understand the riskiness of the investment because the investment is insured by the IMF. The investors can't lose. If the investment works out, the investors make money. If the investment goes bad, the investors get their money back from a new IMF client country bailout. It's a win-win for the investors but may be a lose-lose for the developing country that is forced, through free trade and open markets, to accept investments in risky enterprises.


The problem is not with globalization, but with how it has been managed.

Narrator, Chapter 9

In the author's view globalization has failed because it has been so dominated by Western financial and corporate interests. These special interests work for their own or their industry's benefit, to the detriment of developing nations. Western financial experts make all the decisions about the policies they impose on client nations. This one-sided approach to management and policy is inequitable and unfair. Globalization would work more fairly for all concerned if IMF management included representatives of the developing countries that are its clients.

The author also criticizes IMF management for lacking transparency, for making decisions behind closed doors. After its secret meetings, the IMF rolls out its policy decisions without allowing for debate or input from client nations. For globalization to become accepted as a force for good, inclusion and transparency must become part of the IMF's management process.

Cite This Study Guide

information icon Have study documents to share about Globalization and its Discontents? Upload them to earn free Course Hero access!