Using analogy from our class discussion I may infer that the association between the interest rate and currency values obeys some sort of a Laffer curve, but the analytical talking point to reconcile this two assertions are missing. So, it is a legitimate argument to make that the IMF was intentionally trading the troubled country’s economic stability and best interest for the fulfillment of the IMF’s agenda. Stiglitz also refers to ‘Trickle Down’ economics. This he describes as the notion that economic growth will eventually reach the poor, as the rich spend their increased income.
Instead, wealth trickled up to members of narrow interests. He further describes how Boris Yeltsin created a powerful class of oligarchs and businessmen. The IMF loaned billions to Russia, while political elites benefited from special tax privileges and looted public coffers. Local government officials squeezed private firms so hard that they had no incentive to Invest. He complains that the IMF provided billions to bail out banks, but little in food subsidies to the poor masses. He condemns the Treasury and IMF for its 30 billion$ deal with Japan.
This money went to American and other foreign banks, rather than to help with Japan’s economic situation. He also recounts 23 billion$ to bail out financial interests during the Asian crisis. This is, as Stiglitz described it, corporate welfare. The World Bank is preying on the poor in under developed nations by putting their own interests ahead of those who need aid the most. The banks of rich countries loan dollars to the third world country banks. These loans then go to projects that involve international bidding, and all projects the World Bank coordinates are “mostly awarded to multinationals and experts from the First World”.
I will argue here, that the World Bank is creating new opportunities for Multi-National Companies, from developed countries, by way of investment in “transportation, electrification, and telecommunication projects” and that the bureaucrats of the World Bank, are development tourists, not because they receive exorbitant salaries, first-class travel or that they stay in the best hotels, it is because they visit the troubled countries capital cities on trips and view the problems it deals with in a “neoclassical economics” sense.
This means, that the World Bank never discusses the problems, but looks at ways to make money by creating reports that speak more to the Bank’s “cost-benefit analysis”. An example how the interests of the World Bank are its own, is quite obvious in another book by Escobar (1995), Encountering Development: The Making and Unmaking of the Third World. In this book Escober explores how the World Bank’s number one priority was on electricity generation and water was not as big of a concern, thereby showing a “lack of concern for the welfare of poor people”.
Escobar believes that the World Bank could be used as a development apparatus in many ways, but that it has fallen to the “cultural imperialism” of the developed world. Both Stilglitz and Escobar believe that there is little hope for global institutions that carry their self interests ahead of the third worlds. This means that there is even less hope for those who depend on these global institutions in the third world. It is quite a contentious, yet well proven, theory that they have come up with. Indeed, globalization could be used as an instrument for the good, as these authors believe.
However, at this point globalization is obviously being used as a camouflage for the rich to ensure that they continue to grow at the expense the growth of third world countries. Moreover, the IMF and the World Bank could be used to the benefit the third world countries by encouraging an untouched global free market system and a culture of innovation. The use of innovation in times of despair will increase global competitiveness and growth. Why then, is innovation not part of the agendas of the IMF, the World Bank and above all the developing countries that supposedly want to help third world countries?
The answer is probably, more than possibly that the developed countries are trying their best to keep the third world countries on a tight leash by indirectly controlling their monetary policies. Whilst at the same time, these rich countries are increasing the growth and prosperity of their own countries by using these global value chains and multinational companies to help produce cheaper goods at the same innovative levels. Globalization can be used as a responsible tool for third world growth, the elimination of poverty and indeed a better life for societies in the third world.
It can be achieved by using global monetary policy in a responsible manner that puts IMF, and World Bank loans into innovation projects and uses loans to reasonably affect foreign markets. Indeed, in all of the examples used by Stilgitz and in some cases Escobar, the third world countries likely would have been better off without the market influence of the IMF and the World Bank. The age of global responsibility will only happen when global institutions, such as the IMF, the World Bank, and their rich country participants gain a global conscience.
Thus, this will then usher in successful untouched global free-market system, and a culture of innovation to help third world countries. The primary deficiency of this book is in its understanding of Public Choice concepts. Stiglitz refers specifically to Rent Seeking, which he describes as a theory of “how Special interests use tariffs and other protectionist measures to increase their incomes at the expense of others”. He associates this theory with ideological fervor and claims that market failure arguments better explain problems in developing countries.
This attitude towards Rent Seeking is peculiar for two reasons. First, what he describes is more like the collective action problem of Mancur Olson than Rent Seeking. Second, he supplied numerous examples of collective action problems in the global economy of the 1990s.
Reference. Escobar, A. (1995), ‘The World Bank: an exemplar of development,’ and ‘The Capitalization of Nature: Two forms of ecological Capitali?? , Encountering Development. The Making and Unmaking of the Third World. Princeton, N. J. : Princeton University Press, pp. 163-67 and p. 199-206.