Stiglitz on Globalization and Development with an Eye to Keynes

Joseph Stiglitz has laid out many of the issues central to the debate on globalization in a compelling story in a recent influential book. Globalization has become a contentious issue because the economic policies advocated for and, at times, almost imposed upon developing countries by international organizations such as the International Monetary Fund, the World Bank and the World Trade Organization are based on misconceptions about how market systems work. Market fundamentalism underlies the entire policy framework of the Washington Consensus. The limits of this approach are nowhere clearer than in the examples presented by developing and transition economies. Many policy missteps could have been avoided by adopting the main insights of traditional Keynesian theory, the basic lessons of which remain valid, even if it has been largely excised from the IMF's recipe book. The results of 20 years of market fundamentalism make it clear that globalization and development are distinct issues and that the former does not necessarily entail the latter. In order to understand how they are connected we need to supplement macroeconomic analysis with studies of how international economic integration comes about.