Global Speculators

A billionaire and a Nobel laureate want to fix international trade agencies. Why bother?

Charles Oliver from the March 2003 issue

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Nor is there any reason to believe that we can solve the knowledge problems that Stiglitz highlights. Stiglitz rightly points out that the IMF and other international organizations lack detailed knowledge of local economies. They aren't sufficiently familiar with the customs and traditions of developing nations. Their ignorance, combined with poor economics, leads them to prescribe policies that often do little to help developing nations, and sometimes make things much worse.

It's no surprise that information doesn't move up through large institutions very well. Nor is it a surprise that large bureaucracies favor cookie-cutter solutions that may not apply to any given problem. Soros and Stiglitz each offer ideas on how to make these institutions adapt their programs to individual nations' needs.

Soros, for example, calls for giving the directors more autonomy and reducing middle-management positions. But such changes aren't exactly thoroughgoing. In the end, neither Soros nor Stiglitz give us any reason to believe that large international organizations will ever acquire or use the sort of detailed, localized approaches to problems that they call for.

Indeed, Soros and Stiglitz amass quite a bit of evidence that the best solution to many of the problems they highlight, especially in the developing world, may be through a decentralized, nongovernmental approach. Soros lets us know time and again about all of the good work his foundations have done across the globe. For example, his International Science Foundation paid the salaries of some 35,000 scientists in the former Soviet Union, allowing them to keep working at a time of state cutbacks. Soros also underwrote the treatment of tuberculosis in Russian prisons, an experience that led to further efforts against the disease.

"We mobilized the best experts in the field and commissioned Partners in Health in Boston to prepare a study on the global impact [of multi-drug resistant TB]," he writes. After that, he put together a coalition of 190 organizations and governments in an effort to wipe out TB worldwide.

Soros' foundation network has helped develop a certification process for aid organizations around the world. Companies, governments, and other foundations can give to those groups in confidence that they will use that money well on projects that will probably make a difference in the lives of citizens of developing nations.

Stiglitz also notes that private groups have often been better able than the IMF and World Bank to help nations overcome economic problems. One notable success story happened in Botswana, which averaged a 7.5 percent GDP growth rate from 1961 until 1997. That nation turned to the Ford Foundation for advice on how to develop needed infrastructure and build sound government policies.

"Unlike the IMF, which largely deals with the finance ministry and central banks, the advisers openly and candidly explained their policies as they worked with the government to obtain popular support for the programs and policies," Stiglitz writes. "They discussed the program with senior Botswana officials, including cabinet ministers and members of Parliament, with open seminars as well as one-to-one meetings." The Ford Foundation advisers took the time to study local conditions when developing their proposals and they took the time to explain those proposals and build a consensus for them politically. That's what made the policies a success, Stiglitz argues.

In sum, Stiglitz and Soros think the IMF, the World Bank, and other international agencies should act more like private organizations and foundations. But the weight of the evidence they present suggests another conclusion: The world, especially the developing world, doesn't need a "reformed" IMF or World Bank; what it needs is more Ford Foundations and more Soros foundations.

Soros and Stiglitz concede that free trade and economic globalization are, on the whole, good things. They admit that the arguments for trade are largely valid. They also admit that globalization isn't the cause of all the world's problems, as some of its economically illiterate critics sometimes suggest. The TB epidemic in Russia and the AIDS epidemic in sub-Saharan Africa, for instance, have complex causes. But free trade doesn't seem to be among the factors leading to those problems.

If you look closely at the problems Soros and Stiglitz cite, however, it isn't clear that any of them are caused by globalization. Stiglitz rightly notes, for instance, that the IMF and World Bank pushed an agenda of privatization on Russia when what it really needed was secure private property rights and the rule of law. Without those institutional supports, privatization simply became a way for the politically connected to loot the country. But the core problem in Russia was the lack of property rights, not free trade, or even the wrongheaded prescriptions offered by the IMF and World Bank. At most, Russia's economic problems were a failure of global economic agencies, not of globalization itself.

Globalization will remain a contentious subject, but its critics, at least its more economically literate critics, have conceded much: They admit that free trade and economic integration are good. The only serious globalization argument remaining, it seems, is about the terms on which globalization takes place.