Monday, January 24, 2011

Book Review (#1 of 2011)

Making Globalization Work by Joseph Stiglitz.
Nobel winner Stiglitz's first book , Globalization and Its Discontents made a huge impact on me when I worked overseas, it definitely motivated the direction I took with my studies. I'll always remember sitting in Azerbaijan one night reading it and looking up at the TV to see Stiglitz being interviewed by a Baku station about his book-- he was visiting the country. That was one of those really weird coincidences that you feel have to be from God.

This is his follow-up book that, sadly, is not as good (maybe because I now know better). Stiglitz picks up where he left off in his previous book-- continuing to criticize the IMF and rehashing their ineptitude in East Asia, Argentina, etc. But Stiglitz also rails against the Bush administration and just about everyone else (sometimes without naming who he is railing against exactly). So much so that it seems the only entity he likes is the United Nations-- that wonderfully effective body. As such, there are a lot of inconsistencies and rambling.

The chapter on trade is pretty good, though. "We don't know what the benefits of free trade would be because we've never tried it." He points out all of the problems with trade agreements, particularly how the U.S. and other Western countries tip the playing field in their favor. Here is a favorite example:

U.S. industries will often file a petition alleging "dumping" by foreign countries. Rather than comparing the true cost of production in the offending country, trade officials will use costs in some place like Canada as a proxy. So, if one country is selling a product cheaper than what Canada can make it they can have anti-dumping duties (tariffs) imposed on their products. That hurts the developing world that happens to have cheap inputs due to abundant labor.

As the U.S. opened its markets to Vietnam, Vietnamese catfish quickly took 20% of the U.S. market. Congress passed a law stating that only U.S. catfish could be called "catfish," so Vietnamese exporters re-entered the market with a new name, "basa," which they could market as something high-end and sell it for a higher price. U.S. catfish farmers then charged Vietnam with dumping. Stiglitz witnessed all of this "kangaroo court" action while working in the Clinton administration.

He blasts the U.S. for engaging in bilateral trade agreements and rails that it hurts multilateral efforts. This is highly controversial theoretically (mathematically) but Stiglitz pronounces bilateral agreements as harmful as fact. Stiglitz criticizes the U.S. on one page for not doing as the EU did and unilaterally removing its tariff barriers to the developing world. Then a couple pages later he rants on how ridiculous it was that the EU unilaterally removed its tariff barriers because they kept their agricultural subsidy programs intact so as to render the removal ineffective. This type of inconsistency runs throughout the book.

My favorite quote from the book:
"China knows there would be high costs to it--and little benefit to the United States-- were it to allow its exchange rate to appreciate. And presumably, America understands this too."
America must not include Paul Krugman who is always ranting about China's currency (along with the media in the last year). A yuan appreciation would simply mean the U.S. would import the same amount of goods from other countries. We're a net importer because I > S while China's S > I. Economics 101.

In all, I give this book 2 stars out of 5. The problems he outlines are vast and complicated. His final solutions are to strengthen the U.N. and I.M.F. while making the I.M.F. more transparent and democratic. He proposes a single world reserve currency and to let U.N. representatives vote on who gets the shares. Just imagine how that would turn out...

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