Market fundamentalism.

• Author: Mohandas, Siddharth

ECONOMISTS ARE THE ORACLES of our age, bestowing their wisdom on a world confronted with the dizzying choices of globalization. Throughout the 1990s, they were everywhere: Markets would tremble at the slightest catch in Alan Greenspan's voice; teams from the International Monetary Fund would fly into poor countries to revamp their economies; and finance ministers would appear on television as often as prime ministers. Sometimes, however, the oracles got it wrong.

Just how wrong is one of the many surprising and disturbing revelations that emerge from Globalization and Its Discontents. Part memoir, part primer, part polemic, Joseph Stiglitz's book recounts the crises that devastated the world economy in the past decade. A former chairman of Bill Clinton's Council of Economic Advisers and chief economist of the World Bank, he draws on his experience to attack the IMF for the first contributing to the economic problems of the 1990s and then making them worse. What is striking about this critique is seeing a venerated insider argue so forcefully that globalization has been mismanaged. This is no longer merely a matter of protesters in the street.

Stiglitz's bete noire is the economic approach taken since the: 1980s by the World Bank and the IMF, which he terms "market fundamentalism" Most basically this is the belief, prominent during the conservative ascendancy of the Reagan and Thatcher years, that free markets are always the best way to resolve economic problems. Stiglitz argues that such an approach neglects the fact that markets work poorly when institutions are weak and economic information is not widely available--conditions which prevail in most of the developing world. Stiglitz's theorizing about these issues earned him the Nobel Prize in 2001 but was ignored by IMF ideologues.

The IMF's free-market religion is revealed most clearly by its unshakable commitment to something called "capital-account liberalization"--the removal of barriers that prohibit the flow of capital into and out of countries. Although open capital markets bring some benefits, such as foreign direct investment, they also create a substantial risk of instability. Despite this, the IMF, believing that free capital markets make economies more efficient, pushed liberalization onto developing countries. In Stiglitz's view, this push was the single greatest contributing factor to the economic turmoil of the 1990s, and he illustrates this through detailed studies of the...