One World, Two Blueprints

MAKING GLOBALIZATION WORK

By Joseph E. Stiglitz

Norton; 358pp; $26.95

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Editor's Review

Three Stars
Star Rating

The Good A creative look at how globalization can improve the lot of poor nations.

The Bad An overarching theme is that the U.S. is to blame for the world's ills.

The Bottom Line Intriguing ideas amid an attack on American policy.

THE NEXT GREAT GLOBALIZATION

By Frederic S. Mishkin

Princeton; 310pp; $27.95

( below)

Editor's Review

Star Rating

The Good Offers a plan for reform of developing nations' banking systems.

The Bad The focus here is somewhat narrow.

The Bottom Line Valuable--and achievable--recommendations for change.

Economists Joseph Stiglitz and Frederic Mishkin often walk past each other: They have offices on the same hallway at Columbia University. At first, they seem to talk past each other as well. In two new books on globalization, the liberal Stiglitz devotes most of his space to attacking trade deals that Mishkin barely considers, while Establishment-figure Mishkin's big idea--bank reform--doesn't get a single sentence in Stiglitz' book.

In fact, Stiglitz and Mishkin are grappling with the same question, which is how to make globalization work better for the world's poor. But they come at the problem from different directions and reach sharply different conclusions. In Making Globalization Work, Stiglitz casts the debate in moral terms, arguing that as the richest and most powerful nation the U.S. has a duty to treat poor nations better. Mishkin is more the technocrat in The Next Great Globalization, contending that changes in poor nations' banking systems would help them enjoy the fruits of globalization. Despite the different approaches, their arguments aren't mutually exclusive. Both authors offer valuable ideas.

Of the two professors, Stiglitz has the bigger name. Formerly President Bill Clinton's top economic adviser, he went on to become chief economist of the World Bank, left after a power struggle with Treasury Secretary Lawrence Summers, won a Nobel prize, and then wrote an unlikely international best seller, the angry, crusading Globalization and Its Discontents. Now he travels the world advising foreign governments and organizations.

It's easy to see why Stiglitz has a larger following outside the U.S. than in it, because his overarching theme is blaming the U.S. for the world's ills. He has kind words for the redistributive policies of "charismatic" Venezuelan President Hugo Chávez. He says Wall Street's short-term perspective is "antithetical to development" in poor countries and that the U.S.-led agreement to enforce drug patents was "a death warrant" to sick people in poor countries. He argues that other countries have a right to put punitive tariffs on American goods because the U.S. is effectively subsidizing its exporters by not forcing them to take action against global warming. And he concludes the book by charging that the U.S. "has undermined global democracy."

But you don't have to agree with Stiglitz on every point to benefit from his creative thinking. His most intriguing idea, which borrows from John Maynard Keynes, is the creation of an international reserve currency that countries would hold in their rainy-day funds instead of gold and dollars. Today, the dollars they hold, primarily in Treasury securities, amount to a loan to the U.S. "There is something peculiar," Stiglitz writes with undeniable logic, "about poor countries desperately in need of capital lending hundreds of billions of dollars to the world's richest country." The benefit of his proposal for the U.S.: If other countries didn't need to accumulate dollars, they could spend them on U.S. goods and services, shrinking America's trade deficit, which is so big it threatens to trigger a dollar crash. Where Stiglitz goes off track is in imagining that these new reserves could be handed out to needy countries rather than earned--making the whole thing into a vast system for transferring wealth.

Mishkin's book, while narrower in its prescriptions, is ambitious in its own way because it defends the one aspect of globalization that has the fewest defenders: free flows of capital across borders. Even many economists who strongly favor unfettered trade in goods and services (such as a third Columbia professor, Jagdish Bhagwati) worry that unrestrained cross-border investment will cause bubbles and crashes in developing countries with underdeveloped financial systems. But Mishkin is a staunch free-market guy--and, since he finished the book, a powerful one. As a new member of the Federal Reserve Board of Governors, he votes on whether to raise or lower the federal funds rate (so blame him when your ARM resets). The Next Great Globalization describes the failings of the International Monetary Fund well, in part a result of Mishkin's experience as an outside evaluator of the organization.

Mishkin has a plan for fixing banking systems that he says would enable them to put rapid inflows of capital to good use. One idea: Stop developing-country banks from borrowing in dollars, an enticing practice that backfires when the local currency depreciates. Rich countries can help with reforms, Mishkin says, but "disadvantaged countries must take responsibility for their own fates." While Stiglitz nods in the same direction, he puts most of the onus on the U.S., saying, "the time will come when the United States cannot do whatever it wants." One Ivy League hallway, two views of the world: No wonder the globalization debate is so intractable.

By Peter Coy

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