Globalization and Its Discontents

Capital account liberalization is the practice of deregulating the inflow and outflow of capital from a country. It is generally a policy pursued by governments that have solid domestic financial infrastructures and a relatively strong economy. Since capital account liberalization can both invite economic growth—through encouraging foreign investment—and bring about economic crises—such as when a sudden disturbance causes massive capital flight—it is high-risk and high- reward. The IMF and the US Treasury hypocritically force developing countries to adopt capital account liberalization despite knowing that the US itself did not practice this policy until much later in its economic development. Stiglitz believes this to be the fundamental cause of the 1997 Asian financial crash.

Globalization is defined by Stiglitz as an inevitable process that breaks down trade barriers between countries, encourages interdependence, and brings peoples closer together. In theory, this process should allow for greater economic integration; larger reductions in costs of communication and transportation; and better flow of goods, services, and capital across borders. It should also improve the circulation of information through encouraging transparency and knowledge exchange. It should even facilitate, to an extent, the flow of people across borders. Although history has demonstrated that all of this does happen in practice to a certain extent, the flow is not always equally beneficial to all.