Globalisation Unraveled: Stiglitz’s Case against the Washington Consensus

Globalisation was once hailed as a force for universal progress, a rising tide that would lift all boats. Advocates promised rising incomes, poverty alleviation, and economic integration. Yet decades after the era of contemporary globalisation began, such results remain uneven – while some nations have seen rapid growth and integration, others have faced deepening inequality, macroeconomic instability and a loss of sovereignty over economic policy-making. Nobel Prize winning economist Joseph Stiglitz delivers a sobering critique of how globalisation has been mismanaged by the very economic institutions meant to oversee it. Through his detailed analysis of the International Monetary Fund (IMF), the World Bank, and the U.S. Treasury, Stiglitz demonstrates how whilst globalisation held enormous potential, its implementation, especially in developing countries, often resulted in deeper poverty, instability, and thus, resentment. 

At the heart of Stiglitz’s critique is the Washington Consensus, a set of neoliberal economic policies that prescribe liberalisation, privatisation, and deregulation as pathways to prosperity. They believed that such reforms would create more efficient markets and drive economic growth in developing and emerging economies. However, Stiglitz highlights how such policies were often enforced without the consideration of local conditions and its social impacts. In many cases, privatisation led to the rise of monopolies or corruption, as demonstrated in Côte d’Ivoire, where a telephone company was privatised before adequate regulatory or competition framework was put into place. As a result, the profit making private sector raised prices so high that university students reportedly could not afford internet connections, further exacerbating the already significant gap in digital access between the rich and poor. Trade liberalisation, a key pillar of the Washington Consensus, has also failed to deliver economic prosperity and job creation, and instead, has exposed fragile domestic industries to intense foreign competition, leading to societal breakdown in various countries. Rather than being rooted in empirical success, the Washington Consensus was rooted in ideological faith in free markets, and Adam Smith’s invisible hand, an approach that ignored the realities of developing nations. Stiglitz argues that this blind adherence to economic orthodoxy often deepened poverty and created long term structural vulnerabilities. 

The IMF’s ‘One Size Fits All’ approach, such as imposing rapid fiscal austerity, high interest rates, and capital market liberalisation, regardless of the country’s circumstances, has frequently backfired. In the case of the East Asian financial crisis in 1997, the IMF’s insistence on austerity and tight monetary policy only worsened the economic downturn. This can be illustrated by South Korea, a country with an impressive track record, where, post Korean War, they were able to increase their per capita income eightfold in thirty years, reduce poverty dramatically, and achieve universal literacy. Whilst in its early days it had tightly controlled its financial markets, later on, it reluctantly allowed its firms to borrow abroad following pressures from the United States. However, this caused firms to expose themselves to the vagaries of the international market, and as a result, by late 1997, South Korea was in trouble. If such crises had a familiar pattern, so too did the IMF’s responses: it provided huge amounts of money so that the countries could sustain the exchange rate. However, such aid was combined with conditions, such as higher interest rates, cutbacks in government spending and increases in taxes. They also included ‘structural reforms’, such as increased openness and transparency, and improved financial market regulation. Whilst advocates for the IMF would claim that imposing these conditions was the responsible thing to do through providing billions of dollars, the breadth of the conditions meant that the countries accepting Fund aid had to give up a large part of their economic sovereignty, and thus, leading to job losses, business failures and social unrest. Stiglitz thus emphasises that instead of stabilising economies, the IMF’s interventions and forced conditions often undermined them, revealing the deep disconnect between theoretical economic models and real-world consequences. 

Stiglitz also strongly criticises the improper sequencing of economic reforms imposed by the international institutions, particularly the IMF. He argues that liberalisation measures were often implemented before countries had institutional frameworks necessary to manage them. A striking example is post-Soviet Russia in the 1990s, where rapid privatisation was encouraged before the legal system, regulatory bodies, or property rights were fully developed. As a result, valuable state-owned assets fell into the hands of a few well-connected individuals, creating oligarchs and fueling widespread corruption, rather than generating competitive markets or efficient outcomes. Consequently, ordinary Russians experienced economic collapse, unpaid wages, and a decrease in their savings. Stiglitz asserts that development should be gradual and carefully sequenced, with countries building up institutional capacity, legal infrastructure, and social protection before undertaking liberalisation. Instead, the Washington Consensus was simply based on a simplistic model of the market economy, the competitive equilibrium model, which assumes that all information is perfect and markets complete. Of course, this is not the case, especially in developing countries. This market system requires clearly established property rights and the courts to enforce them; but often these are absent in developing countries. Thus, whilst economic history has proven how disastrous it can be to ignore the sequencing of economic reforms, the IMF has consistently failed to internalise such lessons, leaving countries more vulnerable to economic crises and deepening global inequality. 

Stiglitz also draws attention to the undemocratic nature of global economic governance. He argues that the rules and system of globalisation have often been written by a small group of countries, particularly developed nations and financial institutions, and thus, marginalising the voices of developing countries. Decisions that impact millions of lives are frequently made in closed door meetings at the IMF or the World Bank, with little input by workers who would be the most affected. As a result, globalisation has disproportionately benefited the rich within advanced countries, whilst those unfortunate have faced job losses, financial insecurity and social unrest. Whilst globalisation was promoted to bring about economic prosperity, and reductions in poverty and inequality, the benefits, in reality, have only strengthened multi-national corporations and financial elites. In developing countries, the entry of such corporations has decimated domestic businesses, leading to increases in unemployment and the erosion of culture, whereas the enforcement of austerity has led to macroeconomic instability, weakening social security. Similarly, in developed countries, offshoring and thus wage suppression has led to rising income inequality, and increasing social resentment towards the top 1%. Stiglitz argues that the failed implementation of globalisation has exacerbated rather than mitigated inequality, fueling populism and scepticism towards globalisation. 

In the world ahead, Stiglitz calls for global institutions to focus on developmental goals, rather than pure ideology. Countries should be allowed to tailor economic policies to their own needs, and the IMF should abandon its ‘One Size Fits All’ model. He also emphasises the importance of strengthening institutions before liberalising markets, through investing into education, healthcare and social security. For globalisation to succeed and accomplish its advertised goals of shared prosperity, inclusive growth and poverty alleviation, globalisation must be used as a means to achieve justice and equity, rather than simply an end.