1. © Randall W. Stone, 2002 Globalization and Underdevelopment Or, If globalization is so great, why are there so many poor people?

2. © Randall W. Stone, 2002 Statistics Infant mortality: –4 of 1,000 in the richest fifth of countries; –200 of 1,000 in the poorest fifth Childhood diseases: –2 million die of dehydration from diarrhea –2 million die of pertussis, polio, diptheria, tetanus, measles. Vaccination costs $15. –3 million die of bacterial pneumonia. The antibiotic treatment costs $.25 Easterly 2001

3. © Randall W. Stone, 2002 Statistics Nutrition –Calorie intake 1/3 lower in the poorest fifth of countries than in the richest Child labor –42% aged 10-14 in the poorest countries –2% in the richest fifth Women’s rights –None of the poorest fifth has equal rights for women Easterly 2001

4. © Randall W. Stone, 2002 Case study: Ghana Auspicious start –At independence in 1957, Gold Coast exported 2/3 of the world’s cocoa –Best educational system in Africa –Under British rule, Nkrumah built roads, clinics, schools –Leading economists were optimistic

5. © Randall W. Stone, 2002 Case study: Ghana World Bank project: Akosombo Dam –Electricity –Aluminum smelter owned by multinational Kaiser Aluminum –Artificial Lake Volta for water transportation –Fishery –Irrigation But Ghana was poorer in the 1980s than in 1957, and is not much better off today

6. © Randall W. Stone, 2002 What went wrong? 5 military coups Famine in the 1970s Drought By 1983 –Per capita GDP was 2/3 of the 1971 level –Calorie intake was 2/3 of recommended level

7. © Randall W. Stone, 2002 Financing gap approach Evsey Domar (1946) Roy Harrod (1939) Sir Arthur Lewis (1954) W. W. Rostow (1960) The Stages of Economic Growth: A Non-Communist Manifesto Growth is proportional to net investment Problem: the evidence

8. © Randall W. Stone, 2002 Solow’s paradox (1956, 1957) Investment cannot lead to long-run growth Diminishing returns Technological innovation  growth But, how do we explain variation across countries? Does technology vary? Why?

9. © Randall W. Stone, 2002 Other explanations? Human capital Complementarities Incentives & institutions –Saving & investing –Maximizing profits (not rents) –Competition –Resource allocation –Missing markets

10. © Randall W. Stone, 2002 Globalization Trade Technology Capital flows Capital controls Interdependence Communications

11. © Randall W. Stone, 2002 Joseph E. Stiglitz Nobel Prize in Economics Major contributions in the economics of information—transaction costs, principal-agent models, incentives Expertise in public economics & development Council of Economic Advisers, 1993-97 Chief Economist, World Bank, 1997- 2000

12. © Randall W. Stone, 2002 Globalization & Discontent IMF, World Bank & WTO are managed in the interest of the richest countries Current trade regime is unfair Abolishing capital controls exposes poor countries to too much risk of crises IMF programs hurt the poor and do not promote growth Major claims:

13. © Randall W. Stone, 2002 Indictment of the IMF Poor economic analysis “Market fundamentalism” Little local knowledge Lack of transparency Excessive attention to inflation Overextension beyond core competencies

14. © Randall W. Stone, 2002 Critique of conditionality Little evidence that it works: –Influencing policy –Increasing growth Political backlash

15. © Randall W. Stone, 2002 Recommendations Adjustment should be gradual Wider role for state involvement in the economy –Regulation –Deficit spending –Industrial policy Reform of IFIs and WTO in the interests of the poor Abolish conditional lending