In April 2000, as anti-globalization protesters prepared to descend on Washington, the World Bank’s former chief economist, Joseph Stiglitz, published an article in the New Republic which began:

Next week’s meeting of the International Monetary Fund will bring to Washington, DC many of the same demonstrators who trashed the World Trade Organization in Seattle last fall. They’ll say the IMF is arrogant. They’ll say the IMF is secretive and insulated from democratic accountability. They’ll say the IMF’s economic ‘remedies’ often make things worse—turning slowdowns into recessions and recessions into depressions. And they’ll have a point. I was chief economist at the World Bank from 1996 until last November, during the gravest global economic crisis in a half-century. I saw how the IMF, in tandem with the US Treasury Department, responded. And I was appalled.footnote¹

Stiglitz went on to detail his criticisms of the IMF’s handling of the 1997–98 East Asian crisis. He pointed out that the countries of the region had liberalized their financial and capital markets in the early 1990s not because they needed to attract more funds (savings rates were already 30 per cent or more) but under international pressure—particularly from the US Treasury. In Thailand, the flood of short-term capital—‘the kind that looks for the highest return in the next day, week or month, as opposed to long-term investment in things like factories’—helped fuel an unsustainable real-estate boom; in 1997, when the hot money flowed out again, the bubble burst. The baht collapsed, the stock-market plunged. Japanese banks and other investors pulled out, not just from Thailand but from other regional economies, too. In doing so, they precipitated a far worse crisis. The IMF’s response was to impose the same tight fiscal monetary policies on Thailand as they had on Latin America in the 1980s, ‘delivering the same medicine to each ailing nation that showed up on its doorstep’.

As the World Bank’s chief economist, Stiglitz began lobbying for change. He argued that the East Asian countries were already running budgetary surpluses—actually starving the economy of much-needed investment in education and infrastructure (both essential to economic growth). The IMF’s austerity policies were only making the situation worse. High interest rates were devastating debt-laden local firms, leading to a rash of bankruptcies. Cuts in government expenditure were only shrinking the economy further. When he made these points at a Kuala Lumpur meeting of finance ministers and central bank governors in late 1997, the Fund’s Managing Director Michel Camdessus replied that East Asia simply had to grit it out. As unemployment increased tenfold and real wages plummeted, the Fund demanded that the Indonesian government cut food and fuel subsidies. Cynical political interests stoked the ensuing violence. The social fabric was unravelling anyway, but IMF policies made the disintegration worse.

Stiglitz had no doubts as to where these policies were coming from. Building free capital markets into the basic architecture of the world economy had long been, in the words of the US Treasury’s (then) Deputy Secretary Lawrence Summers, ‘our most crucial international priority’.footnote² ‘To what extent’, Stiglitz asked, ‘did the IMF and the Treasury Department push policies that actually contributed to the increased global economic volatility?’ And ‘did America—and the IMF—push policies because we, or they, believed the policies would help East Asia, or because we believed they would benefit financial interests in the United States and the advanced industrialist world?’

A central aim of US economic policy since the Second World War has been the worldwide acceptance of free-market ideology—the belief that the free flow of goods, services and capital is to the mutual benefit of all; that corporations should be managed for the maximization of shareholder-value; that stock-markets should be used for buying and selling corporate control; and that governments should intervene only in cases of obvious market failure. If the US can persuade powerful segments of national elites to embrace these goals for themselves, it can achieve its foreign economic policy objectives far more cheaply and effectively than through either negotiations or coercion. Once national elites accept the idea of the mutualbenefits of free trade and free capital movements, they can dismiss critics of the free market as defenders of special interests, at the expense of the general good. During the Cold War, the goal of opening the world’s markets had to be balanced against that of containing communism. Since 1991, in the words of US National Security Advisor Anthony Lake,

the successor to a doctrine of containment must be a strategy of enlargement, enlargement of the world’s free community of market democracies. During the Cold War, even children understood America’s security mission: as they looked at those maps on their schoolroom walls, they knew we were trying to contain the creeping expansion of that big, red blob. Today . . . we might visualize our security mission as promoting the enlargement of the ‘blue areas’ of market democracies.footnote³