Globalization according to Stiglitz: the betrayal of the social contract

Fundacja Dobre Państwo • January 2, 2026 • 🇵🇱 Polski

Introduction

In his book "Globalization," Nobel laureate Joseph Stiglitz exposes the fundamental contradiction of this process. The promise of universal prosperity has clashed with the reality of deepening inequalities. Writing from an insider's perspective – as a former chief economist of the World Bank – Stiglitz reveals how international institutions, led by the IMF, instrumentalized globalization. They imposed harmful, dogmatic reforms on developing countries, prioritizing the interests of capital over the common good.

The IMF: Distorting the Idea of Globalization

At the heart of Stiglitz's critique stands the International Monetary Fund. This institution, originally created to ensure global stability, transformed into a guardian of market orthodoxy. Under the guise of assistance, it imposed a package of reforms on developing countries known as the Washington Consensus. This "shock therapy" included fiscal austerity, rapid liberalization of trade and capital markets, and mass privatization. These prescriptions proved destructive. Instead of curing, they deepened recessions, leading to a wave of bankruptcies and rising unemployment.

Russian Shock Therapy: A Transformational Catastrophe

A catastrophic example was Russia's "shock therapy," which led to hyperinflation and the plundering of national assets by oligarchs. During the Asian financial crisis, the IMF also imposed harmful cuts. Countries like Malaysia, which rejected its recommendations, recovered from the crisis more quickly. Stiglitz emphasizes that alternative development models existed. Gradual, state-controlled reforms in China and a more prudent transformation in Poland proved that social collapse could have been avoided.

The Social Contract Over the Sanctity of Contract

Stiglitz accuses the IMF of being willing to destroy the far more important social contract in the name of the "sanctity of the loan agreement." This meant that creditors were rescued, while the poorest segments of society bore the costs of the crisis. Human tragedies such as unemployment, loss of savings, and educational opportunities were ignored. His critique combines economics with sociology, emphasizing that a stable order cannot be built upon the erosion of trust.

Therefore, Stiglitz advocates for specific reforms. A key reform is the introduction of international bankruptcy law, which would allow states to restructure debt without triggering social catastrophe. Globalization must be managed in a way that serves people, not solely capital.

Conclusion

In the pursuit of global efficiency, have we lost sight of fundamental human dignity? Stiglitz argues that the system intended to liberate us has become a tool where profits, not human fate, are what truly matter. His analysis is a call to redefine globalization – not as a ruthless economic process, but as an opportunity to build a more just and humane world, based on solidarity and democratic control.

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Summary

Joseph E. Stiglitz, a Nobel Prize winner and witness to global transformations, presents a critical analysis of globalization, which, instead of the promised prosperity, often leads to deepening inequality and social tragedy. The article exposes the role of the International Monetary Fund and its dogmatic policies, such as the Washington Consensus and shock therapy, which have devastated the economies of developing countries. Drawing on case studies from Russia, Asia, and Poland, Stiglitz argues that more effective, more gradual development strategies exist. He emphasizes the need to restore a moral compass to the global order, prioritizing the social contract over purely financial interests and advocating for reforms, including international debt restructuring mechanisms.

Frequently Asked Questions

What is Joseph Stiglitz's main thesis regarding globalization?

Stiglitz argues that the problem is not globalization itself, but the way it has been appropriated and managed by international institutions, leading to a betrayal of the social contract and the deepening of inequality. He sees it as a force that, instead of unifying, fragments the social fabric.

Why does Stiglitz criticize the International Monetary Fund?

Stiglitz accuses the IMF of becoming a guardian of dogmatic liberalism instead of stabilizing the global financial system, imposing harmful Washington Consensus policies on developing countries. He criticizes its lack of democracy and its ties to Wall Street interests.

What are the negative effects of the Washington Consensus according to Stiglitz?

The Nobel Prize winner argues that the shock therapy imposed by the IMF led to a deepening recession, mass corporate bankruptcies, rising unemployment, and social unrest. The liberalization of capital flows increased the risk of crises and destabilized economies, failing to deliver the promised growth.

What examples of countries does Stiglitz give to illustrate his arguments?

Stiglitz analyzes the disastrous consequences of shock therapy in Russia and the Asian crisis, contrasting them with the success of gradual reforms in China and the more measured transition in Poland. Malaysia is an example of a country that rejected IMF recommendations, emerging from the crisis with the least damage.

What does Stiglitz propose as an alternative to the current model of globalization?

He advocates restoring a moral compass to the global order, strengthening the social contract, and introducing international mechanisms, such as a "super chapter 11," that would protect countries from spiraling into debt and allow for orderly restructuring. He emphasizes the need to take into account social factors.

What is the 'social contract' in an economic context according to Stiglitz?

For Stiglitz, this is a fundamental pact in which the poor have the right to share in the profits in times of prosperity, while the rich are obligated to bear the burden in times of crisis. The IMF's policies were meant to undermine this agreement, focusing on bailing out creditors at the expense of the poorest societies.