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Published in 2006 by Oxford University Press

Stability with Growth: Macroeconomics, Liberalization, and Development is a book written in 2006 by Joseph Stiglitz (Nobel Laureate and former Chief Economist of the World Bank), Jose Antonio Ocampo (UN Under-Secretary-General for Economic and Social Affairs), Shari Spiegel (Managing Director for the Initiative for Policy Dialogue), Ricardo French-Davis (Main Advisor at Economic Commission for Latin America and the Caribbean), and Deepak Nayyar (Vice Chancellor of the University of Delhi) as a part of the Initiative for Policy Dialogue Series. The series seeks to inform “policy-makers and civil society” of important development issues.The book takes a look at different macroeconomic policies and the way in which they impact the stability and well-being of developing nations. The book is based largely on the work of the Macroeconomics and Capital Market Liberalization Task Force at the Initiative for Policy Dialogue.

Influences and Goals'

Initiative for Policy Dialogue (IDP)

The Initiative for Policy Dialogue (IDP) was started by Joseph Stiglitz in 2000 to create a network of economists, politicians, policy makers, and academic centers across the globe to “promote more inclusive and pluralist discourse on the major global debates on economic and political development. ” The Initiative seeks to “contribute to an equitably governed world by democratizing the production and use of knowledge. ” The mission statement and goals of the IDP guided the writing of the book.

Heterodox economics

Much of Stiglitz’ own work focuses on alternative and heterodox approaches to economics and criticizes traditional neoclassical approaches to the field. Stiglitz has been a vocal critic of globalization, austerity measures among other IMF practices, and full liberalization of trade and capital markets in developing countries.

Structure

The authors begin by establishing the problematic development paradigms laid out by the Washington Consensus. The book then continues to provide a discussion of various schools of thought in macroeconomics and development. It outlines the differences between developed and developing economies and challenges the idea of generalizability across countries.

Main Points

The authors state that developing economies are more volatile, more susceptible to monetary shocks as the banking sector plays a much more significant role, and are likely to have less developed securities exchanges to mitigate risk. They argue that the very different economic environments of developing nations necessitate different policy approaches. The book criticizes the IMF and other global institutions for pushing developing countries to implement inflation-cutting measures and prioritizing pro-cyclical, deficit reduction policies over growth-oriented ones. The authors caution that there is no “Pareto-dominant” policy that overrides all other ones in the total benefit that it creates but argue that the distributional effects of various policies must be taken into account and weighted towards helping the poor. The authors also remain highly critical of liberalizing capital markets, stating that evidence points to significant capital flight from developing economies, endangering the stability of those countries. Instability and volatility can negatively impact labor markets and have profound and long-lasting consequences for families in developing nations. Financial crises can lead to drastic consequences for already vulnerable groups and can result in interrupted education, malnutrition, and increased likelihood for extreme poverty.

Policy Suggestions and Conclusion

They suggest the adoption of an alternative developmental framework that takes a decidedly more pro-poor stance. They dissuade policymakers from using austerity and inflation-cutting measures in recessionary periods, particularly in developing countries, and from liberalizing capital markets prematurely as this makes them more susceptible to foreign shocks. They underscore the importance of remaining sensitive to the particularities of developing economies and tailoring policies to fit their specific needs. The authors end with the idea that “economic policies inherently must be part of the political process” and that the book’s goal was to “help lay out alternative views, to facilitate democratic discussion of the alternatives, and more broadly, of the institutional frameworks within which the key macroeconomic decisions are made.”

Reception

As a book aimed at policy-makers and written in a more academic and serious tone, it has not been as popularized as many of Stiglitz’ other books. The ideas expressed in it, however, have remained consistent throughout his many publications and have been extensively reviewed. Benjamin Friedman, in the New York Review of Books, has praised Stiglitz’ critical approach to mainstream economic thought and his caution against liberalization, privatization, and austerity measures. Sitglitz has been ranked as the fourth most influential economist in a ranking based on frequency of citations. He also was ranked in TIME magazine’s list of 100 most influential people in 2011.

Criticism

The criticisms of the book fall in line with those that have been directed towards Stiglitz and the field of heterodox economics in general. Stiglitz’ work in the past has been criticized for its utopian ideals and lack of originality. His condemnation of the IMF has been likened by Kenneth Rogoff to “observing that where there are epidemics, one tends to find more doctors.” In his “Open Letter” to Stiglitz posted on the IMF website, Rogoff adds that Stiglitz’ portrayal of the IMF economists as “market fundamentalists” who do not listen to critics is simply inaccurate as evidenced by the fact that IMF programs frequently allow for deficits (as they did in the East Asian crisis). Heterodox economics has also been criticized for its lack of mathematical specificity and its dismissal of standard economic models. It has also been accused of its closed-mindedness and narrow scope. David Colander, Economics Professor at Middlebury College, has stated that “heterodox calls for pluralism do not increase openness or foster communication between heterodox and mainstream economists” and result in an isolated field of study that does not seek to become integrated into “mainstream” thought but simply criticizes it. Colander suggests that the approach is unproductive and urges heterodox economists to “criticize the best of the profession, not the worst” and frame the arguments in such a way that they enter into mainstream dialogue and shape it for the better.