Sleight of the Invisible Hand

In his argument celebrating the “magic of the market,” Martin Wolf extends Adam Smith’s notion of the invisible hand-- which allows individual self-interest to operate in the marketplace to the benefit of all—from the local to the global economy. In the same vein, Wolf embraces Thomas Friedman’s observation that “nobody is in charge” of this new global economy. At first glance, these observations make sense, as they key into the lowering of economic boundaries between markets around the world and the lack of a single governing, regulatory body to provide the oversight and control that characterize the mechanics of national economies, in varying degrees. However, upon further review, the notion that no one is in charge of the global economy and that it represents a level playing field reveals a gaping blind spot in the thinking of Friedman and Wolf about globalization.

While the thrust of Wolf’s argument that the advanced market economy is the only way for the developing world to keep pace with the developed nations rings true, he fails to mention the inequities that riddle the global economy and the real actors that are, to some extent, "in charge." To fill this void left by Wolf, Stiglitz’s argument fits neatly. Far from adopting Friedman’s belief that nobody is in charge, Stiglitz identifies the imbalances in the global power structure and shows the enormous political and economic muscle that the US and Europe flex in the global marketplace. Stiglitz raises the concern that although no state is technically “in charge,” the global economy is being mismanaged by a variety of actors in the developed countries. Friedman’s notion that nobody is at the wheel to steer the global economy except for the transcendent invisible hand ignores the political, social, and moral dimensions of globalization. The failings of World Bank, WTO and IMF to meet their goals of reducing poverty and inequality in today’s unflat world illuminate the holes in Wolf's argument. The World Bank and IMF represent the continued concentration of political and economic power in the developed world, as they were engineered as global economic instruments that became eclipsed by the agenda of western political actors and elites. Having fallen flat in managing global economic development, the IMF and World Bank have also compromised progress in the political sphere of many developing countries, according to Stiglitz.

Stiglitz asserts that “although globalization has helped spread the idea of democracy, it has, paradoxically, been managed in a way that undermines democratic processes within countries.” Speaking to his point on the democratic deficit in the global economy, Stiglitz mentions the conditionality and unfair demands that are imposed on developing countries for aid and the political and economic instability that some newly opened markets have endured. The spread of the Washington Consensus as gospel is one of the better pieces of evidence indicting the economic policies propagated by those in favor of trade liberalization in the global marketplace. Despite his criticisms, Stiglitz concludes his chapter on a note of optimism, saying that the global economy is not a zero-sum game but rather an arrangement that has the potential to benefit everyone in the global village. But to indulge in the idea that nobody is in charge and that the invisible hand will bring order to the global marketplace is a dereliction of duty on the part of the US and Europe and a missed opportunity for the organizations they control, such as the UN, IMF and World Bank, to take charge in creating a truly flat world. The invisible hand has so far failed in the global economy to level the playing field. To make the most of the potential of globalization to benefit everyone, the controlling forces in the developed world that hold sway over this invisible hand must be more visible, accountable and democratic in responding to voices in every corner of the global village.