Joseph Stiglitz, one of three recipients of the 2001 Nobel Prize in Economics, spoke to a capacity crowd in Brooks-Rogers recital hall on Oct. 16 on present and future prospects for economic development in poor countries. Stiglitz’s lecture, entitled “Development Economics: What’s Next?,” was this year’s Henry George Lecture in Economics.
Stiglitz, a graduate of Amherst College, served as the chair of the Council of Economic Advisors during the first term of the Clinton administration and later became chief economist at the World Bank. He joined the faculty of Columbia University in 2000.
In addition to teaching, Stiglitz is spearheading Columbia’s new Initiative for Policy Dialogue, which is intended to provide an alternative to the World Bank and the International Monetary Fund (IMF) for developing countries in need of economic policy advice.
Stiglitz opened the lecture with his assessment of what has been learned in the fifty year history of development economics and what the field’s current situation is.
“In the last fifty years we have learned a great deal,” Stiglitz said. “The most striking thing we’ve learned is that development is possible but not inevitable.” He noted that in its short history, development economics has seen many successes and many failures, and he observed that while the proportion of the world’s population in poverty is falling, the absolute number of poor people is rising.
Stiglitz was critical of the World Bank and the IMF for adhering rigidly to neoliberal or market fundamentalist ideas. The primary tenets of the neoliberal approach, he explained, are macro stability, privatization and liberalization.
“What we take from the successes and failures of the past is that this set of doctrines is neither sufficient nor necessary for development,” Stiglitz said. “The most successful countries in the world have not followed these neoliberal doctrines.”
In particular, Stiglitz noted the example of China, which alone is responsible for 75 percent of the economic growth in low-income countries. According to Stiglitz, China has only followed one of the three neoliberal precepts, that of macro stability. He added that China has been “deliberately slow” in the process of economic liberalization and that privatization “has never been on the agenda.”
Stiglitz cited the privatization of government monopolies as an area where a rigid application of neoliberal practices has led to development setbacks.
He noted historical examples from Britain, the United States and the developing world where privatized monopolies have been inefficient at best and corrupt at worst.
“Not only has the process of privatization been corrupted in many cases, but the political process has been corrupted as well, in ways that I think will have long-term consequences,” he said.
In the second half of his lecture, Stiglitz identified five strategies that he believes will make for more successful development efforts in the future.
First he said that development should be seen more as a transformation of society than as an attempt to increase a nation’s capital stock and efficiency of resource allocation.
“Education is the most important consideration in transforming society,” Stiglitz said. “Not just the number of years of schooling, but what is taught. Education remains focused on ways out of the rural sector, not ways to move up in the rural sector.”
Stiglitz’s second point emphasized the importance of social cohesion and consensus building in forming development policies. He cited the example of Indonesia, where officials raised interest rates under pressure from the IMF and the country plunged into a recession as firms went bankrupt and citizens broke into riots.
Stiglitz’s third recommendation was that “development has to entail job enterprise creation. It has to offer opportunities to people, because people want opportunities and not handouts.”
He criticized the IMF for being counterproductive in this area by promoting both liberalization of trade, which tends to eliminate jobs, and high interest rates, which tend to prevent the creation of new jobs. “This policy creates problems in the best of circumstances, let alone in developing countries,” Stiglitz said.
Stiglitz’s fourth point was that development must be viewed in the context of political processes such as the protection of property.
He returned to the privatization of monopolies as an instance where the political and economic agendas of many countries are at odds.
Stiglitz’s fifth recommendation for future development efforts was that development must be concerned with closing the knowledge gap between nations. He pointed to Korea and China as countries that have “explicitly recognized” this need, and have profited from a focus on improvements in technical education.
In conclusion, Stiglitz referred to the current debate about globalization, noting that “the most successful countries took advantage of globalization before it became fashionable.”
“The most important thing was that they did it on their own terms, not according to some doctrinaire ideology,” Stiglitz continued.
“They considered the role of both markets and government. Other countries have had capital market liberalization foisted on them under the dictates of international economic organizations, with a high probability of disaster.”
During a brief question and answer session, Stiglitz responded to questions on public health, the environment and the accusation that American economic self-interest seems to override poverty and other Third World issues.
“There’s a lot of hypocrisy in American policy,” Stiglitz said. “A lot of the hostility toward the U.S. that we are seeing today is a result of that hypocrisy.”
Lawrence Egulu, a fellow at the Center for Development Economics (CDE) and a native of Uganda, called Stiglitz’s talk “a significant departure from the ‘we-know-it-all’ rhetoric that the developing world is used to hearing.”
“The lecture was rich in blame for the Washington-based international financing institutions for their role in the global economic mess,” Egulu said. “Stiglitz was very blunt and empathized with the poor. He outlined a number of policy measures that need to be adopted for development to be realized.”