A Nobel laureate came home, what did we learn?
Scholars are rarely celebrated. It could be they are too many or too familiar. We all went through teachers till we got old enough either to ignore what they taught us or learnt to get competing ideas. Few scholars ever go to court to see what lawyers do. Rarely do they go to witness operations in hospital theatres.
Some people argue academics rarely spawn new ideas that capture the imagination of the public; like comedians, musicians or movie makers.
We have been accused of talking among ourselves through journals that put off majority of the public, use convoluted language, esoteric equations and thick descriptions to awe the public that revenge by ignoring us.
How can you explain the law of diminishing marginal utility to a layman? While movies, comedies and music are available to the public, not academic ideas. Needless to say, academic ideas are expensive. Textbooks costing Sh10,000 are common, the price of a cow in some parts of Kenya. Reading them is not fun, as every student will confirm.
It was, therefore, refreshing to listen to 2001 Economics Nobel laureate, Prof Joseph Stiglitz, in a public lecture at the University of Nairobi on May 9 without a single equation in his presentation. The public lecture was more of a homecoming. He was at University of Nairobi’s Institute of Development Studies as a senior research fellow (under Rockefeller Foundation Grant) from 1969-1971.
Prof Stiglitz’s lecture dwelt on the differences between Washington Consensus (WC) and Stockholm statement. The WC focused on operation of the free markets and the reduction of state involvement.
Avoid fake news! Subscribe to the Standard SMS service and receive factual, verified breaking news as it happens. Text the word ‘NEWS’ to 22840
It included privatisation, market-determined exchange rates and interest rates, reduction of subsidies, deregulation, property rights and downsizing government.
WC got the name from a convergence of IMF, World Bank and the US Treasury in their approach to economic problems around 1989.
Those old enough in the early 1990s can recall the effects of this consensus, with prices going up after ‘soko huru’ and removal of subsidies. Downsizing of the government through the infamous retrenchment led to a big fall in the price of eggs. Did those retrenched start keeping chicken? We recall redirecting public expenditure towards education, especially primary. “Boom” ended and university fees were introduced.
The Washington Consensus was a reaction to mounting debt crisis. However, it did not work as expected. In Africa, the Structural Adjustment Programme was a disaster with industrialisation’s contribution to GDP falling. And so did per capita income. Most of the benefits went to those at the top; trickle-down economics did not work with the poor suffering most from crisis. Yet undoubtedly, inequality is bad for both growth and stability.
Stiglitz traces WC from neo-colonialism’s extractive industry where tariffs led to trade imbalances, voices of developing countries were not heard, taxation and regulation were curtailed while focus was on primary education – just as in the colonial period.
WC was dealt a blow when countries that did well, particularly in Asia, did not follow the consensus. What was missing in WC was closing the gap in knowledge, structural transformation of the economy and – I agree with Stiglitz – a change in mindsets; the way renaissance took the world from dark ages.
The 2008 financial crisis in USA that led to government bailout exposed WC, which wanted less government. The rise of China as a development partner with less conditionalities complicated WC. Economists also questioned WC.
Stiglitz argues that with the shortcomings of WC, the Stockholm statement was an alternative. It came from a group of 13 economists meeting in Stockholm, Sweden, in November 2016 entitled, “Towards a Consensus on the Principles of Policymaking for the Contemporary World”.
Stiglitz was among the economists present. The statement pointed out the challenges of development such as rising inequalities, environmental degradation, climate change and rapid urbanisation.
The statement raised a number of issues. One is how growth is measured – GDP is not enough. We need better measures that reflect distribution and environmental sustainability and the value of government and other services.
Two, development has to be inclusive in terms of gender, ethnicity and other characteristics. “Inclusive development is the only socially and economically sustainable form of development,” the economists argued. Yet we think inclusion is just about politics. It has solid economic backing.
Three, environmental sustainability is a requirement not an option, said the Stockholm group, arguing that “competition over resources and environmentally related migration can lead to insecurity and conflicts which undermine development.” We are witnesses to this in Kenya.
Four, the need to balance market, state and community. Striking this balance in developing countries is not easy. Community seems to matter only around election period.
Another issue, among others, was the need for macroeconomic stability that goes beyond the traditional fiscal and monetary policies to include fiscal stimulus and public investments.
Stiglitz’s views appear more radical than those of ordinary economists. Not once did he mention Trump in his presentation.
His suggestion that industrialisation might not work the same way it worked in China or South Korea was enlightening in a country engrossed in the Big Four.
How many government officials were in that hall?
– The writer teaches at the University of Nairobi