Openness not globalisation, stresses Noble laureate Joseph Stiglitz in Cairo
Yomna Abo Ouf and Salma Hussein, Friday 14 Jan 2011
Knowledge is a public good, innovation should be financed by the state: the former vice president of the World Bank encouraged Egypt to look to education as a source of development in a lecture at AUC

“The invisible hand is invisible because it doesn't exist", was the foundation on which Joseph Stiglitz, a Nobel laureate in economics, laid out his vision for developing countries.

Stiglitz, a professor at Colombia University, gave a lecture entitled "Creating a learning society (An agenda for dynamic societies in uncertain times)” at the American University in Cairo (AUC) on Thursday.

The American economist, author of Globalisation and its Discontents, addressed an audience of five hundred, mostly Egyptian students and academics.

Planning is not about making use of the current static comparative advantage, he said, pointing to South Korea as an example. Forty years ago a delegation from an international financial Institution advised the Koreans to grow rice. "Thank you, but we already do that, replied the Korean". They would eventually go on to successfully manufacture cars and electronics.

To put it briefly, a country should never limit itself to what it has now. Instead, it should plan to diversify what it produces.

Stiglitz listed five ingredients to change the comparative advantage that a country has through dynamic economics. It is all about education, openness and innovation, he insisted.

China's main advantage is not due to cheap unskilled labour. Rather, it is skilled labour and infrastructure which are making Chinese exports competitive on global markets.

China has managed to mix all its resources to serve its market demands.

The second point Stiglitz highlighted was "openness" which he asserted was another term of globalisation -- "Where [a] free exchange of resources can occur". He argued that "Knowledge is a public good". Globalisation, however, in its current form does not protect this concept, but has, on the contrary, lead to the growth of monopolies, a dangerous progression.

Sufficient competition is needed, since "incentives matter, and strong competition can be a motive, especially in small and emerging markets".

Free trade has forced many Mexicans out of jobs. Mexico, which shares a wide border with the US, could not compete in the American market with China, geographically much farther away.

The well-respected economist then discussed the importance of organised industrial policies.

Again he returned to South Korea, pointing out that when the Asian economic power set out to become a modern economy, it didn’t decide to leave matters to market forces. Instead it undertook the task of reshaping the economy. Free market theory asserts that there is no significant difference between producing "potato chips or computer chips. But there is a big difference if you are to create a dynamic learning society".

“Before, it was the shortage of capital that was thought to hinder economies, which called for establishing an institution like the IMF, but it is [in fact] the shortage of knowledge that matters” Stiglitz argues.

Innovation was, in this regard, an indispensible ingredient for the previous vice president of the World Bank.

"How to move to this [new] frontier is an important question for a country like Egypt [where] capital is important but knowledge is no less important,” stressed Stiglitz.

But developed countries are creating barriers to those seeking access to knowledge.

WTO agreements have made access to knowledge more difficult than before.

Intellectual property rights give big companies protection for their products and hinder emerging countries from benefiting from this knowledge. This gives rise to "static efficiency and dynamic gain", Stiglitz argued.

He then emphasised that it was government that should be supporting research. "I flew down the Nile in a Brazilian airplane. It is based on Brazilian technology, with sugarcane- based ethanol. The whole project was financed by the Brazilian Development Bank.”

"Good policies agenda diverge than Washington Concessus (policies preached by World Bank and IMF)". This approach to development is more likely to bring benefits to economic growth. Concludes the author of "Globalisation and its discontents".