"We have learned in the past half century that development is not just a matter of technical adjustments, but a transformation of society as whole", Dr. Joseph E Stiglitz, Senior Vice- President for Development Economics and Chief Economist of the World Bank, told the international community in the 1998 Prebisch lecture he delivered on 19 October at the United Nations in Geneva.
Building on lessons drawn from what he described as the "failure of the Washington consensus", the former Chairman of the Council of Economic Advisers to President Bill Clinton mapped out a new development strategy and detailed those policies and processes that he said should guide national and international decisions and action for successful development.
Entitled "Towards a New Paradigm for Development": Strategies, Policies and Processes", Dr. Stiglitz’s address represented a landmark in development thinking. It called for a broad movement away from traditional relations, ways of thinking and problem solving to a more scientifically-based approach. The ninth in a series given in memory of the first Secretary-General of UNCTAD, the late Dr. Raúl Prebisch, the lecture is an occasion for the delivery of an important policy statement on the major issues of the day concerning development (see TAD/INF/PR/9829).
Introducing Dr. Stiglitz on Monday, Mr. Rubens Ricupero, Secretary-General of UNCTAD, said that he had been an outspoken advocate, and expounder, of new thinking on the problems of development. The need for such new thinking was urgent. "For months now, each day’s newspapers have brought us more and more grave news about the state of the world economy, as an Asian financial crisis that began in Thailand has spread to most parts of the world, severely affecting growth in the North and plunging tens of millions in the developing world into hunger and poverty. The world is burning, and there is no time to waste", Mr. Ricupero stated.
Following are highlights of Dr. Stiglitz’s address to a large public audience at the Palais des Nations.
The failure of the " Washington consensus"
Dr. Stiglitz explained why disillusionment with the "Washington consensus", which provided a set of prescriptions that had guided international development assistance, had taken hold. That consensus had failed to foster development because it "all too often confused means with ends". It took means such as privatization, price stability, exchange rate stability, trade liberalization as ends in themselves. The crises of the past year had done more to reveal the weaknesses of that approach -- in East Asia, for example, where the consensus had placed far too little emphasis on strong financial regulation as a prerequisite for financial liberalization, or in Russia, where the consensus had emphasized the need for privatization, but placed far less emphasis on ensuring competition.
"We now recognize that there are systemic problems, problems not limited to individual countries. We realize that for every borrower there is a lender; and that the lender is as much to blame as the borrower", Dr. Stiglitz argued. He cited among other examples, the case of Korea where foreign banks deserved even more of the blame to the extent that they were "marginal lenders". They knew that they were lending to highly leveraged firms, whose debt-equity ratios were far higher than any financial analyst would have called prudent. Russia swung to privatization through a wealth of incentives in order to increase output, even perhaps at the price of a slight increase of inequality. Instead, with all the reforms it undertook Russia achieved a huge increase in inequality. At the same time output went down, according to some estimates by up to one third.
Further evidence of the failure of the Washington consensus was the fact that its dictums, even when assiduously followed, had not guaranteed success. On the other hand, many of the most successful countries had in fact not followed the strategies recommended by the Bretton Woods institutions, but had carved out paths of their own. Witness China, he said, if success was measured in increase in income alone.
The foundations of an alternative paradigm
The Washington consensus and development models of the Sixties had focused narrowly on economics with resource allocation being seen as the core problem, without seeing the broader context, Mr. Stiglitz said in introducing the principles of a new development strategy.
"Successful development must focus on the whole - the transformation of society." With this vision as a touchstone, Dr. Stiglitz laid out the principles that should underlie the new development strategy. Like corporate strategies, it should outline a vision and priorities. It should be less specific and prescriptive than the indicative planning of the 1960s and 1970s, but at the same time be more comprehensive, in that it was not just about the allocation of capital. The increase in GDP per capita was only part of the story, and even this would not be achieved unless the country concerned adopted a broader development focus to raise living standards, as evidenced by standards of health and literacy. The new development strategy should set priorities, map out sequencing of reforms, build consensus, and catalyze change.
The development transformation also had implications for processes. Imposing change from the outside could not work, as had been seen repeatedly, he said. Local ownership of, and participation in, reforms were thus crucial, at both the policy and project level. Knowledge and social/organizational capital were necessary complements to a participatory approach.
Finally, the transformation vision had strong implications for policy, including trade policy. The policy mix had to address all components of society: the private sector, public sector, community, family, and individual. Furthermore, strategies to encourage trade and international openness had to distinguish between market-opening policies which would encourage the development transformation and those that risked hindering it.
Note: Journalists can obtain a copy in draft form from the UNCTAD Press Unit. The lecture will be issued as an UNCTAD publication in the near future.
