South Africans expose Stiglitz “illusion”

15 March 1999

In January, some 50 South African civil society activists challenged World Bank Chief Economist Joe Stiglitz in Johannesburg, concluding that his responses “shattered the illusion that the World Bank is undergoing fundamental transformation”.

Stiglitz’s has been portraying himself at the helm of a fundamental sea-change in thinking at the Bank, based on a consideration of failures of orthodox economic prescriptions and new theoretical insights especially around the role of information. He was welcomed to South Africa with headlines including: “Unemployed can bank on Stiglitz: Reflecting the changing face of the World Bank, Joseph Stiglitz is a hero in some left-wing circles”.

The World Bank mission in Pretoria concentrated from the early 1990s on influencing policy circles in South Africa rather than on developing major loans. In the words of Mercia Andrews, Vice President at the SA NGO Coalition and George Dor, of the Alternative Information and Development Centre:

“World Bank has been an important player in the post-1994 market-driven housing and land policies, the user pays approach to water delivery, the increasing privatisation of infrastructure and services, the Growth Employment and Redistribution Strategy (GEAR) and cuts in spending on education, health and social welfare. We heard nothing from Stiglitz to suggest that we can now expect the bank to shift to a more people-centred approach.”

The NGOs put a series of points to Stiglitz and his South Africa-based colleagues. They included:

  • Bank responsibility for the false predictions of job creation in the government’s (GEAR) programme which Bank economists helped prepare (252,000 new jobs were predicted for 1997, when in fact more than 110,000 were lost);
  • the trade off between lowering inflation and creating employment;
  • privatisation and regulation;
  • Bank action on debt relief.

They were disappointed in Stiglitz’s replies on all these issues, concluding that he had retreated significantly from his Helsinki “Post-Washington Consensus” speech one year earlier.

Andrews and Dor speculate on the reasons:

Helsinki speech may have been a deliberate strategy to create the impression of change. He may have been reigned in by the World Bank after Helsinki. Perhaps he felt restrained in Johannesburg by the need to talk the language of his entourage. He portrays the confidence that he has the ear of the institution but insider talk suggests that he is seen as a maverick who is not to be taken too seriously. Whatever the reason for his retreat, his hero’s halo has now vanished.”

The discussion about how the Bank and others use the theory and practice of Stiglitzian economics will continue.

The Bretton Woods Project is commissioning a short briefing on Post-Washington Consensus for NGOs, trade unions, journalists and officials. Please contact the Project to order a copy or contribute your opinions on the subject.