International
Stiglitz: AIG bailout would cover US Africa spend for a quarter of a century
Development economists don’t come much more revered than Joseph Stiglitz. Once Chief Economist at the World Bank, Stiglitz has made his name arguing for reforms to the global financial system that would allow more countries to benefit from globalisation, particularly in Africa. He has attacked the special corporate interests that dominate the formation of policy and regulation of the financial sector, and called for a more equitable growth model.
Last night at the London School of Economics, Stiglitz compared the huge bailouts for the financial sector to the relatively modest sums governments spend in overseas development assistance (ODA). “The $180 billion the US Government spent on [the insurance company] AIG would finance all the country’s ODA to Africa for a quarter of a century” he told a packed lecture hall. It is worth remembering those sums the next time a Western government fails to meet its commitments to Africa due to ‘tight budgets’.
However, Stiglitz has broader prescriptions for African development. In a January speech to the African Development Bank he called for Africa to abandon the ‘Washington Consensus’ of financial liberalisation and ultra-free markets, and instead move towards a more developmental state based on investment in manufacturing and clear industrial policy to move away from commodity dependency. This, he argues, would allow Africa to better hold its own in the global economy.
Stiglitz’s analysis also lends weight to the calls for the financial sector to contribute to the damage the recent crisis has caused. It is estimated that in Africa a combination of declining trade, overseas bank lending, foreign direct investment, remittances and portfolio flows has left the region with a $130bn shortfall. And yet not a single bank went bust in Africa due to reckless lending or irresponsible speculative behaviour. That makes it only fair that as the IMF and G20 leaders consider how to ensure that the sector makes a fair and substantial contribution to the costs of the downturn, Africa is included. Stiglitz would certainly agree.
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