SEATINI BULLETIN
Southern and Eastern African Trade, Information and Negotiations Initiative
Strengthening Africa in World Trade
Volume 3 No. 16, 31 August 2000
Produced by the International South Group Network (ISGN)
By Joseph Stiglitz
2. THE WRONG GEAR FOR GROWTH
By Xolela Mangcu*
By Yash Tandon
By Joseph Stiglitz
Knowledge and information are being produced today like cars and steel were produced a hundred years ago. In what ways are the laws that govern the new Economies differ from that of the old? Joseph Stiglitz says that, we still face the same economies of scarcity. But just as the importance of land in production changed dramatically as the economy moved from agriculture to industry, so too does the movement to a knowledge economy necessitates a rethinking of economic fundamentals. Knowledge is different from other goods: it has many of the central properties of a public good. And in the knowledge economy, the dangers of monopolisation are perhaps even greater than in industrial economies. Stiglitz broadens the discussion beyond technical economic issues in three directions comprising of: the role of knowledge in development, culture of knowledge economy and some of the implications of the new economy for democratic processes.
On knowledge and development he looks, among others, at knowledge development and the World Bank, and at the knowledge culture. He gives an example of the World Bank, which is concerned with promoting growth and reducing poverty in the developing world. Referring to the World Development Report 1998/99, he points out that for many years, the received wisdom in economic development focused on tangible evidence of development. Today the World Bank has shifted much of its emphasis to the intangibles of knowledge, institutions, and culture in an attempt to forge a more comprehensive New Development Framework. The shift in focus was motivated in part by the experience of the most successful countries - and the failures of many of economists’ efforts around the world. Regarding the knowledge culture, he says that it is associated with three things, namely, changing ways of thinking, tacit knowledge and adaptation, and active knowledge and intrinsic motivation. According to Stiglitz, more than just knowledge was acquired. There was also a change in ways of thinking: an acceptance of change, and, perhaps most important, the appreciation of the centrality of knowledge and education in general and the science and technology in particular. To be sure, even in the most advanced societies, the scientific approach, as much as it has benefited all, remains concentrated within relatively small circles. The process of development can be seen as extending the reach of these basic ways of thinking, making them more pervasive in every corner of life.
He refers to one of his speeches, which recognises the importance of tacit knowledge. Stiglitz makes a distinction between tacit and codified knowledge. Tacit knowledge being contextual, is difficult to transfer. Taking technology transfer as an example, the technical manuals, blueprints, and instruction books are the codified technical knowledge that could be seen as only the tip of the iceberg. The codified technical information assumes a whole background of contextual knowledge and practices that might be very incomplete in a developing country. Implementing a new technology in a rather different environment is itself a creative act, not just a copied behaviour. Getting a complex technical system to function near its norms and repairing it when it malfunctions both draws upon a slowly accumulated reservoir of tacit knowledge that cannot be easily transferred or "downloaded" to a developing country. If all this is true for relatively cut-and-dry technical knowledge, one can imagine the problems in "transferring" the economic institutions of a private property market economy to developing countries. Yet people have come to believe that a proper institutional framework is key to development. Instead of engineering recipes developed in Washington to local economic practices, Stiglitz recommends the use of the local economic agents and agencies that have the local tacit knowledge. They must take charge of the process of recreating the more universal institutional schema within the local matrix of economic, political, and cultural factors.
As regarding active learning and intrinsic motivation, Stiglitz thinks that development is about the transformation of societies, which ultimately involves people changing how they think. External agencies cannot force people to change how they think or what they believe. In industry, the shift towards a knowledge-based economy involves a shift in organisation away from top-down hierarchical structures to flatter structures such as networks of semi-autonomous teams. Knowledge is best acquired not by passive memorisation but by the active involvement of the learner. To foster the active involvement of the learner, the motivation should at best be intrinsic to the activity, not a super-added carrot. While external incentives can modify short-term behaviour, they usually will only temporarily override rather than change the internal system of motivation. When the extrinsic incentives are removed, behaviour reverts to the previous motives. As Stiglitz puts it, all of these principles are equally fundamental for the knowledge-based transformation of a developing country as they are for a knowledge-based company. "Best practices" that are imposed on a country by conditionalities ("carrots and sticks") will not produce lasting change. It will undermine people's incentives to develop their own capacities and weaken their confidence in using their own intelligence. The external development agency, instead of acting as a catalyst to empower change, will only short-circuit people's learning activities and reinforce their impotence. He thinks that outside experts can be useful in encouraging "ownership" of "best policies" through persuasion, but the degree of ownership is likely to be much greater if those who must carry out the policies are actively involved in the process of shaping and adapting, if not reinventing, these policies in the country (or company) itself.
Stiglitz argues that there are some fundamental ways in which knowledge is different from ordinary commodities, differences which have fundamental implications for the way a knowledge economy must be organised, and accordingly, fundamental implications for public policy. These include inter alia: the scarcity-defying characteristics of ideas, Intellectual property rights, organisational dimensions of knowledge and information, and the market place of ideas. First, and perhaps most fundamentally, knowledge is a public good. Once knowledge is discovered and made public, there is essentially zero marginal cost to adding more users. However, it is important to differentiate conceptually the pure non-rivalrousness of knowledge from the low cost of dissemination. The information revolution results in reducing the costs of processing and disseminating information. But any material embodiment or encoding of information is still strictly speaking rivalrous. It is only immaterial ("disembodied") knowledge, information, ideas, concepts, functions, and other abstract objects of thought that are purely non-rivalrous. It is the process of embodying knowledge in people (learning) and things (application) that is costly in time and resources.
Knowledge is to some extent excludible from certain users. So it might be considered an impure public good. . But efficiency in use requires that there be no charge, yet with no charge, firms would have no incentive to produce knowledge. For knowledge to be provided privately there must be some form of ‘protection' – knowledge cannot simply be made publicly available. In some instances, trade secrets will do. But in other instances, the broader protection of intellectual property rights is required. However, strengthening intellectual property rights often means raising the price of a key ingredient into research - knowledge - and thus it is possible that an excessively "strong" intellectual property regime may actually inhibit the pace of innovation.
As regarding competition, Adam Smith’s famous invisible hand theorem was predicted on the existence of competition. But, knowledge, almost by definition gives rise to a form of increasing returns to scale, which may undermine competition. According to Stiglitz, as we move into the "knowledge economy" just as the new technologies provide greater scope for the suppression of competition, the consequences may be more adverse. He emphasises the fact that the kind of creativity that is essential for the knowledge economy requires the engagement of the mind. If there are artificially created market barriers then the pace of innovation may well be slowed.
Naturally, information cannot satisfy the essential property of homogeneity that characterises competitive markets. For forms of knowledge that are not protected by patents, Stiglitz finds that there are real problems in market transactions. He says that one cannot sell knowledge without saying what one wants to disclose. Thus, in the process of trying to engage in a market transaction, one loses some of their property. In practice, markets for knowledge and information depend critically on reputation, on repeated interactions, and on trust. Within an organisation, the "payment" for knowledge sharing is often recognition and prestige or the possibility of future reciprocity. In some cases, knowledge that should be freely available in an organisation might be hoarded to create an artificial scarcity or monopoly. On the demand side, organisational culture will artificially limit demand for knowledge if it denigrates any requests of knowledge as an admission of ignorance. Each individual or group will tend to diminish the importance of any knowledge they might obtain from elsewhere, and to greatly embellish the power of the knowledge they already have. Stiglitz thinks that this problem also arises when knowledge is “branded” by an organisation. The organisation's prestige and image is tied up with that branded knowledge. Any admission that there might be superior knowledge elsewhere from which the organization could benefit would be seen as "criticising" the organization, "tarnishing" its brand reputation, and "diminishing" its franchise value at the very least, by helping its rivals. If that is the corporate culture, then little organizational learning will go on.
Stiglitz also thinks that openness of a country to foreign direct investment provide important channels for the transmission of knowledge. Another type of openness he suggests to knowledge-based transformation is the willingness to experiment. In addition to that the structure of economic and political institutions powerfully affect which ideas, innovations, or projects are selected to be financed and implemented. In a decentralized system, decision-makers compete against one another to find good projects. With centralized or monopoly project selection, there is no fear that a rejected innovation will be adopted by a competitor and an accepted innovation might have an uncertain effect on the monopoly. Thus hierarchical centralization has been a recipe for uniform and essentially static societies from ancient Egypt to the Soviet Union. In contrast, decentralisation provides the scope for greater experimentation and learning, and the competition among decentralized units may provide an essential incentive.
Stiglitz acknowledges the fact that human beings live in an imperfect world and that imperfection is mirrored in the people's own fallibility. We can never know all that we might know, and we are hard put to sift the relevant knowledge. Economists have often assumed away these fallibilities in their models. However, if an institution was structured to operate on the basis of "perfect knowledge," then experimentation or critical thinking would be seen as a waste of time and resources. This affects economic transactions and other social interactions as well as the work of enterprises and other organisations. While the consequences of being "all too human" can sometimes be tragic, Stiglitz thinks that the goal is not pessimism but realism.
Stiglitz looks at the US economy among other economies and underscores that a trained labour force is a key to success in the knowledge economy. He finds it commendable that so many countries have focused on improving their educational systems. In this regard, he makes three observations. Firstly, in the long run, success in the knowledge economy requires creativity, higher order cognitive skills in addition to basic skills. Those countries that find ways of fostering this kind of creativity will, in the long run, have more success in the competition of the knowledge economy. Secondly, also key to success in the knowledge economy is training in science and technology. There are good grounds for government subsidies to science education. Because those engaged in research so seldom capture the full benefits of their work, there are, real externalities. Thirdly, one of the reasons that the education sector may not be as strong as we would like is that it is one of the sectors in which competition is most limited. Stiglitz sees the need to continue to look closely at how competition can effectively increase broader public objectives.
On industrial policy and the support of research, Stiglitz found that the industrial policy has been criticised as “picking winners”; it is argued that the government is particularly ill suited to that task. In fact, the government has had a remarkable history of success; from the support of agricultural research to the first telegraph line. But, Stiglitz thinks that the debate has been framed in the wrong way. From his point of view, the objective of the government is not to pick winners, but to identify externality-generating innovations. On the same note, he makes the following three observations. First, much of the innovation, which has marked the knowledge economy, rests on foundations of basic knowledge, a global public good. Second, governments have a natural inclination for fancy projects, like space stations, that attract popular imagination but are not necessarily the best way of spending scarce research funds. Thirdly, one has to take a hard look at other programs supporting new technologies, to assess their incremental effect. There is some evidence, for instance, that the program of research support for small businesses in the U.S., as well intentioned as it may be, has not had any significant effect in increasing research.
Stiglitz thinks that both the appropriate competition laws and intellectual property regimes need to be revisited. First, as we move into a global economy, the issues of competition become raised on a global level. Greater cooperation among competition authorities might be desirable. The world will benefit from a more competitive marketplace, and the countries of the world need to work in concert to achieve that goal. Second, while there has been much progress in reducing tariffs, non-tariff barriers, including dumping duties and countervailing duties (CVD's) have taken on increasing importance. Both can undermine not only competition, but also industrial policies, which support the new knowledge economy.
Stiglitz concludes that Economic models that ignore information imperfections and knowledge creation give us poor guidance since so many institutions can only be understood as adaptive responses to informational problems. Only by seeing the central role of informational imperfections can we hope to design and preserve robust institutions. He finds it is imperative to understand the ways in which the production and distribution of knowledge and information differs from that of goods like steel and cars. The fact that knowledge is, in central ways, a public good and that there are important externalities means that exclusive or excessive reliance on the market may not result in economic efficiency. For people like Stiglitz who believe in the power of market forces, the challenge is to find the best "partnership" between the private and public sector - an assignment of roles and responsibilities not dictated by the paradigms of the past that are unsuited to the knowledge economy of the future. Stiglitz thinks that we are all in uncharted territories, and we will have much to learn from the experiments of each other.
Throughout the world, this new perspective is having profound effects on public policy. In development work, the focus has shifted to the intangibles of knowledge, institutions, and culture. The World Bank is now transforming itself into more of a knowledge bank and is forging a more comprehensive development framework to put the new focus into effect. In more advanced, industrial economies, the challenge of creating and nurturing a culture of innovation and change is no less discouragingÌ
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2. THE WRONG GEAR FOR GROWTH
Xolela Mangcu*
[Extracted from the South African Daily Mail and Guardian, 28 August, 2000]
South Africa's economic strategy should concentrate on stimulating the domestic market rather than on foreign direct investment.
South Africa's macro-economic growth, employment and redistribution (Gear) strategy is underpinned by a three-part syllogism. It proceeds as follows: the government should implement a set of structural-adjustment policies (low budget deficits, privatisation of state assets, relaxation of labour laws, competitive exchange rates, low inflation, and so on); this will attract foreign investment; and this, in turn, will lead to higher economic growth rates and employment levels.
The policy question that should be asked is whether the relationship among these variables is as automatic as it has been made out to be. To be more precise, do the structural adjustments listed earlier really produce the desired results of increased foreign direct investment, and does foreign direct investment really yield economic growth and job creation? And if they don't, why does South Africa persist with these policies?
Any investigation of the gap between intent and implementation in economic policy must necessarily address the theoretical assumptions underlying those policies; it may well be that implementation is hampered by flaws in the intellectual foundations, assumptions and hypotheses on which economic policy is built.
The government has been fairly successful in getting prices right. According to American economist Stephen Gelb, changes in prices (interest, inflation, exchange and wage rates) "can be implemented through fairly straightforward administrative processes by those with authority over government finances". And, true enough, interest rates have come down from 25,5% during the Asian crisis to current levels of 14,5%; the inflation rate has declined from 9% in 1994 to 3,37% in 2000 and is now targeted at between 3% and 6%; and the budget deficit has been reduced from 5,5% of gross domestic product in 1994 to 2,3% of gross domestic product in 1999.
However, while the government's self-inflicted structural-adjustment programmes have been relatively successful, the record in respect of the second part of the syllogism, that is attracting foreign direct investment, has been less encouraging. There were net outflows of foreign direct investment between 1994 and 1996. Foreign direct investment reached a peak of near R6,8-billion in 1997 before declining to R1,6-billion in 1999. Even the temporary rise in foreign direct investment in 1997 had more to do with the privatisation of Telkom than with any expansion of productive capacity.
This has led to the Minister of Finance, Trevor Manuel, complaining that even when South Africa has done all it could to put its financial house in order, investments have still not been forthcoming.
The relationship between structural adjustment policies and expected outcomes becomes even more elusive in respect of the third part of the syllogism, where none of the policy intentions of increased growth and employment has borne fruit. Growth projections have been revised down from 6% in the Gear document to about 3% in Manuel's most recent budget speech. The job situation is even more disastrous; the economy has shed about one-million jobs since 1990, and about 500 000 since 1994.
Why does South Africa persist with these policies if they are not yielding the desired outcomes? There are at least two reasons for this: one economic and the other political.
From an economic perspective, the government seems to have misread the causality between foreign investments and domestic growth. Contrary to current economic orthodoxy in this country, international evidence shows that it is domestic growth that spurs foreign direct investment, and not the other way round. Multinationals are attracted to already growing and profitable economies. Moreover, the impact of trade and foreign direct investment on growth and employment is usually very weak.
In his book Pop internationalism, influential American economist Paul Krugman demonstrates that most economic activity takes place within countries, not between them. For instance, in the United States only one-eighth of output is traded, while two-thirds of added value consists of non-tradeable goods and services.
What about the much-vaunted role of exports in stimulating growth and employment? Those companies that are productive in the domestic market tend to self-select and enter the more lucrative export markets (hence the correlation between high domestic growth rates and exports). This again reverses the causality - that is, instead of assuming that export industries spur growth, the evidence is that domestic growth spurs exports.
Most of the discussion of exports in South Africa proceeds as if exports are an end in themselves. The argument goes something like this: if you get the exchange rate right, your exports will enable you to pay for your imports, which will in turn lead to lower prices and lower levels of inflation. But this is the wrong way of looking at why exports are important, and can have the unintended effect of destroying instead of creating jobs.
Exports are nothing but the means to buy inputs for growing domestic production. The idea behind trade promotion should not be to replace existing industries by importing finished consumer goods, but to use exports to expand domestic investment and employment. In this perspective, exports become part of a strategy for spurring domestic growth.
From a policy perspective this means that the focus should be on labour-intensive foreign direct investment. However, as University of Cape Town economist Nicoli Nattrass points out, South African exports are becoming relatively less labour intensive and more skills intensive, despite Gear projections of increasing labour intensity. This has to do with sectoral shifts from food and textile production towards the more capital intensive chemical, iron and steel industries.
Even more worrying is the fact that the decline in labour intensivity in exports has been accompanied by the increased imports of labour intensive products such as clothing, footwear and cars. The implications are that the job losses in exports are not compensated for, but actually worsened, by the import of finished consumer products.
Export-led strategies should be pursued on the back of domestic productivity and job-creation strategies. This minimises the chances that special interests will usurp the policy process simply on the basis that they are in the export business, irrespective of their domestic productivity, comparative advantage or contribution to employment.
Why would a government pursue intellectually flawed policies? The explanation lies in that venerable variable in policy: politics. The government's economic strategy is backed by the most powerful financial institutions and personalities in the world: the World Bank, the International Monetary Fund and Wall Street.
From the outset, its formulation was insulated from outside pressure groups that might have sought more attention to social spending. And for these reasons, Gear is unlikely to be amended unless this is necessitated by social unrest.
While it is important to get prices right, foreign investors are often driven by a whole host of considerations including social stability, market size and returns on private investment.
But even with these factors in place, negative investor perceptions of political risk have a far greater effect on foreign investors than structural-adjustment programmes.
Thus the important thing is to first grow the domestic economy and ensure returns to investors within a stable, democratic, peaceful political culture. In this respect, economics is as much about getting the policies right as getting the politics right.Ì
[* Dr Xolela Mangcu is a policy analyst for the Centre for Policy Studies. This is an edited version of an article that appeared in Synopsis]
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On 17-18 August, 2000, the Economic Commission for Africa (ECA) had a brainstorming inaugural workshop on the African Knowledge Network Forum (AKNF) in Addis Ababa. This initiative is part of the larger dynamics of globalization in an environment where “knowledge” is becoming a fashionable agenda of international discourse. Who could have thought that such an abstract, indeed philosophical, problem would one day become an agenda item in the otherwise deadpan institutions of international economic governance? A similar concern about “knowledge” is now also in the books of the World Bank, UNCTAD and the UNDP.
This is a welcome development. It is welcome for, if nothing else, it is at least an indication that these institutions recognize the centrality of knowledge systems in the present world of the Internet Revolution. At a deeper level, it is also an expression of some anxiety that the present dominant knowledge paradigms may be inadequate in responding to the challenges of globalization, especially in the countries of the South, and in Africa in particular.
The disconcerting part of such initiatives is that often the inquiry into the present state of knowledge is not broad, or profound, enough to raise fundamental issues of epistemology and ontology. Part of the ontology of the villager in most parts of Africa is the distance that she has to walk everyday to collect water and firewood in order simply to enable the family to survive. How does this ontology affect the knowledge of institutions such as the ECA? All we have seen so far is the received wisdom from the Washington Consensus that if only African countries were to create an enabling environment to attract foreign capital, somehow, miraculously, this foreign capital will bring growth in the economies of Africa and, through a process of “filter down”, the poor villager will, ultimately, see the benefits of growth and have a running water tap in her house and electricity in her kitchen. But why has this not happened for the last forty and more years since African countries started to get their independence from colonial rule? This is where the bankruptcy of the contemporary knowledge systems is fully exposed in its totalizing and reductionist explanations.
Another disconcerting part of such initiatives is that it begins to focus on the technicalities of communication and information sharing rather than on the fundamental issues of development. Somehow the medium itself becomes the message, much as Marshall McLuhan had seen it happening in the 1950s and 60s. Every age becomes obsessed with the scientific achievements of its own period. Ours is the age of the Internet. So the Internet, rather than the problems of development on the ground, becomes the main force dictating the agenda of international discourse. And the question that fascinates the new age thinkers is “how best to use the Internet” to improve communication and networking with one another. Yes, that’s fine, but communication and networking about what? And for whose benefit?
The AKNF workshop had its own share of the above dynamics and preoccupations. A vigilant women’s group was able to make a critical epistemological input into the discourse by raising fundamental questions about knowledge - by whom and for whose benefit. But the discourse on the economics of development was couched primarily in terms of the mainstream neo-liberal paradigm. If Africa has not benefited from globalization so far, this mainstream argument ran, then Africans are themselves to blame. A litany of African failures – from failure to liberalise the markets more than they have already done, to corruption of leaders – then acquire the place of “theory”, and, forced by the failure of economic theory to explain lack of development, the neo-liberal economists begin to delve into the politics of underdevelopment. Since “economic theory” is assumed to be valid in its own terms, the only explanation for the failure of development must, they argue, be located in either “lack of will” on the part of African politicians or simply “corruption” or “bad governance”. Like their mentors, the World Bank and the IMF and the various institutions of “learning” in the West, the neo-liberal African economists fall back on an eclectic, disjointed and assorted analysis of a problem that is deep-rooted, systemic and inherent in the global division of labour.
There is resistance to face up to the fact that neo-liberal monetarist economics has reached the end of its explanatory competence, let alone prescriptive abilities. This is recognized in some neo-liberal circles in the West, indeed even within the citadels of the World Bank (see Director’s Comment on “Knowledge and the Washington Consensus”), and we have entered a revisionist phase of neo-liberalism, of which Joseph Stiglitz is a fine example. But, somehow, the African neo-liberal economists have difficult time reconciling to this new reality, and the need to seriously look into the paradigmatic flaws in the designs of contemporary development theory marketed by professors at Harvard, Chicago and the Institute of Development Studies. The “knowledge” that these institutions market derive their faults not from their location in the West, for after all, many of them have brilliant intellectuals who produce alternative paradigms that do not, in the present climate of the dominance of monetarist economics, see the light of day. No, the problem lies with the reluctance, even resistance, to challenge the received knowledge. Why? Because there is too much at stake.
The American scientist, Thomas Kuhn, explained this phenomenon well in his 1962 classic “The Structure of Scientific Revolutions”. He said that the problem has its roots in the manner in which education is imparted, reproduced and reconfirmed. Scientists never learn concepts, laws and theories in the abstract, always in the concrete, always in application to a specific problem, in a problem-solving mode. They don’t ask the para-scientific question – what makes a particular problem or solution legitimate, what epistemological rules lie behind it. Hence paradigms, models, can exist without agreement on “rules” behind them. So there is no one set of theory that binds all paradigms together. When challenged, the defenders try to devise numerous articulations and ad hoc modifications of the old paradigm in order to eliminate any apparent conflict. These modifications are often tautological.
For example, Newton’s Second Law of motion is based on purely logical arguments that no amount of observation could refute. In the economists’ paradigm the argument about, for example, the theory of comparative advantages on international trade can get into a tautological loop from which it is impossible to get out with purely empirical evidence. The same with the argument that it is, ultimately, the corruption of African leaders that hinders the creation of the “right climate” for foreign investors to bring in their capital to Africa “needed” for Africa’s growth. Linked to this is the question of savings. Neo-liberal economists define “savings” as a residual category after all factor payments have been paid out, including external payments. This definition leaves no room for savings in practically any country in Africa (given their enormous debt burden), and makes a logical mockery of their oft-repeated statement that “Africa has little savings of its own” and hence must depend on capital from outside. These kinds of tautologies are the final refuge of theorists who cannot explain a misfit between their models and the extant reality on the ground.
The student of economics, taking the argument from Kuhn further, is led to believe that the applications of the theory also constitutes evidence for the theory; he/she takes the authority of the teacher and the text, not the authority of evidence. He/she does not have an alternative model or the competence to challenge the teacher or thesis supervisor. When facts do not fit theory it discredits the researcher, not the theory. Science cannot be discredited unless an alternative is found to replace the theories that are challenged. “To reject one paradigm without simultaneously substituting another,” Kuhn says “is to reject science itself. That act reflects not on the paradigm but on the man”.
That is one important reason why old paradigms die hard. There is so much at stake for those who have made their careers and consultancies based on paradigms learnt at Universities and reinforced in career development. This is the really tragedy of today’s discourse on “knowledge” in the vaunted institutions that certify knowledge as knowledge and discredit any attempts to draw attention to its flaws. In this context, “peer group reviews” that certify knowledge as publishable in “reputed” journals are deeply conservative, for most peers have a stake in reproducing knowledge that confirms their own, what can only be described as, theoretical prejudices.
In this context, it is significant that many Africans are raising the question of “indigenous knowledge”. President Mbeki of South Africa may have made a faux pas on the issue of the link between AIDS and HIV. But at the heart of his challenge was the desire to question the received wisdom that all knowledge flows from the North to the South. His intervention is symbolic of the times we live in. Had Mbeki chosen the field of political economy, rather than disease and medicine, to challenge the received knowledge of neo-liberal economism, he would have been on a surer footing.
In conclusion, the ECA’s initiative to build a network of knowledge-based inquiry into the condition of Africa’s lack of development and persistent poverty is a good initiative. But as it does so, the African Knowledge Network Forum (AKNF) must avoid the pitfalls of letting the technology (the Internet) decide the agenda of the Network. AKNF must broaden the debate beyond the limitations of neo-liberal economic paradigm that is coming to the end of its road, and enable African intellectuals to raise the larger epistemological issues about where does knowledge come from, who certifies and authenticates knowledge, and for whose benefit. This way AKNF would fulfill an important void that currently exists in the contemporary development literatureÌ
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Joseph Stiglitz is one of the leading thinkers of the Post-Washington consensus, a “consensus” which is still in the making. Its father, the Washington Consensus, revolved around the fundamentals of market economy reduced to some simplistic policy prescriptions that overvalued fiscal prudery, and monetary and foreign exchange considerations over the direct role that the state might play in regulating the economy. In a widely-quoted speech that Stiglitz gave to a meeting organised by WIDER (an institute of the United Nations University located in Finland) in January 1998, Stiglitz made a stinging attack on the Washington Consensus, and recognized the importance of state-provided regulatory role to the economy, and of distributive economics. (See his “More Instruments and Broader Goals: Moving Toward the Post-Washington Consensus”). Stiglitz was then the Senior Vice-President and Chief Economist of the World Bank. The Bank, Stiglitz claims, has taken on some of the new challenges of the post-Washington “consensus”. If so, then, it would appear that in the process of bargaining on how far the Bank could go beyond politically acceptable limits set by its chief architect, the United States, the Bank had to sacrifice Stiglitz himself.
To the extent that Stiglitz has punctured the hubris of the International Monetary Fund, which he attacks more vehemently than his own erstwhile employer, the World Bank, he is a recognized ally of NGOs and grassroots movements that have been saying for years more or less what Stiglitz now says. The latter have generally welcomed Stiglitz amongst their midst, not because he has said anything new, but because of the platform that he used, that of the World Bank, to say it. Coming from that citadel of putative monopoly of knowledge, Stiglitz’s candid reflections were a breadth of fresh air, an expression of a fundamental institutional self-critique. The World Bank has gingerly adopted some of his ideas, such as the idea of “Knowledge Bank”, but has carefully avoided some of the more radical implications of Stiglitz’s suggested reforms of the global system of governance and suggested revision of development economic theory.
Thus, despite Stiglitz’s travails and marathon public speaking and writings, mainstream economists who design policies in the World Bank and the IMF do not accept his critique of the Washington Consensus that still reigns supreme in the realm of ideas. Ideas are always encumbered by institutional and political fetters, Stiglitz should have known. Ideas do not spring from thin air, as that erudite Palestinian scholar, Edward Said, has reminded us in his voluminous writings. Ideas are part of the struggle between contending social and political forces vying for control of the world. They are additional instruments that states and politicians use besides guns and trade to conquer and control.
And hence the question: between the Washington Consensus (WC) and the Post-Washington Consensus (PWC), between the father and the son, where do the progressive forces of the world, forces that want the world change for the better, stand? If the WC reflected, and continues to reflect, the ideas of those who presently control and run the world, whose instruments of conquest are the ideas of the PWC? And, indeed, why are these questions important, especially for those in the countries of the South that are engaged in the day to day running of the state, the economy and hard-headed negotiations at the World Trade Organisation?
First, these questions are important because there is no escape from the ruling ideas that provide the overall ideological framework in which politics of state and of trade negotiations take place. These are still, by and large, governed by rules of the so-called “free market” economics. Of course, no such thing as a “free market” exists; it is a myth. But policy makers and trade negotiators operate under the assumption that it does, and that maximization of the conditions for its operation is the surest way to growth and out of poverty. Eminent economists such as Jagdish Bhagwati are the doyens of that make-belief, but because of the authority and aura they command in academic and policy-making circles the myth persists despite evidence to the contrary in real life. When persons like Stiglitz and Nobel Prize winner, A.K. Sen, from their different vantage points, challenge (some aspects of) the ruling orthodoxy, then the ideas parameters of policy-makers and trade negotiators shift slightly, initially imperceptibly, but over time, they could open up the gates to fundamental shifts. That is why there is so much institutional resistance against the shift. But this is also the reason why it is necessary not only to take note of these shifts in debates and paradigms of development, but also to engage in them, and to shape them.
And therefore the importance of the question: whose ideas of conquest are the principles of the still-emerging PWC? It would be difficult to say that a single body of ideas has actually emerged that can be named “the PWC”, but elements of these exist in the writings of various revisionist neo-classical economists and thinkers, mainly in the West. One of these is the idea of knowledge as a public good in what Stiglitz calls the new “knowledge economy.” It is indeed becoming quite fashionable for research and policy-based institutions to put “knowledge” on their programmatic agenda. The World Bank has mooted the idea of “Knowledge Bank”. The United Nations Development Programme (UNDP) has a position of a “Chief Knowledge Officer”. The UNCTAD is holding an Experts meeting on “Systems of Traditional Knowledge: Protection, Innovation & Practices” starting 30 October, 2000. Elsewhere in this Bulletin, we report on our reflections on the inaugural conference of the African Knowledge Network Forum (AKNF) organised by the Economic Commission for Africa (ECA) held in Addis Ababa in August 2000. Everybody, it would appear, has suddenly woken up to the importance of the centrality of knowledge. Epistemology, or rather its crude versions, is in vogue. Something is happening, and we better take note of what it is that is happening, or not happening.
Against this background, it is important to highlight what Stiglitz says in the summarized article in this Bulletin. He says:
Today the World Bank has shifted much of its emphasis to the intangibles of knowledge, institutions, and culture in an attempt to forge a more comprehensive New Development Framework. The shift in focus was motivated in part by the experience of the most successful countries - and the failures of many of economists’ efforts around the world. … There was also a change in ways of thinking: an acceptance of change, and, perhaps most important, the appreciation of the centrality of knowledge and education in general and the science and technology in particular.
“A change in ways of thinking: an acceptance of change…” Is that really the case? On whose part is this “acceptance of change”? This is an empirical question. To most objective observers from the South there is, in fact, no such change in thinking or even an acceptance of change in the World Bank and in official thinking in the West. Things are pretty much as they have been over the last fifty years, if not indeed worse in some cases. Hence the salience of the slogan of the peoples’ movement who protest against the World Bank and the IMF: “Fifty Years is Enough!” Unfortunately, even the experience of Seattle and Washington, where people came to the streets to protest against the WTO and the IMF/WB respectively, will not bring about a “change in ways of thinking” in these bastions of control over “knowledge”. Much more social upheaval at the global level may, sadly, be the only leverage to change. As that astute observer of paradigm shifts, the American scientist, Thomas Kuhn, argued in his celebrated “The Structure of Scientific Revolutions”, paradigmatic shifts in knowledge come as a result of systemic crisis. So far, the West, and their organs of global governance – the IMF, the WB and the WTO – have been able to stave off every major crisis (such as the debt crisis of 1970s and the “currency” crises in Mexico followed by East Asia in the 1990s) that the system has encountered.
Nonetheless, the fact that serious epistemological questions are being raised about the fallibility of the Washington Consensus is a good sign. And Stiglitz should be complemented for his courage and audacity to have challenged that “consensus” from within the belly of the beast.
But he does not go far enough. Indeed, the Post-Washington Consensus is only a reformed version of its father. There is no real paradigm shift. It may be that realism dictates only a reformist change in the language of discourse, and the parameters of knowledge that informs that discourse. The fact that
Another World Bank “rebel”, Ravi Kanbur, had to resign his post in May 2000 is an indication of the rigidity of the World Bank. Kanbur, a high-ranking Bank official, and a Stiglitzian author of World Development Report resigned after a row over WDR 2000's emphasis on growth and market liberalisation as against income redistribution.
For those struggling for paradigmatic shift in the realm of development ideas, reformism of the kind Stiglitz advocates can hardly prescribe a way forward. Indeed, that kind of reformism is the only way the system, with all its faults, can prolong its life a little longer. It is only because of the short-sightedness of the major global players (including the US Treasury, for example), and the bureaucratic and political rigidity of institutional gatekeepers in the World Bank and the IMF, that they cannot see the reformist light that Stiglitz and his kind are offering to them. At the end of the day, what Stiglitz is offering is the management of knowledge in a more sophisticated manner than the boorish efforts of the Bretton Woods institutions, for the latter can only further encourage antagonism and resistance from those whose sufferings have increased under the reign of the Washington Consensus.
Therefore, those for whom the challenge is to transform global governance, and not just reform it, the Stiglitzian way is only the first step to discrediting the dominant ideas in the World Bank’s “knowledge Bank”. That “bank” is pretty bankrupt of ideas. The main article carried in this Bulletin summarises some interesting ideas from Stiglitz that are usable in a technicist fashion, but they cannot be the main content of a transformist knowledge bank. For that we have to look elsewhereÌ
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Produced by the international South Group Network (ISGN) Director and editor: Y. Tandon; Advisor on SEATINI: B.L. Das
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