What an honour to experience firsthand the Stiglitz genius
Professor Joseph Stiglitz visited Namibia this week, presumably as invited guest following a collaborative effort by the University of Namibia, the Namibia University of Science and Technology, and the International University of Management. From various remarks during his brief tour, I gathered the President’s bevy of advisors also played an instrumental role to make sure the august academic talks to the right people in the right institutions.
Professor Stiglitz is an internationally acclaimed economist. He has enjoyed wide appeal and respect since the early part of his career which started in the late sixties. He is a Nobel laureate, sharing this price with two other equally eminent economists for his work in micro, more specifically the transactional base of micro-economics.
He has published over 2000 academic articles and about two dozen books. Apart from a tenure as chief economist at the World Bank, he has also advised the Clinton administration in the US on economic policy. This day he lectures at Columbia University.
What first drew me to his work almost twenty years ago was his common sense approach in using economics, based on everyday, observable, empirical events, to formulate economic policy. His pet topic is the transactional impact of asymmetrical information.
Using the insurance industry as an example, the good professor postulated that in any transaction, one of the parties is at a disadvantage due to asymmetrical information. When an insurance company sells a disability policy to an individual, they know more about the cost to risk ratio than the insured but the latter has the advantage of knowing more about him or herself than the insurer.
The exact liability posed by any individual for insurance, is unknown to the insurer. Only the individual knows how healthy or how sick he or she is. This places the insurer at a distinct disadvantage because the insured will withheld critical information deemed detrimental for buying a new insurance policy. The only guarantee against the impact of this asymmetry in information is for the insurance company to design and sell layered products. If the individual knows he is healthy, he will probably chose a product with lower premiums but a higher excess. The reverse is true for individuals who know they are not healthy but who will not disclose this to the insurer.
The professor’s lectures this week provided us with a glimpse of his very practical but also pragmatic observations and solutions. It was privilege to be exposed to his genius.
Referring to African development in general, and more specifically to the goals of the President’s Harambee Prosperity Plan, Prof Stiglitz showed the audience during his UNAM lecture that inequality is not a uniquely Namibian phenomenon. However, overcoming inequality without killing the goose that lays the golden eggs, is a bit more complicated.
I think many of his statements struck a familiar cord with the audience. From a third world perspective, it was clear that this was not the typical ivory tower approach to the very real problems we are trying to solve. Talking about the challenges facing economic transformation, he showed us that growth by itself is not sufficient, it must be inclusive growth.
At an earlier Stiglitz lecture, the finance minister, in one of the best “Namibian Economy in a Nutshell” presentations I have ever seen, pointed to the same basic principle. Headline GDP growth can be very misleading, as is well-known by economist worldwide whose job it is to advise governments on policies for sustainable, inclusive growth.
Perhaps the most appreciated cord struck by the eminent academic was when he advocated for an increased government role in steering development policies. The government, through the policies it designs and implements, plays a major role in determining the eventual growth outcome of any economy. Whether a country has a defined industrial policy or not, the economic players with vested interests will insure that an industrial policy which is only to their own advantage, will de facto exist.
Professor Stiglitz did not bring us a new economics. Everything he said was well-known and familiar, especially for us in Africa. The difference lies in the fresh and honest take he has on economic problems specifically transformation and development.
It was indeed a privilege to listen to him.