22 Jan 2011
Editor's Note: To hear Stiglitz's views on South Africa joining the BRICS group of emerging economies as well as his thoughts on nationalization in South Africa, watch part two of this interview here.
World renowned economist and Nobel Laureate Professor Joseph Stiglitz was in South Africa this week participating in a meeting of the Economic Advisory Panel, which he is a member of. Stiglitz also gave a public lecture at the Reserve Bank in Pretoria on Monday, 17 January 2011. Africa Business News caught up with him for an interview, which interrogated a wide range of issues related to South Africa's New Growth Path.
Citing the phenomenal growth of the Asian economies in the past decade, which came as a complete surprise to many, Stigltiz argues that there is no reason why South Africa should not reach the targets that have been set by the New Growth Path.
He believes that there is no reason why India with all of its problems can grow at 9% and South Africa not. There is no reason why South Africa should not reach similar growth rates contends Stiglitz.
foreign investment in a country is often considered the silver bullet cure for job creation, but Stiglitz argues that the key thing to understand is that short term capital flows are not the basis of long term investment. You can't create jobs with money that can come in out of a country overnight, says Stiglitz. This is the kind of investment that is currently taking place in South Africa.
In this light, he argues that emerging markets must manage their exchange rates.
To avoid speculative unproductive investment, most countries have used a range of instruments such as taxes on short term capital inflows, unremunerated reserve requirements (where short term capital comes into a country and 1/3 of it usually is obliged to stay in the country for a certain length of time), prudential regulations and so on.
The crisis taught us that markets are volatile and not forward looking. "They are not wise, they make big mistakes." A price that is as important as the exchange rate and interest rate should not be left to market forces, argues Stiglitz.