by MAHMOOD MAMDANI
Professor Mahmood Mamdani (left) and Professor Joseph Sgiglitz. PHOTOS/Columbia University and Google
Your Excellency, Mr. President; the Chair, the Honorable Minister of Finance; the Honorable Governor of the Bank of Uganda and the Honorable Deputy Governor, Bank of Uganda,
I assume that the Bank of Uganda has asked me to be a discussant hoping I would raise questions they do not feel comfortable raising. I will take a cue from them and ask Professor Stiglitz questions hoping he will give responses that I do not quite feel comfortable giving.
I shall focus on four issues and I will ask four questions. The first concerns the Clinton years. The second is about Professor Stiglitz’s definition of the problem, as one of “market failure.” The third question focuses on the contemporary global crisis; I call for a more comprehensive definition of the crisis, from the point of view of society and not just the state and market binary that frames Professor Stiglitz’s discourse. Finally, I ask that Professor Stiglitz situate our own crisis – the crisis of Uganda and East Africa – within an expanded frame.
1. THE CLINTON YEARS
Deregulation of the financial system in the US began with the Clinton administration’s repeal of key sections of the Glass-Steagall Act of 1933. That Act had separated commercial and investment banking since the Great Depression era. The repeal of that Act was key to the deregulation of derivatives. In 2008, Clinton denied responsibility for refusing to regulate derivatives. He changed his mind in 2010, then blaming his advisors, among whom were Treasury Secretaries Robert Rubin and Larry Summers and the Chair of his Council of Economic Advisors, Joe Stiglitz. Larry Summers went on to become President of Harvard University. Joseph Stiglitz went on to be Chief economist of the World Bank and then professor at Columbia University. Summers showed little remorse for his role in the deregulation era. Joe Stiglitz, in contrast, became the best known critic of deregulation.
My first question is not new. Academic reviewers of Stiglitz have often wondered when he saw the light: did Professor Stiglitz oppose deregulation at the time or change his mind when its consequences became clear? Should we understand his critique of deregulation as foresight or hindsight, foresight in 1996 or hindsight after his time as Clinton’s senior policy advisor?
Professor Stiglitz addressed this issue in a book he wrote on the Clinton era, a book titled ‘The Roaring Nineties:?A New History of the World’s Most Prosperous Decade’. The question I am interested in was posed by an academic reviewer of the book, Robert Pollin? of Department of Economics at University of Massachusetts at Amherst. Let me quote Professor Polin:
“… at what point did Stiglitz, in his role as a senior Clinton policy advisor, become convinced of the severe damage that would result from deregulation? … As one important example, the general tenor of the 1996 Economic Report of the President, written under Stiglit’s supervision as Chair of the Council of Economic Advisors, is unmistakably in support of lowering regulatory standards, including in telecommunications and electricity. This Report even singles out for favourable mention the deregulation of the electric power industry in California — that is, the measure that, by the summer of 2002, brought California to the brink of economic disaster, in the wake of still more Enron-guided machinations.”
Why is the question important? Like the rest of us, Professor Stiglitz has a right to change his mind. The point of asking him this question is to have some information about how his thinking has evolved on this subject. As the reviewer asked: “Was there a moment of epiphany, like Saul of Tarsus falling off his mule? How many possible disaster scenarios did he really anticipate, and how much has he realized only more recently, after observing and ruminating with hindsight?” Did the crisis authored by the Clinton administration of which he was a leading member just confirm his intuition or did it also teach him something new? The answer to this question would tell us something about his intellectual journey. That would allow us to pose a more contemporary question: Should not the present global crisis lead Professor Stiglitz to develop his thought further? My point is that this question is not just one that should interest Professor Stiglitz’s biographer; it is of theoretical significance. Let me explain in terms that a lay person can understand, which will also allow me to pose my second question.
II. WHY CALL IT MARKET FAILURE?
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