LACK OF DIVERSIFIED ECONOMIES LEADS TO CRISIS – JOSEPH STIGLITZ

LACK OF DIVERSIFIED ECONOMIES LEADS TO CRISIS – JOSEPH STIGLITZ

Professor Joseph Stiglitz says lack of diversification within economies and inflation targeting are some of the major factors that contribute towards the economic crisis. Professor Stiglitz was speaking at an Economic Policy Dialogue that hosted by the Department of Trade and Industry (the dti) in Midrand today.

The purpose of the dialogue was to encourage on-going and dynamic debate on contemporary issues that impact on the South African society in general and the economy in particular.

Professor Stiglitz said the lack of diversification during the economic crisis exposed a number of countries in that they could not stay competitive. He added that most diversified economies managed the storm better by the way their economies are structured.

“A stable and competitive real exchange rate can enhance economic diversification by making investment in the tradable sector more profitable and making investment in tradable sector less uncertain,” said Stiglitz.

Stiglitz also said small and medium enterprises, manufacturing sector and exports opportunities hit when the country not diversified and the exchange rate is volatile. 

 “A competitive exchange rate can be viewed as a type of industrial policy that can partially substitute for other traditional industrial policies but must also be complemented by the implementation of those other policies that can move people out of poverty and create jobs,” he said.

Stiglitz added that the real exchange rate instability was a major source of uncertainly for the production of tradable goods and services, and therefore discouraged investment in these sectors.

He warned against countries that keep their currency over-valued and said it was not sustainable or competitive.

In his presentation, Professor Justin Barnes said the rand was one of the most volatile currencies globally, and significantly influenced amongst others by capital flows, and speculative attacks.

“Depreciation should lead to greater competitiveness, exports and protection of less competitive domestic firms, but raising import costs of production inputs. Conversely, appreciation supports industries requiring imported technology and capital or that is import-dependent for material or component inputs,” added Barnes.

Caption: Professor Joseph Stiglitz at the Economic Policy Dialogue hosted today in Midrand.