You are on page 1of 3

Economist: Balance between market and state economy ideal for Egypt

Page 1 of 3

Economist: Balance between market and state economy ideal for Egypt
Author: Rana Khazbak Nobel Prize winner and economist Joseph Stiglitz believes that an economic model balanced between a market and state economy would be ideal for Egypt in managing a successful transitional period, as it works to attract investments to stimulate its economy. In his first visit to post-revolution Egypt, the prominent economist gave a lecture at Bibliotheca Alexandrina in Alexandria on Thursday entitled “Solving Unemployment in Egypt,” in which he outlined some of the challenges the nation faces during its transition and measures to deal with them. Stiglitz was awarded the Nobel Prize in Economics in 2001 for his analyses of markets with asymmetric information. He is now University Professor at Columbia University in New York and chair of the university's Committee on Global Thought. Although Stiglitz served as the chief economist and senior vice president of the World Bank from 1997 to 2000, he afterward became critical of its neo-liberal model, which he outlines in his book, “Globalization and Its Discontents,” which sold more than a million copies worldwide. “The economy can’t wait until the resolution of all the political problems. We can’t say, 'Let’s solve the political problems and then begin to work on the economy.' Unfortunately, in this period, the economy will go down, unemployment will go up, and impatience will increase,” said Stiglitz. Stiglitz's visit comes at a time when Egypt is suffering the economic repercussions of the 25 January revolution, with growth slowing to a rate of 2 percent despite previous projections of 5 percent, and poverty increasing to 42 percent of the population (those living on less than US$2 a day), according to government measures. Income from tourism, one of Egypt’s main revenue sources, has decreased by 80 percent due to the political turmoil; similar fears have made investors loath to pump cash into the country. Stiglitz slammed both the socialist and the market fundamentalist models as failures, imploring Egypt and other countries undergoing revolutions to adopt a balance between the state and the market, more specifically the European social model. The European model combines sustainable economic growth with improved living and working conditions. This entails seeking full employment, good quality jobs, equal opportunities, social protection for all, social inclusion and involving citizens in the decisions that affect them. “It has been proven that the socialist model doesn’t work, government domination of production doesn’t work. We saw its failure over and over again in Russia, in China and the Middle East,” said Stiglitz. “But we have also seen that the market fundamentalist model has failed, the neo-liberal model has failed as it produces unsustainable growth and in many cases it was marked by corruption.” Achieving social justice has been a central demand by protesters, who have issued calls to set minimum and maximum wage limits that would ensure decent living standards for workers and government employees. The Nobel Prize winner added that democracy will play an important role in setting the right model, since it will allow for a debate in the society on what is the appropriate mixture of the market and the state for each country. “It’s not just the size of the state, but how it functions and what it does,” Stiglitz added.


or do we spend money on health care.” he continued. explaining why is particularly important for Egypt and Tunisia to address their own youth unemployment. Stiglitz said that young people felt at the time that the political process was not responsive to their needs and voted. When dealing with the issue. “When people are afraid of transparency. you can see some of the greatest inequalities associated with corrupt privatizations. said Stiglitz. One problem with neo-liberal doctrine. which according to official 29/07/2011 . Around the world. He used an example from the US.9 percent.” he reminded. is that it puts emphasis on foreign investment at the expense of domestic investment. providing youth with both the skills and capital to come up with sound business plans. one should be suspicious. “I call privatization: bribatization. “Corrupt governments discovered that privatization gave them the opportunity to be even more corrupt. Similarly. where 20 percent youth unemployment reflected in the voter turnout in the 2010 elections. While the notable economist recognized the important role that the private sector plays in the economy. up from 8. 28. in the area of jobs. resembling the one in the US. as the latter do not drive heavy trucks or sport-utility vehicles (SUVs). The famed economist ended his talk by expressing his happiness to share the excitement of the transitional period with Egypt. Stiglitz ultimately called on the Egyptian government to follow Mexico’s experiment. Egypt allocates more than 20 percent of its annual budget to subsidies. http://www. Stiglitz added that one way to fight corruption after the uprising is to ensure transparency by developing a Freedom of Information Act.almasryalyoum. Stiglitz added that economic growth is needed in order to increase job opportunities and that in order for growth to happen. He asserted that the government needs to make tough decisions on where to direct its scarce money. preventing more qualified young people with no jobs from entering the labor market. but it also creates a kind of alienation between the youth and the government which is destructive to society.Economist: Balance between market and state economy ideal for Egypt Page 2 of 3 Stiglitz criticized Egypt’s system of subsidies as “not well targeted.” said Stiglitz. he said. they could require even more years of economic planning without a clear agenda. Banks should also play a role in helping medium and small-sized enterprises. Stiglitz explained that there is “a potential conflict across generations” that has to be addressed by reaching a social consensus.” Stiglitz addressed the problem of unemployment in Egypt. Encouraging young entrepreneurship is one of the best paths to take.” said Stiglitz.” providing the example of fuel subsidies that help the rich. he rejected the privatization imposed by international financial institutions such as the World Bank and the International Monetary Fund on governments like Egypt's. which was also 20 percent.9 percent in December of last year. governments must realize that there are some tough calls over whether to protect people in current jobs with high wages.9 percent of the unemployed have a college education and 52. as it often leads to even more corruption. “One reason creating jobs for the youth is so important is that not only does it destroy valuable human capital and risk the ability to grow in the future. amounts to 11. “Do we spend money on educating the young.6 percent some kind of technical or vocational qualification. He noted that while these changes of course take time.” said Stiglitz. social security and pensions?” he asked rhetorically. because before they used to steal a fraction of annual flows of profits. not the poor. “It is the role of the government to make subsidies more targeted to enhance social protection and to use fewer resources so that the rest is used for development. “But privatization meant that they could steal the future flows.” said Stiglitz. on investment in infrastructure and technology. or whether these protections may cause more workers to remain in their positions. the government has to encourage domestic as well as foreign investment. “Every big business used to be a small one.

14:28 Source URL (retrieved on 29/07/2011 29/07/2011 .18:42): http://www. 29/07/2011 .almasryalyoum.Economist: Balance between market and state economy ideal for Egypt Page 3 of 3 Publishing Date: http://www.