Internationally renowned economist Professor Joseph Stiglitz, of Columbia University, in New York, provided a sobering picture of the state of the world economy during a recent presentation in Johannesburg, describing the outlook as “dismal”, despite anticipating an improved 2014 for a number of countries when compared with 2013.

Speaking at the Discovery Leadership Summit, Stiglitz slammed many of the policy choices being taken, particularly in the US and Europe, which were failing, he argued, to address the macroeconomic and social risks associated with rising unemployment and inequality.

He was also critical of central banks that continued to focus primarily on inflation targeting, describing it as not only a “discredited” instrument, but also the wrong priority for the current phase of the economic recovery.

The remedies lay, instead, in improving overall aggregate demand through governments playing a more active role in stimulating growth. Rather than austerity, programmes should be pursued to “recycle” surplus financial resources into small businesses, infrastructure, technology, healthcare and to find mitigation and adaptation solutions to climate change.

Stiglitz argued that the creation of the so-called ‘Brics Bank’ by the bloc, comprising Brazil, Russia, India, China and South Africa, was a positive development in offering a possible new channel through which resources could be directed to areas of unmet needs.

New employment strategies were also required to secure jobs for those displaced by strong productivity gains, while strategies and regulations were required to ensure that companies and wealthy individuals were taxed fairly and in a way that guaranteed sufficient resources to support investments into education and other growth-supporting activities and services.

There was also an increasingly urgent need to tackle inequality, not merely for its potential to destabilise societies and undermine democracy, but because it was also undermining aggregate demand.

Stiglitz was heartened by the work the South African government was doing to support structural transformation through industrial policy, the articulation and implementation of which had been critical to the development of a number of successful emerging-market and developed economies.

However, he said more urgency had to be shown in driving Africa’s regional-integration agenda, which would be important in consolidating the continent’s current growth gains.

Overall, however, Stiglitz was not optimistic that countries would indeed pursue the policies required to lift the global economy out of its worst recession since the Great Depression, noting that there were still many weaknesses “half a decade after the collapse of Lehman Brothers”.