Joseph Stiglitz, like many other professors, has no idea about life on main-street.

Sir, Joseph Stiglitz writes that in Africa “even countries that have introduced reforms and achieved high growth have not generated enough formal sector employment to absorb the growing labour force” and suggests that “the US should encourage foreign direct investments into labour intensive light manufacturing and agro-processing industries” “A new American strategy for business in Africa”, August 4.

Sadly professors, like Stiglitz, often lack one vital qualification when it comes to giving this type of advice… namely any personal real life experience of what it takes to get a business going.

For instance, Stiglitz has probably never accompanied a small entrepreneur to a bank to apply for a loan, and seen how hard that is, and seen how the applicant is often forced to distort facts to even have a chance to get that loan he believes might change his future. And Stiglitz has most certainly no idea of how those travails have been made even harder by the introduction of the risk-weighted bank capital regulations.

And I hold that as a fact because the Report of the Commission of Experts of the President of the United Nations General Assembly on Reforms of the International Monetary and Financial System, and of which Stiglitz was its chairman states “Variable risk weights used to ascertain appropriate capital adequacy standards can have strong incentive effects. Regulators need to be aware of distortions in capital allocation when provisioning and capital adequacy requirements do not accord well with actuarial risks”.

And that indicates they have no understanding that these capital requirements distort even though actuarial risks have been perfectly indentified, for the simple reason that these actuarial risks are already being cleared for by interest rates, size of exposure and other terms… and which translates directly into an added regulatory odious discrimination against the fair access to bank credit of those perceived as risky.

If Stiglitz understood how risk-taking is the oxygen of development, and knew how many African countries have or are in the process of implementing a developing strategy that is based on making banks more risk-adverse than they already are, he might cry… but as I said, for that, you must get out and do some walking on main street first.

PS. By the way, as rough as things are on many main-streets right now, I would not be that fuzzy about jobs having to be formal… even informal jobs will do for the time being... who knows, even informal jobs can carry the seed of a formal job.