Two-and-a-half years ago, delivering the keynote address at the Annual Bank Conference on Economic Development, this is what Stiglitz had to say, "This is an exciting time for those of us committed to advancing economic growth, reducing poverty, and sustaining policy reform in developing countries and countries making transition into a market economy. The success of several countries in breaking out of the poverty in which they had been mired for centuries shows that development is possible... That is, of course, good news not only for the countries involved, but also for those of us who offer advice and dispense aid. We can make a difference."

And this is what he had to say in his letter of resignation "The chief economist should be a strong and outspoken voice for the concerns of thedeveloping world... The chief economist should present the developing countries not with a single pat set of recipes, but with a range of views." Obviously, he feels he can no longer make a difference within the World Bank.

Just what were the views which led to his clashing with the dominant World Bank philosophy? Stiglitz was very vocal about his dissatisfaction with the Washington consensus on economic policies, the uncritical worship of the market, the destabilising effects of short-term capital flows, and his concern about rising inequality and poverty.

The Washington consensus is that inflation should be kept to a minimum, the fiscal deficit should be limited, the economy should be opened up. Stiglitz points out that this consensus has become dogma, whereas some of the most successful economies did not follow all the key prescriptions that are commonly given today.

On the fiscal deficit, that pet hate of IMF economists, Stiglitz asked the following question: "If a government reduces its fiscaldeficit by cutting back vital investments in infrastructure or in human capital, growth may actually suffer. If a government reduces its fiscal deficit by cutting back on food subsidies and that leads to rioting that undermines the country's political stability, is that likely to make the country more or less attractive to foreign investors?

He pointed out that there was a need to move beyond privatisation and trade liberalisation as ends in themselves, rather than as means to more sustainable, equitable, and democratic growth. Moreover, many countries followed the dictums of liberalisation, stabilisation, and privatisation, the central premises of the so-called Washington consensus, and still did not grow, Russia being the most obvious example. Stiglitz said that one of the central theoretical results of the 1980s was to show that whenever information is imperfect and markets are incomplete (which is essentially always) markets are not even constrained Pareto optimal. That means there are interventionsthat in principle could make some individuals better off without making anyone else worse off. That theoretical principle clearly established the position for government intervention in markets.

But the main reason for the World Bank economist's unpopularity was his advice to the powerful international bankers after the Asian crisis. This is what he said: "Lenders need to be forewarned that if they fail to engage in due diligence, if they push lending excessively beyond the ability of the borrowing country to repay, they are at risk." He compounded the unpalatability of that statement saying, "To be sure, such a provision may slow down the rush of capital into a country in boom times, but that is all to the good." He backed up his statement with a call for tighter financial regulation. He says that the dangers of relying excessively on capital adequacy standards are increasingly being recognised.

He advocates that banks move towards more comprehensive regulatory structures, including implementing exposurelimits on foreign-denominated liabilities and assessing the exposure of the firms to which they lend. He has called for restrictions on real estate lending and other forms of risky lending.

Stiglitz clearly says that the weight of structural adjustment policies fell disproportionately on the poor, nor were they consulted at the time when these policies were imposed. Hardly music for the ears of the IMF or the World Bank.

He understands the acute unease which ordinary people have with the current trend towards "autonomous" financial regulation. He said that key parts of macroeconomic policy have been taken out of the hands of politicians, and put under the jurisdiction of an independent central bank. At the international level, too, those responding to crises are not directly accountable to those affected by the crises. People are increasingly concerned that responses are designed to reflect the interests of those who have voices in these independent institutions, and that those voices are notrepresentative of the groups affected by the decisions.

And lastly, Stiglitz's iconoclastic remarks about the responses to the Asian crisis were notable. He said that Malaysia's intervention to stem the outflow of capital does not seem to have produced the dire consequences that its ardent critics seems to have predicted, and perhaps wished for.

As these examples show, Stiglitz's open mind about key economic issues ultimately clashed with the World Bank's strait-jacket. But the World Bank's loss will be the world's gain.