President Yoweri Museveni has said integrating the East African markets without political federation is a recipe for trouble as the European Union crisis has shown.
"Market integration without political integration is bound to cause inequality and this is a problem," Museveni said during the Bank of Uganda-sponsored Joseph Mubiru memorial lecture on Monday.
"Even if there is no political integration, there must be a compensatory mechanism," the President added.
Museveni said the choice between capitalism and other economic models was a moot one, arguing that you need "capitalism to build socialism, you cannot distribute what you do not have."
On the topic of the day: "Market failures in the financial system: implications for financial sector policies especially in developing countries", Museveni said the challenge of Africa is not one of market failure, but one of lack of markets.
He said the development debate should be prioritised around private sector-led growth, infrastructure development and regional integration.
The President said the debate should also focus on human resource development, knowledge based industry, democracy, peace and security.
The key note speaker, Prof. Joseph Stiglitz, a former economic adviser to former US President Bill Clinton, outlined the causes of the financial failure of recent years and proposed prescriptions that developing countries can apply to avert market failures.
He said regulation is critical as unfettered markets have been found to be inherently flawed.
"To have regulations is good, but it is more important to have enforcement of those regulations to ensure financial stability," the Nobel Prize-winning economist and professor of economics at Columbia University in USA, said.
Stiglitz recommended that not only do banks need to "get back to the boring business of being banks and lend to businesses" but that the Government should offer partial guarantees to small businesses.
"You want to consider developing development banks that will be able to support, promote and encourage innovation in the private sector," said Stiglitz, who is also the former chief economist at the Worlf Bank.
He said at the bottom of it all is to have safe and sound banks individually, which are not "too big, too intertwined or too correlated".
Prof. Mahmood Mamdani, in discussing the question, said it was framed too narrowly.
"This is not merely a problem of market failure, but one of failure of democracy. The antidote of the market is not the state but democracy. Regulation is now seen as a duty of the state and not society, which creates a problem," he said.
Mamdani argued that the market failure was a natural consequence of capitalism, wrenching itself away from the control of society, enriching the few and impoverishing the many.
He also criticised the African elite as unimaginative, swallowing western economic prescriptions "hook, line and sinker".
Finance minister Maria Kiwanuka, who chaired the discussion, said it was timely and that Stiglitz's presentation on market failures in the financial system and the subsequent discussion should enrich the review of policy formulation and enactment of legislation and policies relating to the financial sector."
Central bank governor Emmanuel Tumisiime Mutebile hosted the event.
The lecture is held annually to commemorate the contribution made by Joseph Mubiru, the Central Bank's first governor, to the financial sector.
The 20th edition of the lecture was held at Speke Resort Hotel Munyonyo.
The late Joseph Mubiru was the first Governor of Bank of Uganda, a post he was appointed to in 1966.
He was murdered during the early years of Amin's dictatorship.
The executive committee of the Uganda Institute of Bankers decided to remember him by holding annual lectures, launching the first lecture in 1988.
Mubiru's widow, Mrs. Mary Mubiru, was present at the lecture.