Economist and Nobel laureate Joseph Stiglitz is heading Manchester's new poverty institute - on a salary that has raised eyebrows, says Michael North

Unlike his fellow academics on the podium, Nobel laureate economist Joseph Stiglitz barely flinches when questioned about his ethics in taking a fat pay cheque to lead a poverty institute from a university with shares in arms companies. He calmly tells the packed grand hall in Manchester that he does feel "uncomfortable" with such investments and sympathises with the student's concerns, adding disarmingly: "The moral questions facing investment managers are enormous. I'm glad I don't do it."

He adds that recently in his role as a trustee of Amherst College in the US he voted to stop the university's investments in companies investing in Sudan because of the genocide there.

"We also thought that just selling the shares was not good enough and urged students to go down to Washington to protest," he says.

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The student audience seems satisfied, perhaps because Stiglitz has for many years been a crusader for justice and fairness in the world. As an Amherst undergraduate he marched on Washington to hear Martin Luther King's "I have a dream" speech for the equal rights movement. In 2000, Stiglitz resigned from his post as chief economist of the World Bank after protesting that the Bank's free trade and fiscal policies were harming developing countries.

Stiglitz followed up his resignation with a searing attack on the International Monetary Fund, the Bank's sister organisation, in Globalisation and Its Discontents , which became a bestseller. If it weren't for Stiglitz's belief in the powers of the original charters of such organisations to regulate the global economy, you can imagine him on the streets venting his anger with the anti-globalisation protesters.

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The economist, who turned 63 this week, was at Manchester University last week to launch the Brooks World Poverty Institute. He is its first chair.

The institute was made possible by a gift of ?1.3 million from the Rory and Elizabeth Brooks Foundation. Stiglitz, currently professor of economics at Columbia University in New York, will receive ?250,000 a year in the post.

Face to very familiar face, Stiglitz lives up to his reputation for being scruffy. With rumpled suit and shoes in need of a clean and with trailing laces, he is more the amiable prof than a former chief economic advisor to a president of the US - in his case Bill Clinton.

But it is his former position at the heart of global decision-making that makes Stiglitz's cynical pronouncements all the more shocking.

As he launches a two-day conference that will focus on the World Trade Organisation talks in Hong Kong last December, he tells his audience: "I was in Hong Kong to stimulate debate. We avoided disaster but only by lowering expectations."

And referring to the divide between the world's rich and poor as being "one of the great problems of the 21st century", he jokes: "Even [President George W.] Bush recognised it in his [State of the Nation] speech last night, which shows how far it has penetrated."

During his address, Stiglitz gives manifest reasons for his disappointment in how little the world has done to advance the development of poor nations. He constantly rounds on the US for its tendency to turn trade liberalisation - the diminishing or removal of barriers to trade - into a one-way street that benefits only the stronger country.

Bilateral agreements, such as the North American Free Trade Agreement between the US and Mexico, failed to aid development because the US continued to subsidise US farmers, leading to overproduction and low prices that drove Mexican farmers out of business and worsened the country's poverty. Liberalisation of the service sector really benefited only skilled services that the US could send to Mexico, such as banking. "No one was interested in Mexican construction firms building in the US," Stiglitz says.

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Extreme cynicism pervades trade agreements between the US and developing countries, according to Stiglitz. In contrast with the European Union, the US refused to stop subsidising cotton production, a policy that he says imperils the livelihood of 10 million African farmers. Instead, the US proposed that Africa export its cotton to north America. "One of the problems is that the US does not import cotton. The offer was equal to zero.

"The US effectively said to developing countries that you can export to us everything except that which you can produce - aeroplanes, jet engines etc! All responsible developing countries recognise the hypocrisy in trade negotiations."

The lack of a "true trade round" that benefits developing nations has inspired Stiglitz's latest work, Fair Trade For All: How Trade Can Promote Development , which is co-authored by Andrew Charlton, a researcher at the London School of Economics.

The book lays out what needs to change in world trade and the responsibilities of developed nations. They must, for example, commit 0.7 per cent of their gross domestic product to aid developing nations in things such as building infrastructure and improving education (the US currently gives 0.5 per cent).

"Part of addressing poverty is addressing opportunity. It's important to have a hand up as well as a hand-out. It is critical that we help people to help themselves," Stiglitz says.

Stiglitz's moribund view of US policy does not, it seems, extend to the UK.

He praises Chancellor Gordon Brown - "I think he is concerned about opening up trade" - and is optimistic that British parliamentarians are interested in the issues surrounding global poverty.

Stiglitz is hopeful that the Manchester institute will inform and guide policymakers, if only in Europe.

He says: "The problem of poverty in the Third World is extremely complex and there are many dimensions that we have to understand about the sources of poverty. That's where research comes in. We are trying to focus on what causes poverty in order to reduce it. There's never just one answer. That's why it's all the more important to have many researchers."

Stiglitz once wrote that as an undergraduate, he formed the "conviction that if one attains positions of 'power' one should view them as opportunities for social change". One of the world's most visible and indefatigable economists -with a CV that his podium host said should carry a health warning that "it may damage your self-esteem" - will be hoping to make more of an impact this time round.

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