There is no magic bullet that can reverse the damage done by decades of neoliberalism. But a comprehensive agenda along the lines sketched above absolutely can. Much will depend on whether reformers are as resolute in combating problems like excessive market power and inequality as the private sector is in creating them.
A comprehensive agenda must focus on education, research and the other true sources of wealth. It must protect the environment and fight climate change with the same vigilance as the Green New Dealers in the US and Extinction Rebellion in the United Kingdom. And it must provide public programmes to ensure that no citizen is denied the basic requisites of a decent life. These include economic security, access to work and a living wage, health care and adequate housing, a secure retirement, and a quality education for one’s children.
“I don’t think we can have democracies that work where most of the people are not benefiting economically, where most of the people are worried about their job security. Society can’t function without shared prosperity.”
Instead America is led by a man Stiglitz says should not be in the White House. “He is not fit to be president. He does not have an understanding of the issues, the political process. He is used to making one-time deals. You can cheat your contractors when you buy a real estate property and fix it up. Reputation doesn’t matter. For the president of the United States reputation does matter. The reputation of the United States does matter. We are dealing with countries all over the world. They want to know if your word is good. Trump’s word is not good.”
Although America’s right-wing plutocrats may disagree about how to rank the country’s major problems – for example, inequality, slow growth, low productivity, opioid addiction, poor schools, and deteriorating infrastructure – the solution is always the same: lower taxes and deregulation, to “incentivize” investors and “free up” the economy. President Donald Trump is counting on this package to make America great again.
Joseph Stiglitz (Credit: AP/Richard Drew)
During the long run-up to officially announcing her second presidential bid, former Secretary of State Hillary Clinton quietly — but not too quietly — reached out to a number of leading progressive economists. Along with experts from some of the biggest unions in the country, the list of Clinton conferees included some of the biggest names in the (small) world of left-wing economics: former Clinton-era Secretary of Labor Robert Reich, for example. Yet out of all the so-called boldfaced names intended to draw lefty wonks’ attention, none inspired more cautious optimism than that of Columbia University professor and Nobel Prize-winning economist Joseph Stiglitz.
In part, that’s because Stiglitz, like his contemporary and fellow Nobel-winner Paul Krugman, is a brilliant economist who proves that, contrary to what many conservatives say, a firm grasp of the dismal science does not inexorably lead to libertarianism. More important, though, was his association with the problem of inequality — both on political and economic grounds. His 2011 piece on inequality for Vanity Fair made a splash (among the types of people who read Vanity Fair); and his 2012 book “The Price of Inequality: How Today’s Divided Society Endangers Our Future” — which is now available in paperback — was an even bigger hit.
Recently, Salon spoke over the phone with Stiglitz about his new book, “The Great Divide: Unequal Societies and What We Can Do About Them,” the roots of inequality, and what he wants to see from the 2016 presidential candidates to prove they’re taking the issue seriously. Our conversation is below and has been edited for clarity and length.
So this book originally came out in 2012, and now it’s 2015. Are you more optimistic now than you were then? Or less?
I think the good news is the way that, in the opening shots of the 2016 campaign, candidates across the political spectrum have said that inequality is a major issue facing the United States. Sometimes they’re not phrasing it exactly about inequality — some say the struggles of the middle class— but of course they’re talking about inequality and that’s very heartening. Obviously, when I hear reports about the amount of money that this campaign is going to cost, and the projections that it will be well in excess of what the last presidential campaign cost, which is $2 billion, I get depressed. Those campaign contributions, as I’ve said often, are investments, not donations. They’re investments in where the investors expect to get a return and that return is shaping our economy to serve their interests.
Republicans, especially former Gov. Jeb Bush, like to talk about a lack of opportunity rather than inequality. Does the distinction make much of a difference?
When they first began making that argument, Paul Ryan said, We’re not interested in inequality of outcomes, we’re concerned about equality of opportunity. But as I point out in my book “The Great Divide,” the fact is we don’t have equality of opportunity. We are among the countries in the advanced world with the least equality of opportunity. So if they think that’s an answer to the question of inequality of income, wealth, justice, all those other kinds of inequality, it’s obviously not. The fact that there’s a huge literature of both theory and empirical evidence saying that the two are very highly correlated means that they can’t escape talking about equality of outcomes, that is to say counties with more inequality of outcomes, the incomes have greater inequality of opportunity. In a sense, the two issues are inextricably linked.
One of the more middle-of-the-road policy responses to inequality you’ll hear about is improving education. But that point of view also has its critics. What do you think of that approach?
That’s sometimes called part of a minimalist apple pie agenda. I’m very convinced that that won’t go far enough and what’s happened in the last fifteen years, has made it even more clear that that won’t go far enough. Since the beginning of the century, even educated people have not been doing very well. They’re only doing well relative to those without a college education. So those without a college education, have seen their incomes really sink and those with a college education have been treading water. So what is going on is much more fundamental, it’s much deeper than that. It is part of any agenda but it’s just a part and won’t really address the fundamental problems going on.
You make a point in the book of arguing that the 1 percent doesn’t flourish because it’s so much better than the rest of us, but rather because our economic system is in many ways rigged to their benefit. What do you mean by that?
One way of thinking about that is to try to think about the textbook model of economics — thousands of producers, competing with each other, each so small that it has no effect on price. Almost the only industry for which that is true is agriculture and that’s an industry where government presence is very, very strong and where government presence is basically designed as an agricultural program that helps the very big farmers with very little of the money going to the small farmers.
More broadly, there are a huge number of examples of this: in ’93, we recognized the inequities of CEO pay and passed a law that said if the pay was so-called performance-related than it was exempt from the special tax that was put on excessive pay. Well, what that did is just open the floodgates and allow every company to re-label their pay as performance pay. Many of us pointed out that these new stock options— which were so-called performance pay — were very non-transparent. Shareholders didn’t know how the value of their shares were being diluted, and we tried to push for greater transparency, but we ended up maintaining this system that encouraged dishonest creative accounting and allowed these bonuses which have very little to do with actual incentive.
That’s a very dramatic example of a legal tax structure that benefits the one percent. At the other extreme, laws that have been passed that make it more difficult for unions, for workers to get together and unionize, globalization rules that almost encourage firms to invest abroad, allowing firms to threaten to move abroad if workers don’t accept lower wages and worse working conditions. All of that has weakened labor. So these are just a few examples by which our rules and regulations have empowered the top and disempowered everybody else.
You also argue that, ultimately, inequality on this scale is bad for everyone — the 1 percent included. Why do you think it’s not in their best interest, either?
The idea is that a strong theory and empirical evidence that inequality is bad for economic performance, that it leads to lower growth and more instability. Back in 1980, the Reagan team said, Let’s try this new experiment of supply-side economics, where we lower the taxes on the top and they said don’t worry that this is going to lead to more inequality, the people at the bottom are going to benefit, because we’re going to get more growth. There’s no evidence for that, and now thirty-some years later, we have the results of that experiment. The combination of lower growth and a lower share of what growth has occurred–in fact negative shared–meant that the people in the middle and on the bottom have been worse off.
Now, you run that engine in reverse, that reasoning in reverse and you say, well, if it is the case that we actually grow the economy better by having more equality, then it’s at least conceivable that those at the top might get a smaller share than the outrageous share that they’re getting today, but the pie would be bigger and they could actually be better off. But I don’t think the one percent wants to live in gated communities; I’ve visited places where there’s a huge amount of inequality, and the quality of life of the one percent isn’t that great. They live in gated communities, there’s an unpleasantness about the nature of their society. That’s a direction to which we may be moving, if we don’t deal with the inequality we have. So I would say that, would I rather live in a society where there’s sort of a sense of community and a sense of purpose, a sense of fairness, I think it’s a much healthier community to live in. And all of us live in a community; none of us are really that isolated.
What would be some of the policies that the 2016 Democratic candidate could realistically run on to combat inequality that would excite you most?
I think I would be the most excited by a candidate that really takes seriously this issue of equality and equality of opportunity, addresses it in as many dimensions as possible, and goes beyond what I would call the minimalist agenda— more education, minimum wage— and begins to work on the most important things that will ensure that the middle class will have access to the basic ingredients that make for a middle class life. That means beginning to work on the underlying structures that are referred to the institutions that have lead to such inequality in before tax income, in market incomes. That begins to say that when we have a tax system that rewards speculators more than people who work for a living that distorts our economy. We don’t want our most talented people to go into speculation; that can lead to even more instability. We have a distorted economy, and that’s a result of the choices that we’ve made and we ought to be making different choices. We can do that! There’s not reason that capital should be taxed at a lower rate than people who work for a living.
Finally, there’s a whole agenda, I think, that could directly address some of the plight of average Americans— make it easier for people to get to jobs and public transportation, make it easier for a woman to work through support of child care or family-leave policy. Basically trying to help every member of our society participate meaningfully in our society.
Last question: You’ve previously expressed opposition to the Trans-Pacific Partnership trade deal, but that was a few months ago. Have you heard or seen anything in the time since to make you feel more positively toward the proposal?
No, I’ve actually heard several things that have made me more adamant in my opposition. I’ve talked to the health negotiators around the world. I’ve talked to people who’ve been involved in the arbitration process as part of the investment agreements. Even people who are arbitrators say the whole system is corrupt, that it’s a very expensive system, that therefore creates an un-even playing field with big corporations with big, deep pockets can get access to have recourse, whereas smaller firms can’t. That American firms can re-locate or do their investments in the United States as a subsidiary, sue the U.S. government in ways that they could not if we didn’t have that trade agreement. In other words, what we’re doing is changing the legal structure for the United States, not only for foreign firms. Because an American firm can become an American firm overnight. So this is a very big deal.
It’s not just a trade agreement, it’s a really major change in a legal structure. And I don’t think it should be taken lightly. I don’t think it should be adopted on a take-it-or-leave-it basis, that’s associated with fast-track. I think each of these issues themselves need to be debated, voted on separately. The bottom line is, if anything, I’ve been more resolved in my opposition.
Joe Stiglitz warns us what harm the TPP wants to do to pharmaceutical pricing:
There are two ways the office of the trade representative can use the T.P.P. to maintain or raise drug prices and profits.
The first is to restrict competition from generics. It’s axiomatic that more competition means lower prices. When companies have to fight for customers, they end up cutting their prices. When a patent expires, any company can enter the market with a generic version of a drug. The differences in prices between brand-name and generic drugs are mind- and budget-blowing. Just the availability of generics drives prices down: In generics-friendly India, for example, Gilead Sciences, which makes an effective hepatitis-C drug, recently announced that it would sell the drug for a little more than 1 percent of the $84,000 it charges here.
That’s why, since the United States opened up its domestic market to generics in 1984, they have grown from 19 percent of prescriptions to 86 percent, by some accounts saving the United States government, consumers and employers more than $100 billion a year. Drug companies stand to gain handsomely if the T.P.P. limits the sale of generics.
The second strategy is to undermine government regulation of drug prices. More competition is not the only way to keep down the prices of essential goods and services. Governments can also directly restrain prices through law, or effectively restrain them by denying reimbursement to patients for “overpriced” drugs — thus encouraging companies to bring down their prices to approved levels. These regulatory approaches are especially important in markets where competition is limited, as it is in the drug market. If the United States Trade Representative gets its way, the T.P.P. will limit the ability of partner countries to restrict prices. And the pharmaceutical companies surely hope the “standard” they help set in this agreement will become global — for example, by becoming the starting point for United States negotiations with the European Union over the same issues.
Americans might shrug at the prospect of soaring drug prices around the world. After all, the United States already allows drug companies to charge what they want. But that doesn’t mean we might not want to change things someday. Here again, the T.P.P. has us cornered: Trade agreements, and in particular individual provisions within them, are typically far more difficult to alter or repeal than domestic laws
We can’t be sure which of these features have made it through this week’s negotiations. What’s clear is that the overall thrust of the intellectual property section of the T.P.P. is for less competition and higher drug prices. The effects will go beyond the 12 T.P.P. countries. Barriers to generics in the Pacific will put pressure on producers of such drugs in other countries, like India, as well.
Of course, pharmaceutical companies claim they need to charge high prices to fund their research and development. This just isn’t so. For one thing, drug companies spend more on marketing and advertising than on new ideas. Overly restrictive intellectual property rights actually slow new discoveries, by making it more difficult for scientists to build on the research of others and by choking off the exchange of ideas that is critical to innovation. As it is, most of the important innovations come out of our universities and research centers, like the National Institutes of Health, funded by government and foundations.
The efforts to raise drug prices in the T.P.P. take us in the wrong direction. The whole world may come to pay a price in the form of worse health and unnecessary deaths.
As near as I can figure out, the plan is to use trade agreements to allow U.S. companies (who, let’s face it, don’t even pay many taxes here anymore) to dominate everywhere in the world and make as much money as possible by controlling regulation and overriding existing legal systems.
Which make us the Mafia, right?
The word ‘revolution’ has throughout history been synonymous with the cry for equality and social change. The French Revolution of 1789, the Russian Revolution of 1917, the Cuban Revolution of 1959 to name a few, all began because the divide between the haves and the have nots became intolerable. In the examples above, social inequality was at historically high levels and getting worse by the day. Something had to happen and it did, much of it violent and bloody.
Revolutions were generally born of peasant unrest, dissatisfaction, a sense of betrayal by once revered heroes who were seduced by their own power and their accumulation of vast wealth. When that peasant dissatisfaction reached a tipping point, revolution became the only recourse.
Today the wealthiest 1% in our society enjoy a lifestyle that much of the 99% could not even imagine. Furthermore, the gap continues to widen such that the line between middle and lower class workers is now blurred, while the gap between middle and upper income levels grows wider and easier to see.
While any high functioning capitalist economy will always have inequality to some degree, the divide as it exists today is so geared toward greater wealth for the fewer that the middle class is in danger of disappearing altogether. The message for all those living in their gated compounds and ivory towers is, it cannot last.
Statistics are not needed to reinforce these claims. They simply confirm what the 99% already know. But, for the record, in 1980 in the USA, the top 1% controlled about 8% of the national income while the bottom 50% shared about 18%. Today, the top 1% share 20% of the national income while the bottom 50% share just 12%.
In Australia, similar comparisons are difficult to find but in measuring wealth by quintiles, the ABS found that in 2011 the top 20% of households owned 62% of the wealth while the bottom 20% held less than 1%. In fact the top 20% held more wealth than the rest combined. The conclusion was that wealth inequality was rising fast.
Free market capitalism in its present form is no longer a recipe for a sustained, prosperous, happy, healthy society. Today, capitalism is synonymous with inequality, unfairness and discrimination. With today’s capitalism we are drifting toward feudalism.
Inequality has grown so dramatically over the past thirty years that our once great egalitarian Australia of the 1960s and ’70s has all but disappeared. And to quote Joseph Stiglitz, “one of the major culprits has been trickle-down economics—the idea that the government can just step back and if the rich get richer and use their talents and resources to create jobs, everyone will benefit. It just doesn’t work; the historical data now proves that.”
If ever world leaders had an opportunity to revolutionise capitalism it was in the aftermath of the Global Financial Crisis (GFC). Just six years on from that incredible opportunity, we can see they have failed and have done so, spectacularly.
Bank bailouts without conditions will be a dark legacy for Barack Obama in an otherwise reasonable presidency and now the opportunity has all but passed. The US stock market has not just recovered but surpassed pre 2008 lows. The rich are richer and the poor are poorer in far greater numbers than before. For the 1%, the plutocrats, it’s business as usual.
The Reagan trickle-down effect is back with a vengeance and is now the hallmark of the present Australian government despite a plethora of information, data, and recent history to demonstrate its failure. They still expect business to lead a national recovery with investment in goods and services. What they don’t get, is that an underutilised workforce cannot afford it. Business knows this. That is why they will not commit.
The government cannot see that a vibrant, active, well-educated workforce is an essential component of a strong, robust economy; a component that creates demand that results in stronger growth, stronger investment and stronger taxes.
Blinded by the advice from bankers, investment houses and those whose fortunes are derived from manipulating stock markets and overvaluing mortgage stocks, Tony Abbott and Joe Hockey are no more than a mouthpiece for the 1%; the plutocrats. They are victims of their own self-serving ideology. While they are in power nothing will change, no improvement for the 99% will ever eventuate.
Any realistic observer can see that this trend is unsustainable and its future unpredictable. While the plutocrats continue to build their wealth, billionaire Nick Hanauer thinks they might inherit pitchforks.
While the 1% enjoy their wealth, blind to the signs of desperation around them, a single act of defiance by someone desperate and destitute enough could mobilise thousands in support and roll across the country like a tidal wave. The 1% could be caught like the frog in the saucepan unaware the water has reached boiling point. But by then, it will be too late.
I don’t think anyone in government, least of all Scott Morrison, anticipated riots leading to murder and self-immolation when he embarked upon his ruthless policy of deprivation detention on Manus Island. That crept up without warning. And now, I don’t think either he or his party foresee all the possible outcomes if they embark upon a policy of reducing welfare at a time of fiscal contraction.
He may not even care but he could well be responsible for creating a new underclass that has no respect for law and order. He could well extend existing poverty further into the realm of the middle class, bringing welfare agencies to their knees trying to cope. This is where that one defiant act could likely emerge.
History is littered with such circumstances and the consequences of doing nothing. The 1% won’t see it coming, but governments should. And they should do something to stop it, or they too will feel the pitchforks. They can plead ignorance but that won’t save them.
They can say their hands were tied but their complicity will be all too obvious. The plutocrats will never change voluntarily. The government is running out of time to do it for them.