A view of economics that might well be reflected in Grant Robertson’s Wellbeing Budget was expressed by American Nobel laureate Joseph Stiglitz last month in an article headed The Economy We Need.
After 40 years of market fundamentalism, he wrote, America and like-minded European countries are failing the vast majority of their citizens.
“At this point, only a new social contract – guaranteeing citizens health care, education, retirement security, affordable housing, and decent work for decent pay – can save capitalism and liberal democracy.”
Stiglitz, an economics professor at Columbia University and chief economist at the Roosevelt Institute, is the author, most recently, of People, Power, and Profits: Progressive Capitalism for an Age of Discontent.
He has elaborated on his early-May article in After Neoliberalism in which he contends:
“For the past 40 years, the United States and other advanced economies have been pursuing a free-market agenda of low taxes, deregulation, and cuts to social programs. There can no longer be any doubt that this approach has failed spectacularly; the only question is what will – and should – come next.”
The neoliberal experiment has entailed lower taxes on the rich, deregulation of labour and product markets, financialisation, and globalisation.
The “spectacular failure” is that growth is lower than it was in the quarter-century after World War II and most of it has accrued to the very top of the income scale.
“After decades of stagnant or even falling incomes for those below them, neoliberalism must be pronounced dead and buried.”
Stiglitz identifies three major political alternatives: far-right nationalism, centre-left reformism, and the progressive left ( the centre-right representing the neoliberal failure).
But with the exception of the progressive left, “these alternatives remain beholden to some form of the ideology that has (or should have) expired”.
The centre-left, for example, represents “neoliberalism with a human face“. Its goal is to bring the policies of former US President Bill Clinton and former British Prime Minister Tony Blair into the 21st century, making only slight revisions to the prevailing modes of financialisation and globalisation.
Meanwhile, the nationalist right disowns globalisation, blaming migrants and foreigners for all of today’s problems. Yet as Donald Trump’s presidency has shown, it is no less committed to tax cuts for the rich, deregulation, and shrinking or eliminating social programs.
That leaves the third camp which Stiglitz calls progressive capitalism.,
Its champions prescribe a radically different economic agenda, based on four priorities:
- To restore the balance between markets, the state, and civil society. Slow economic growth, rising inequality, financial instability, and environmental degradation are problems born of the market, and thus cannot and will not be overcome by the market on its own. Governments have a duty to limit and shape markets through environmental, health, occupational-safety, and other types of regulation. It is also the government’s job to do what the market cannot or will not do, like actively investing in basic research, technology, education, and the health of its constituents.1
- To recognise that the “wealth of nations” is the result of scientific inquiry – learning about the world around us – and social organisation that allows large groups of people to work together for the common good. Markets still have a crucial role to play in facilitating social cooperation, but they serve this purpose only if they are governed by the rule of law and subject to democratic checks. Otherwise, individuals can get rich by exploiting others, extracting wealth through rent-seeking rather than creating wealth through genuine ingenuity. Many of today’s wealthy took the exploitation route to get where they are. They have been well served by Trump’s policies, which have encouraged rent-seeking while destroying the underlying sources of wealth creation. Progressive capitalism seeks to do precisely the opposite.
- To address the growing problem of concentrated market power. By exploiting information advantages, buying up potential competitors, and creating entry barriers, dominant firms are able to engage in large-scale rent-seeking to the detriment of everyone else. The rise in corporate market power, combined with the decline in workers’ bargaining power, goes a long way toward explaining why inequality is so high and growth so tepid. Unless government takes a more active role than neoliberalism prescribes, these problems will likely become much worse, owing to advances in robotization and artificial intelligence.
- To sever the link between economic power and political influence. Economic power and political influence are mutually reinforcing and self-perpetuating, especially where, as in the US, wealthy individuals and corporations may spend without limit in elections. As the US moves ever closer to a fundamentally undemocratic system of “one dollar, one vote,” the system of checks and balances necessary for democracy likely cannot hold – nothing will be able to constrain the power of the wealthy.
- “This is not just a moral and political problem,” Stiglitz argues. “Economies with less inequality actually perform better. Progressive-capitalist reforms thus have to begin by curtailing the influence of money in politics and reducing wealth inequality.”
The success of a comprehensive agenda along those lines would depend largely 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, he argues.
“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 programs 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.”
Stiglitz is confident this agenda is eminently affordable. To the contrary,
“ … we cannot afford not to enact it. The alternatives offered by nationalists and neoliberals would guarantee more stagnation, inequality, environmental degradation, and political acrimony, potentially leading to outcomes we do not even want to imagine.
Moreover, “progressive capitalism is not an oxymoron”. Rather, Stiglitz sums it up as a viable and vibrant option which represents the best chance we have of escaping our current economic and political malaise.