People, Power, and Profits: Progressive Capitalism for an Age of Discontent

Joseph Stiglitz

Gosh, Joe Stiglitz is cross about Trump’s America. You imagine that in writing this book, he could hardly see the keyboard for the steam coming out of his ears. The book is a powerful and evidence-based polemic, against what he calls a ‘bigoted, mysoginist, nativist, and protectionist President’, but also against the corporations, the lobbyists, the vested interests, and the rich – ‘the political minority that, if not oppressing the majority, is at least dominating it, thwarting the majority from doing what would be in the interests of the country as a whole’.

The book is more than a polemic, however. It is also a manifesto, a potential play-book, aimed, one imagines, at the Democratic candidates for the 2020 Presidential nomination. Any candidate still needing an economic, social or even political ‘plan’ to wave at campaign rallies will find plenty of suggestions here: Part II of the book has chapters on all the above, with proposals ranging from an employment guarantee scheme, through better pensions, to compulsory voting, and fixed terms for Supreme Court judges. The book ends with a long chapter on reclaiming American values. Is it possible that Stiglitz himself is thinking of running for President?

The diagnosis of America’s ills is familiar, not least from Stiglitz’ own work. A religious belief in the power of markets carries much of the blame, in particular the failure to tame the financial markets. Globalisation has been badly managed. The power of workers has been ‘eviscerated’. Regulatory capture has been rampant. Fiscal policy has been irresponsible. President Trump is in the firing line, not least for the regressive nature and deficit-expanding consequences of the 2017 tax cut. However, the problems are long-standing: ‘if Trump had not waged this war, someone else would have’.

The consequences are also familiar. Slow growth. Poor productivity. Stagnating or falling wages. Rising inequality. Persistent racial, ethnic and gender discrimination. Poor health outcomes. Falling trust. Loss of social cohesion. ‘A misshapen economy’, Stiglitz argues, ‘creates misshapen individuals and a misshapen society’. No wonder there is ‘widespread discontent in the land’.

The US is a special case, with greater inequality than Europe, and poorer social provision (for now). However, the deeper challenge is one Stiglitz identifies as ‘the challenge of the moment’: ‘making the transition from the industrialised economy of the twentieth century to the twenty-first century service, innovation and green economy’. Here the argument resonates beyond the borders of the US – see, for example, Paul Collier’s new book on the future of capitalism, or the report of the IPPRInstitute for Public Policy Research (London) Commission on ‘Prosperity and Justice: A Plan for the New Economy’.

Stiglitz does a good job of spelling out the unequalising consequences of badly managed globalisation, applicable to all developed countries, including the loss of self-esteem associated with the disappearance of manufacturing jobs. He emphasises the importance of place-based policies to redeem the communities decimated by deindustrialisation. He also makes important points about the complementarity of economic and social policies: investing in ‘pre-distribution’ via education, social protection, and active labour market policies, to reduce the need for later ‘re-distribution’.

In an important passage, Stiglitz discusses how to design a mutually-beneficial rules-based global system, when values differ so much, for example between the US and China on personal liberty and state intervention. His conclusion: simplified minimum rules on investment or intellectual property, plus coordination of measures on tax, to avoid a race to the bottom in corporate taxation, and to combat tax evasion.

For the future, Stiglitz sees the foundation of future US prosperity in knowledge and innovation, based firmly in public sector commitment to universities and to the research establishment. He advocates a carbon tax (though without saying how high it should be), reform of intellectual property regimes, and regulation to prevent new knowledge-based corporations extracting economic rents. Facebook, for example, should probably be required to dispose of Instagram and What’sApp, even be treated as a public utility. This means it should be more tightly regulated, but not nationalised: Stglitz is concerned to reform not overthrow the market economy.

The guiding idea underlying many of Stiglitz’ proposals is ‘the pubic option’. He returns repeatedly to the question of ‘Why Government?’: to market failure, the need for collective action, and the value of public investment.  He is in favour of a national infrastructure bank, perhaps modelled on the European Investment Bank. He wants to see fiscal policy used to create full employment. And he has a strong interest in social policy, including as a way to offer meaning to those who are displaced by technology, but might find new livelihoods as teachers or carers. He is not, however, an enthusiast for Universal Basic Income.

‘Another way is possible’, Sitglitz concludes. How well that will play in the Democratic primaries can be left to others. He himself has no illusions about the power of the vested interests that would oppose his plan. There is certainly a lot of detail to fill in, for example on the carbon price, or on how exactly place-based policies will give new life to different kinds of ‘forgotten town’.

From the outside, just two observations.

First, the Rest of the World does not feature much in the book, except in connection with trade policy, and that mostly China (56 references). Neither Africa nor Latin America is mentioned. India (4 references) appears only in connection with its employment guarantee scheme. The UK makes a passing appearance, with a nod to Manchester, as having mastered deindustrialisation more successfully than Detroit (a low bar, by all accounts).

That neglect of global issues is a pity, especially from a former Chief Economist of the World Bank. The US can learn from other countries, for example from countries like South Korea or China on industrial policy. The US needs to plan its own future with more than half an eye on changes in the rest of the world, for example Asian competitors in science and technology. And the US needs to have a strategy, even a ‘plan’, for shaping global economic governance. Stiglitz describes his agenda as being a ‘twenty first century blend of Teddy Roosevelt and FDR’. The first gave us the Panama Canal, the second the United Nations. Stiglitz might have offered his readers an equally compelling proposal for American leadership in the global economy. A US equivalent to China’s Belt and Road? A new Marshall Pan for the poorest countries? Reform of the UN and Bretton Woods?

Second, there is a surprising lack of detail on the headline issue of the transition to a postindustrial world. In a section on this topic, Stiglitz says that ‘Government must anticipate the broader strokes of future structural shifts’, warns that ‘the market on its own is not up to the task’, and calls for active labour market and industrial policies. But there is little sense here of a climate emergency, or of the deep and rapid dislocation that is about to be unleashed by the combination of remote and artificial intelligence, a phenomenon described by Richard Baldwin as ‘globotics’. Baldwin talks about ‘an international talent tidal wave coming for the good, stable jobs that have been the foundation of middle-class prosperity in the US and Europe’.

On the climate side, the obvious point of reference in the US is the Green New Deal, promoted by House Representative Alexandria Ocasio-Cortez. In its latest incarnation, a Resolution submitted to Congress in February 2019, there are many overlaps with Stiglitz’ proposals (a job guarantee, for example), but also a call for the US to adopt a zero-carbon target, and for a ten year ‘national mobilisation’ that will deliver, among other things, 100% renewable energy. AOC’s initiative post-dates Stiglitz’ final draft, but the urgency of the need for action is compelling and hardly new. It also shapes the policy response in ways it would have been helpful for Stiglitz to explore.

Stiglitz says that this is a time for major change, that ‘incrementalism (is) inadequate to the tasks at hand’. Perhaps the urgency is greater even than he realises.