Saturday, July 9, 2016

Fairly Equal (2016)

Book Review from the July 2016 issue of the Socialist Standard

'The Great Divide', by Joseph Stiglitz. Penguin £10.99.

Stiglitz is a kind of dissident establishment economist, a Nobel Prize winner and former Chief Economist at the World Bank, yet who is in some ways at odds with conventional views. This volume consists of shortish essays from publications such as the New York Times and Vanity Fair, with some extra material. Most deal with the United States, but there is also some discussion of other countries, including China, Scotland and Mauritius.

The central theme is inequality and its consequences, though strangely there are no references to Wilkinson and Pickett’s The Spirit Level. As an example of the extent of inequality, an article from 2012 notes that the family that owns Walmart has wealth of $90bn, equivalent to that of the poorest 30 percent of the US population. In three years of recession, median wealth declined by 40 percent, and workers are on average worse off than their parents were. In the first three years of the so-called recovery, 95 percent of the increase in income went to the top one percent. There is no equality of opportunity in the US either, as the life chances of a child are dependent on their parents’ income and education. The children of the poor suffer disproportionately from asthma and learning disabilities.

Among the consequences of a high degree of inequality are greater instability, lower growth and less aggregate demand. This is because the very rich consume less, as a fraction of their income, than lower-income individuals. So a less inegalitarian system would supposedly lead to a more buoyant economy and almost everyone being better off. Moreover, the current astonishing levels of inequality are not inevitable but the result of deliberate policies, including the growth in importance of the financial sector.

Stiglitz sees the present system as an example of ‘phoney capitalism’, where ‘losses are socialized and profits privatized’ and markets are not truly competitive (a position more usually associated with the ‘right’ than with the ‘left’). Corporate welfarism means the banks and so on are bailed out by the government, but those who own them still make big profits and their top bosses still get massive bonuses. He is particularly opposed to what economists term ‘rent seeking’, which includes preferential tax treatment, government subsidies and the profit from controlling a monopoly. It is a zero-sum activity, devoted to gaining a bigger share of the pie rather than increasing the size of the economic pie, and just leads to an increase in wealth at the top of the scale.

As for the kind of society he wants instead, Stiglitz says we should choose both capitalism and fairness. He prefers a far more equal system and rejects austerity, which weakens demand and so discourages investment. Inequality stifles growth, and committing resources to education, infrastructure and technology will be a way of ‘putting America back to work’. With bland views like this, it is little wonder he is on the Labour Party’s Economic Advisory Committee (with Thomas Piketty).

One essay here is entitled ‘Of the 1 percent, by the 1 percent, for the 1 percent’. Nothing Stiglitz says suggests that he stands for a society where things will be different in any significant way from this.      Paul Bennett

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