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How inequality undermines capitalism

Thomas B Edsall 

Joseph E. Stiglitz’s new book, The Price of Inequality, is the single most comprehensive counter­argument to both Democratic neoliberalism and Republican laissez-faire theories. While credible economists running the gamut from centre right to centre left describe our bleak present as the result of seemingly unstoppable developments — globalisation and automation, a self-replicating establishment built on “meritocratic” competition, the debt-driven collapse of 2008 — Stiglitz stands apart in his defiant rejection of such notions of inevitability. He seeks to shift the terms of the debate.

It is not uncontrollable technological and social change that has produced a two-tier society, Stiglitz argues, but the exercise of political power by moneyed interests over legislative and regulatory processes. “While there may be underlying economic forces at play,” he writes, “politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest.” But politics, he insists, is subject to change.

Stiglitz is a Nobel laureate and a professor of economics at Columbia (where I too teach, but we are not personally acquainted). Stiglitz and his allies argue that a free and competitive market is highly beneficial to society at large, but that it needs government regulation and oversight to remain functional. Without constraint, dominant interests use their leverage to make gains at the expense of the majority.

The importance of Stiglitz’s contribution (and that of other dissidents) to the public debate cannot be overestimated. The news media and the Congress are ill­equipped to address the role of economic power in shaping policy. Both institutions are, in fact, unaware of the extent to which they themselves are subject to the influence of money.

Stiglitz describes the economic capture of regulatory authorities by the interests under their jurisdiction — and the more subtle intellectual capture of policy makers of all kinds. The calculated and purposeful shaping of public discussion allowed conservative analyses to dominate debate in the years before the collapse of 2008, and in the years since they have been dominant as well.

It is not just democratic politics that is threatened by huge disparities in wealth and income. Much of Stiglitz’s book is devoted to demonstrating that excessive inequality amounts to sand in the gears of capitalism, creating volatility, fueling crises, undermining productivity and retarding growth. Just as discrimination results in the failure of a nation to make the best use of all its citizens, inequality, when it leads to inadequate schooling, housing and neighbourhood conditions for large numbers of people, acts in a similarly destructive fashion.

Stiglitz wrote The Price of Inequality at the height of the uprisings in Tunisia, Libya and Egypt, and the Occupy Wall Street movement here in the United States. These revolts against established power helped make him optimistic about the prospect of change in the future. But he seems more sanguine at the beginning of his book — “There are moments in history when people all over the world seem to rise up, to say that something is wrong” — than at the end, which concludes on a note of warning: “Time, however, may be running out. Four years ago there was a moment” — the 2008 election — “where most Americans had the audacity to hope. Trends more than a quarter of a century in the making might have been reversed. Instead, they have worsened. Today that hope is flickering.”

Circumstances in the summer of 2012 justify Stiglitz’s more apprehensive conclusion. Prospects for programmes boosting public investment are virtually nil. Republicans stand a good chance of taking control of both branches of Congress after the next election. Their presumptive presidential nominee, Mitt Romney, may capture the White House. If so, his tax and regulatory proposals will most likely embody all that Stiglitz finds repugnant. Even if Romney loses, the American political system does not appear ready to respond to Stiglitz’s call to arms.

Stiglitz may prove most prescient when he warns of a society governed by “rules of the game that weaken the bargaining strength of workers vis-à-vis capital.” At present, he says, “the dearth of jobs and the asymmetries in globalisation have created competition for jobs in which workers have lost and the owners of capital have won.” We are becoming a country “in which the rich live in gated communities, send their children to expensive schools and have access to first-rate medical care. Meanwhile, the rest live in a world marked by insecurity, at best mediocre education and in effect rationed health care.” Except for a brief period in 2008-9, when the stock market decline hit the wealthy the hardest, the trends would seem to be moving toward Stiglitz’s pessimistic vision of the future, with little prospect of change no matter who wins office on Nov. 6.

Joseph E. Stiglitz
W W Norton & Company
414 pages; $27.95

©2012 The New York Times News Service

First Published: Mon, August 06 2012. 00:21 IST