Nobel Prize-winning economist Joseph E. Stiglitz is known for his critical views regarding the current state of capitalism and neoliberal economic policies. However, in his latest book People, Power, and Profits: Progressive Capitalism for an Age of Discontent, he has gone further to examine the impact of these economic policies on the lives of ordinary people and how these policies translate into increasing the concentration of power in the hands of a select few.
In the beginning of the book, Stiglitz makes it clear that his aim of writing this book was to find out what ails the United States’ economy and to come up with prescriptions that “will lead to a faster-growing economy, with shared prosperity, in which the kind of life to which most Americans aspire is not a pipe dream but an attainable reality.” He also makes it clear that the key to the wealth of nations lies in “wealth creation” and not in “wealth extraction.” Wealth extraction can be vertical, ie along the class structure, as well as horizontal, ie along national or political borders. He also sets the tone of the book at the end of the preface by declaring that “before economic reform there will have to be political reform.”
Stiglitz further differentiates between wealth creation and wealth grabbing. Wealth creation is achieved through innovation, creating new products, establishing new sectors of the economy etc, whereas wealth grabbing can be plain old corruption, exploitation of labour and so on. These practices, while very effective in exploitation, are somewhat dated. The latest wealth grabbing techniques are mainly one of these two: getting overpaid for selling to the government (defence contractors and drug companies) or underpaying the government for public goods (oil and mining firms and timber firms). Stiglitz minces no words in saying that wealth grabbing is just redistribution of wealth — mostly taking from the poor and giving to the rich — and often destroys a significant amount of wealth in the process.
Stiglitz describes the root cause of all economic woes in these words: “While America doesn’t excel in growth, it does so in inequality: the country has greater income inequality than any other advanced country; in terms of inequality of opportunity it also ranks well toward the bottom.” And the reason for this phenomenon is that the share of those who are at the top of the economic ladder is increasing in the economic pie. Further investigation, according to Stiglitz, reveals that the sole responsibility for this falls on the “deep and pervasive misunderstandings about what makes for a strong economy” and the policies begun under former president Ronald Reagan, ie those under so-called “trickle-down economics.”
Stiglitz rightfully argues that “standard economics textbooks” which are used by the elite class to justify neoliberal economic policies “focus on the importance of competition.” However, the very same policymakers clamour for more and more deregulation of the market forces to allow large enterprises to gain exploitative powers similar to monopolies in order to extract “excess profits.” These excess profits are at the root of growing inequality in the American society. This inequality, in turn, perpetuates the supply of low-wage employees to the big corporations. Thus, in the absence of a competitive economic atmosphere, both consumers and workers are exploited. Stiglitz goes one step further and posits that curtailing market power is not just about economics: “one cannot have a true democracy with the kinds of large concentrations of market power and wealth that mark the US today.” The imbalance in market powers gets translated into imbalance in political power.
Nobel laureate Joseph Stiglitz explains why wealth creation is different from wealth extraction and why inequality is at the root of what ails the US economy
With advancement in science and technology, we are fast moving towards knowledge economies. This phenomenon is driven by a sustained process of research and development in all fields of knowledge. Innovations are patented to benefit the researchers and the organisations that employ them. However, there is a time limit for these patents, after which they become common property of all mankind because that helps in boosting further innovation. The debate around Intellectual Property Rights is also being tipped in the favour of big corporations since they do not want to part with their monopolistic powers even over very old inventions. Stiglitz stresses the need to re-evaluate the trade-off between privatising and providing public access to the patents.
Stiglitz has also critiqued the role of the financial sector in exacerbating the economic woes of society. Banks — that are supposed to intermediate between those who have savings and those who want funds for investments — have increasingly engaged in highly speculative lending practices, completely ignoring financial prudence. This behaviour led to the financial crisis of 2007. However, the “government provided massive largesse to the banks and the bankers — without any sense of accountability for the crisis that they had created, and with miserly help for the workers and homeowners.” And what little oversight was established by the government over the banking sector in 2010 — to avoid any future financial meltdown — has been rolled back in 2018, underlining the kind of power the financial sector wields in Washington.
Stiglitz further argues that new technologies, such as artificial intelligence, big data and gene sequencing, need to be closely monitored so that they cannot be used against the common good. We have already seen how companies such as Cambridge Analytica used digital data to undermine the democratic process.
Finally, all the economic analyses of Stiglitz are concluded in minimising the influence of wealth in American politics to ensure that government policies are directed towards public welfare instead of benefiting only the elite class.
Although this book, like Stiglitz’s previous works, has been well received by a great number of experts and the general populace at large, some critiques from the proponents of neoliberal policies have been presented. Having found it difficult to undermine the basic premises of Stiglitz, most of these critiques are focused on some minute detail of his prescriptions for the ailing politico-economic system that desperately needs to be reformed. Some of these critiques accuse Stiglitz of spreading pessimism and paint him as some kind of doomsday prophet, but Stiglitz is not a doomsday prophet. This is evident from his concluding remark, that “it is still not too late to save capitalism from itself.”
The reviewer is a civil servant and freelance writer
People, Power, and Profits: Progressive Capitalism for an Age of Discontent
By Joseph E. Stiglitz
Published in Dawn, Books & Authors, February 23rd, 2020