Jeffrey D. Sachs, one of America’s best known economists, has spent much of his career helping developing economies. In his latest book, The Price of Civilization: Economics and Ethics After the Fall, he perceives the US to be in decline. He makes the case for a mixed economy, one in which genius and the power of market forces are balanced and harnessed by effective government in promoting public goods and correcting market failures.
The writer identifies lack of employment for those with less education, decaying infrastructure, collapse of savings, declining education standards, increasing inequality, soaring healthcare costs and rampant corporate dishonesty as the major problems faced by the US.
Sachs argues that the American economy has failed to come to grips with the new global economic realities that emerged with the advent of globalisation, resulting in the shifting of manufacturing industries to the newly emerging economies and in chronic unemployment among lesser skilled workers in the US. The author emphasises that the 1970’s was the turning point in the American political and economic history and that the end of Bretton Wood Exchange System and unprecedented rise in oil and food prices were major events, jolting economies round the globe.
According to Sachs, the current problem began in the early 1980’s, with the election of Ronald Reagan, and blames him for a new antipathy to government. Sachs asserts that Reagan’s belief in unfettered markets resulted in the rollback of government, deregulation of financial markets, tax cuts for the elite and cuts in government services and public investments. The Reagan era paved the way for high increases in defence budget and low allocation towards public services such as job training, education, science and technology, transportation, environment and energy systems.
Reagan era policies were consistently followed even later on and policymakers dismantled government programmes that could have improved America’s international standing, decimated programmes that could have helped ameliorate the impacts of globalisation for Americans and handed over the functions to the private sector and consequently crippled the government’s ability to effectively control the economy.
Sachs asserts that both leading American political parties have fallen prey to corporate lobbies and media groups who dominate American politics. He argues that corporate lobbies translate into political power through campaign financing, corporate lobbying, and the revolving door of jobs between government and industry. Sachs has identified four key lobbies which play an influential role in policymaking.
The first is the military-industrial complex, responsible, he argues, for militarisation, useless wars and fiscal waste on vast scales.
The second is the Wall Street-Washington complex, which controls the financial system through a few Wall Street firms, notably Goldman Sachs, JP Morgan Chase, Citigroup and Morgan Stanley, and a handful of others.
The third is the Big Oil-transport-military complex, which is responsible for the US’s dependence on heavy oil imports and military trap in the Middle East.
The fourth is the health care industry which absorbs approximately 17 per cent of the GDP.
Sachs argues that it seems that the only difference between Republicans and Democrats is that Big Oil owns the Republicans while Wall Street owns the Democrats. He finds that both political parties have missed the big picture, offering ephemeral solutions, such as stimulus spending or tax cuts, to address complex economic problems that require deeper solutions. He feels that policy makers have profoundly underestimated globalisation’s long term effects on the American economy, which are creating deep and largely unmet challenges.
According to Sachs, corporate lobbyism and media has overpowered the voice of citizenry, culminating in a crisis in which an over stimulated and consumption driven populace is in a ferocious quest for wealth, and as a result, the society suffers from a shortfall of social trust, honesty and compassion. He asserts that money and wealth is accumulated so much at the top that it’s time for the wealthiest, richest and most powerful in this country to play their proper role, to have the civic virtues to support America’s recovery.
The second part of the book revolves around recommendations on specific issues. Sachs highlights that Germany, the Netherlands, Denmark, Norway, Sweden and Finland have invested significantly in apprenticeship systems and vocational systems to help the young make the transition from schools to good jobs. He also argues that it is the role of the government to ensure that progress is made in the fields of science and technology. The focus of the government should be to empower the average citizen to be productive, wealthy and well-educated, and businesses to be competitive internationally.
Economic success requires good government, that is, a government that concerns itself with efficiency and fairness at home, with competitiveness and co-operation abroad, with spending on infrastructure and education; and income distribution with sustainability, according to Sachs.
In the end, though, Sachs seems optimistic about the American “Millennial”, who he thinks will be shaping the future of the country more than any other group over the next 25 years. He notes that a Pew Research Centre survey reveals that 67 per cent of them support “bigger government providing more services”. He adds, “if for good health, safe environment, knowledge and cutting edge skills, renewed American prosperity can still be recovered.”
This book is a must read for policy makers, economists, students, politicians and members of think tanks.
The Price Of Civilization: Economics And Ethics After The Fall (Economics) By Jeffrey D. Sachs Bodley Head, UK ISBN 1847920926 352pp. £20