People, Power, and Profits: Progressive Capitalism for an Age of Discontent
Joseph E. Stiglitz is one of America’s top economists. He is the winner of the Nobel Prize in Economics and served as the chairman of the Council of Economic Advisers for President Clinton as well as the chief economist for the World Bank. As evidenced by the hundreds of sources listed in his 95 pages of footnotes, he is a prolific writer and widely read.
Given these credentials, readers might be surprised by the heated, partisan rhetoric he employs throughout his book. Stiglitz clearly is not a fan of President Trump or just about any Republican politician or businessperson. He writes that “the vast majority of the [Republican] party went along with Trump’s bigotry, misogyny, nativism, and protectionism,” and were fine with increased budget deficits, to win “tax cuts for the rich and corporations, and deregulation.” He opines that America is “evolving into an economy and democracy of the 1 percent, for the 1 percent and by the 1 percent.”
Stiglitz reveals one explanation for the partisan rhetoric when he writes near the end of his book that his intent is to present “an alternative agenda—one might call it the progressive agenda . . . that I believe can serve as a consensus for a renewed Democratic Party.”
To create that agenda Stiglitz puts forth a wide-ranging statement on the failures of American capitalism, and he offers a litany of policies to address those failures. Again, though, he sometimes goes to surprising places with his arguments. For example, Stiglitz recommends that we “dismiss the view that because the US won the Cold War, America’s economic system [free-market capitalism] had triumphed.”
He argues that “it was not so much that free-market capitalism had demonstrated its superiority but that communism had failed.” Even more surprising is his view that China’s “‘socialist market economy with Chinese characteristics,’ has provided a dynamic alternative vision to that of America.” He concludes that “we need to bury our arrogance about our economic system.”
Stiglitz points to slow economic growth as one of the failures of American capitalism. He states that America’s economic growth has slowed from 3.7% per year from 1947 to 1980, to 2.7% per year from 1980 to 2017. He notes, too, that America’s per capita GDP is not the top ranked in the world. The U.S. Central Intelligence Agency reports that, based on GDP per capita on a purchasing power parity basis, the U.S. ranks 19th in the world.
This list, however, is not an apples to apples comparison, as no country as large or diverse ranks above the U.S.; the CIA data lists countries like Liechtenstein, Qatar, Norway, and Kuwait ahead of the U.S. China described by Stiglitz as a “dynamic alternative” is ranked 105th according to the CIA with a per capita GDP that was 72 percent less than the U.S. Still, Stiglitz sees other positives for China: “China is now the largest economy in the world . . . it now saves more than the US, manufactures more, and trades more.”
Other economic failures for American capitalism include “the failure to handle well the transition from a manufacturing economy to a service-sector economy, to tame the financial sector, to properly manage globalization and its consequences, and most importantly, to respond to the growing inequality.”
What are the causes of these failures? Stiglitz feels strongly that chief among the causes is “exploitation, beginning with market power?” Market concentration leads to market power and Stiglitz offers data showing increasing concentration.
He writes that “we see it in the limited choices we face for cable TV or the Internet or telephone services. Three firms have an 89 percent market share in social networking sites, 87 percent in home improvement stores,” and so on. In addition, finance caused serious problems, and Stiglitz writes that “finance was central to the creation of today’s economic, social, and political malaise.”
What should be done to address these failures of American capitalism? Broadly, Stiglitz makes a case for more government at every turn because capitalism has led to “too much pollution, inequality, and unemployment, but too little basic research.” Moreover, he argues that government must regulate private markets: “the reason is simple: what one person does affects others, and without regulations those effects won’t be taken into account.”
Six specific changes motivate Stiglitz’s call for more government: the need to invest in knowledge, plan for urbanization, combat global climate change; deal with an increasingly complex economy; address economic change; and manage globalization.
Stiglitz covers a lot of territory with his litany of policy proposals and some proposals are more detailed and more clearly stated than others. For example, he states that “the trouble in recent decades is that neither labor force participation nor productivity have been doing well.” For labor participation he proposes more “family-friendly policies” such as “better family leave policy.”
For productivity, “monopolies have less incentive to innovate,” so “curbing market power” is part of the agenda. Stiglitz discusses antitrust policy aimed at monopolies at several points. Notably, he argues that we do not want to allow highly concentrated firms to “forestall competition” through acquisitions. In this context he suggests the government might look at Facebook more carefully and require it to “divest itself of Instagram and WhatsApp.”
As to fixing inequality, Stiglitz cites policies such as a higher minimum wage and a higher earned income tax credit. His broadest and, perhaps, most aggressive policy proposals are to create a “pubic option.” He states that “with a public option, the government creates an alternative, basic program to provide products like health insurance, retirement annuities, or mortgages.” He writes that “competition between the public and private sectors will break the back of market power.”
Ultimately, Stiglitz believes that investing in “knowledge, learning, and advances in science and technology” are the “true source of a country’s wealth.” He closes on a rare, positive note concluding that “it is still not too late to save capitalism from itself.”