Nobel Laureate Joseph Stiglitz’s writing is clear,
simple, convincing and very disturbing. The principal issues the author
addresses are
·
How should freedom, a core human
value, be defined
·
What economic and social structures
are best suited to ensure freedom and deliver efficiency, equity,
sustainability and justice
·
Under-regulated ‘free’ market systems
(neoliberal capitalism, in the author’s words) do not ensure freedom and the
good society.
Considering the last item first,
Stiglitz emphasizes, most vigorously and effectively, that the theoretical conclusion
that ‘perfect’ markets
lead to an ‘optimal’ economic
situation -- optimality being defined in a particular way -- is utterly
irrelevant to the real world and the functioning of markets therein. Markets
are imperfect and highly so. Furthermore, conflating theoretical ’perfect’
markets with unregulated ‘free’ markets in the real world is incorrect because unregulated real world
markets are very, very far from ‘perfect’.
The assumptions that underlie and define ‘perfect ‘markets are not to be found
in the real world and so the contention that ‘perfect’ equals ‘free’
unregulated markets, and these are the
best possible economic option for any society, is technically false. But we
need not enter into the technicalities of economic theory to understand this.
My coal burning power plant may be making healthy profits for me and my
shareholders, but by polluting the environment it contributes to global warming
and disastrous consequences for the weather and the planet.
The availability of information is asymmetric and market power is
unevenly distributed -- look at big tech, big pharma, big defense, big media,
to name but a few. Real world markets when un/under-regulated can spell
disaster for society. The financial crisis of 2008 was a direct result of
under-regulation of financial markets in the USA, excessive risk taking and
poor risk management by financial institutions. Overwhelming, unconstrained greed
created an international crisis and the creators thereof -- the banks -- then
demanded and got huge amounts of US taxpayer money to bail them out because
they could not be allowed to fail. So powerful market players can cause
disasters and then be rescued by the taxpayer for the mess they made! The
crisis originated in the USA and spread worldwide, but the lesson is for all to
learn. Real world markets need regulation and the only regulator can be the
state.
The need for effective state regulation of markets is further underlined
by the evident power wielded by big tech, big pharma and big social media.
Big social media collects data on individual preferences by our actions
on the Internet and uses it to target us for whoever is prepared to pay.
Moreover, it can also mould mindsets by pushing content that reinforce a
perceived tendency or even propagate disinformation when paid to do so,
contending that as a content distributor it is not responsible for the nature
or accuracy of the content distributed.
The basic contention is that beliefs, tastes and consumer behaviour can,
and are, shaped by media and all too
often we are unaware of this. The meta narrative of how society and economy
work are all too often set by big tech
and big media platforms. ‘We do not freely choose the lens through which we see
the world’.
A disturbing revelation in this context is that the most strident
advocates of ‘freedom’ from state intervention are those that have benefitted
the most from state intervention. Innovations that have driven huge growth and
attendant profits have originated from heavy state investments in basic
research—the Internet, the mRNA platform, to mention two major areas. Google,
Apple and Tesla all benefited from state financial assistance too!
The matter has been brilliantly summarized in the phrase ‘socialized
risk, privatized profit’ by economist Mariana Mazzuoato in The Entrepreneurial
State (see my forthcoming blog).
This brings us to the vexed question of freedom and its definition.
Freedom from want, freedom from fear, freedom from exploitation (in effect from
injustice) and freedom to be able to live up to one’s full potential as a human
being are some components of freedom that are undeniable. But freedom has
tradeoffs -- one person’s freedom can be another’s unfreedom. The freedom that
the first version of the US constitution promised was for rich, white men, some
of whom were slave owners! Freedom for whom, and at whose expense, has to be
worked out. A balance between individual freedoms and restraints is imperative
and this requires collective action—a proactive welfare state that
counterbalances the inequities of imperfect markets and corrects undue
concentration of political power that inevitably results from concentration of
wealth characteristic of imperfect markets. The ‘invisible hand’ can only do so
much; the rest has to be done by the state. Adam Smith, incidentally, also
qualified the virtues of the invisible hand and underlined the dangers of
concentration of economic power. But this last is too often forgotten.
The author, having been an advisor to the US President and Chief
Economist of the World Bank, is well versed with economics as practiced in the
real world. In this context, he underlines the imbalance and inequity in
international agreements on trade and investment. He emphasizes that agreements
between unequals makes for unequal and exploitative agreements! The IMF and the
WTO are significant examples of institutions responsible for such agreements
internationally. And these are not just assertions by a ‘guru’, he backs them
up with examples relating to subsidies, tariff structures and taxation rules,
all of which favour the developed nations.
As we read Stiglitz we realize that his primary focus is the US economy
and polity. Nonetheless, the lessons from his study do have universal validity
and hence are of great interest to the ‘developing world’.
The alternative to ‘neoliberal capitalism’ that Stiglitz suggests is
Progressive Capitalism in which the state plays a positive and proactive role. The
unbridled greed of unregulated markets is not allowed to destabilize the economy
with periodic crises and equity, justice and social protection against the
vicissitudes of life is ensured.
Stiglitz backs up his views with examples, data and reasoning. It is
therefore important to read him without preconceived ideological blinkers. He
emphasizes that the proponents of neoliberal capitalism, Friedman and cohorts, assert
the significance of ‘free markets ‘ as a religious belief unrelated to reason
and established technical economic logic. And he does not repeat that error.
Here lies the final lesson -- ideology based, emotionally charged points
of view devoid of reason are not only logically incorrect, but also extremely
dangerous for society at large.
Happy reading.
