We all have the sense that the American economy—and its government—tilts toward big business, but as Joseph E. Stiglitz explains in his new book, People, Power, and Profits, the situation is dire. A few corporations have come to dominate entire sectors of the economy, contributing to skyrocketing inequality and slow growth. This is how the financial industry has managed to write its own regulations, tech companies have accumulated reams of personal data with little oversight, and our government has negotiated trade deals that fail to represent the best interests of workers. Too many have made their wealth through exploitation of others rather than through wealth creation. If something isn’t done, new technologies may make matters worse, increasing inequality and unemployment.
Stiglitz identifies the true sources of wealth and of increases in standards of living, based on learning, advances in science and technology, and the rule of law. He shows that the assault on the judiciary, universities, and the media undermines the very institutions that have long been the foundation of America’s economic might and its democracy.
Helpless though we may feel today, we are far from powerless. In fact, the economic solutions are often quite clear. We need to exploit the benefits of markets while taming their excesses, making sure that markets work for us—the U.S. citizens—and not the other way around. If enough citizens rally behind the agenda for change outlined in this book, it may not be too late to create a progressive capitalism that will recreate a shared prosperity. Stiglitz shows how a middle-class life can once again be attainable by all.
An authoritative account of the predictable dangers of free market fundamentalism and the foundations of progressive capitalism, People, Power, and Profits shows us an America in crisis, but also lights a path through this challenging time.
PEOPLE, POWER, AND PROFITS Progressive Capitalism for an Age of Discontent By Joseph E. Stiglitz
Joseph E. StiglitzCredit...Stephanie Mei-Ling for The New York Times
A diverting Beltway pastime during the heyday of the Washington Consensus was to gently mock Joseph E. Stiglitz. It was remarkably easy for pundits to wave away his prestigious awards (Nobel Prize in Economics) and positions (World Bank chief economist, chairman of Bill Clinton’s Council of Economic Advisers) and dismiss his warnings about “market fundamentalism” as overripe hyperbole. In 2004 the financial columnist Sebastian Mallaby described Stiglitz as “like a boy who discovers a hole in the floor of an exquisite house and keeps shouting and pointing at it.” Fifteen years later, the house that capitalism built looks rather shabby. Maybe, just maybe, more people should have taken Stiglitz seriously.
This is certainly what Stiglitz, now a professor of economics at Columbia, is hoping for with his latest book, “People, Power, and Profits.” He argues that the American system of capitalism has fallen down and needs government help to get back up again. “People, Power, and Profits” builds on Stiglitz’s earlier work and adds some pretty big ambitions. In the preface, he writes: “This is a time for major changes. Incrementalism — minor tweaks to our political and economic system — are inadequate to the tasks at hand.” In the introduction, he adds: “It is not just economics that has been failing but also our politics. Our economic divide has led to a political divide, and the political divide has reinforced the economic divide.”
Stiglitz’s diagnosis of what ails the American economy will have a familiar ring to anyone who has followed these debates. The rules of the game have been stacked in favor of the haves over the have-nots. This has widened economic inequality and increased the concentration of market power among leading firms in every sector, slowing down broad-based productivity growth. These firms and wealthy individuals are converting their riches into political power, further revising the rules to entrench their position at the top. They advocate for tax cuts and the deregulation of everything except intellectual property rights. Anyone who relies on countervailing institutions, like public education, labor unions or social safety nets, loses out.
“People, Power, and Profits” goes beyond diagnosis to treatment. At the core of Stiglitz’s plan is the strengthening of the state. “The view that government is the problem, not the solution, is simply wrong. To the contrary, many if not most of our society’s problems, from the excesses of pollution to financial instability and economic inequality, have been created by markets.” He proposes a whole host of reforms, including significant investments in public goods like basic research, more stringent regulation of firms and measures to preserve and protect the voting franchise.
A cruel irony of “People, Power, and Profits” is that in arguing the free market has declined, Stiglitz is competing in an extremely crowded marketplace. The genre of “How has America gone wrong?” is overstuffed; we are living in a golden age of authors telling Americans that we no longer live in a golden age. Given the plethora of books on this topic, does Stiglitz’s stand out?
One of his book’s comparative advantages is that while Stiglitz has impeccable economic credentials, he also recognizes some of his profession’s blind spots. He observes, correctly, that standard textbook economics talks a lot about competition but little about economic power. He also excels at swatting away bromides about the miracles of markets and the failures of governments. He notes, for example, that the Social Security Administration is far more efficient at disbursing retirement benefits than private pensions.
Stiglitz could have done much better, however, if he had narrowed his focus to the sharpest arguments in his policy quiver. For instance, he discusses the idea that taxes on carbon or financial transactions “can simultaneously increase economic performance and raise revenue.” This sounds like the progressive doppelgänger of the Laffer Curve, that is, a concept that would be good policy and good politics. Stiglitz should be selling the hell out of it; instead, he breezes through it in one page.
Some of his other ideas seem less thought out or more politically toxic. On antitrust, for example, he encourages a doctrine of pre-emption: “Regulation of mergers must take into account the likely future shape of markets.” This would require considerable foresight, so it is a problem that 75 pages later Stiglitz allows that “often there is far from perfect information about where a market will be evolving, and the world turns out to be different from what we expected.” He fails to explain how regulators would handle this conundrum. Another of Stiglitz’s ideas — a public mortgage financing system that could access an individual’s I.R.S. and Social Security data — sounds unpalatable in the current low-trust political environment.
Indeed, I wish Stiglitz had taken seriously his pledge to take politics seriously. At one point, “People, Power, and Profits” rules out the idea of a universal basic income because the necessary tax increases would be politically impractical. That was the only moment in the book in which Stiglitz seemed to think at all about how any progressive policy reform would be, to use the language of economics, “incentive compatible.” There is no discussion whatsoever of polling data or other metrics to gauge public support for his ideas.
The policy shop of every 2020 Democratic candidate for president would be wise to pore over “People, Power, and Profits” and cherry-pick its best ideas. Other readers should feel free to browse the genre a bit more widely.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy. His most recent book is “The Ideas Industry: How Pessimists, Partisans, and Plutocrats Are Transforming the Marketplace of Ideas.”
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.”
Craig R. Roach is an author of narrative nonfiction. His book Simply Electrifying: The Technology that Transformed the World, from Benjamin Franklin to Elon Musk (BenBella Books, 2017) won a 2018 Axiom Business Book Award Gold Medal.