A Bouquet of Warnings: Joseph E. Stiglitz’s The Great Divide

Book Review By Rajesh Sharma

14 November, 2015
Countercurrents.org

We in India should receive Joseph E. Stiglitz’s latest book, The Great Divide, (Allen Lane Rs. 999/£ 25) as a warning. Although intended mainly for the American reader, so aptly does it speak to the contemporary Indian situation that it deserves to be read as widely here and translated in as many languages as possible. With 10 percent at the top possessing, as reported, nearly 75 percent of India’s wealth—and 1 percent possessing half the wealth— and the economic divide getting only worse since the 90s, the Indian situation is not really very different from the American.

“No one today can deny that there is a great divide in America, separating the very richest—sometimes described as the 1 percent—and the rest.” With these words Stiglitz opens his sweeping assault on the American, and global, economic policy regime. It is a sign of the times that a fact so obvious and so fraught with dangerous consequences should require to be brought home to the world. Is the world being fed on falsehoods? It is—that is what Stiglitz means. Falsehood and silence are the two most traded commodities in the current economy of public discourse.

Stiglitz, who early on gave up physics to study economics because the enigma of extreme inequality haunted and perturbed him, shared the Nobel Prize for Economics with George Akerlof in 2001. His PhD thesis submitted in the 60s at MIT had long before initiated him in the pursuit of “determinants of the distribution of income and wealth,” a concern that was to become his lifelong preoccupation.

Though he describes the book as “a collection of articles and essays written for an assortment of periodicals and newspapers,” the focus of the book never blurs. Initially prompted by reflections on the financial crisis of 2008, these pieces map the origins and aftermath of the economic order that began being put in place during Reagan’s presidency. Choosing to take the issue of increasing inequality to a wider readership, Vanity Fair invited Stiglitz in 2011 to pen some articles. The best known, and probably the most influential and polemical, of these was “Of the 1 Percent, by the 1 Percent, for the 1 Percent.”

The issue did reach a wider public—and not just American but global—as demonstrated by the Occupy Wall Street movement which adopted the slogan, “We are the 99 Percent.” The successful reaching out was no accident, but had been earned through the happy wedding of rigorous academic research with an accessible writing style. Working closely with the author were editors of the various periodicals and newspapers, especially Cullen Murphy of The Atlantic Monthly. The reward was a writing that stands out as a model of clarity, coherence and accessibility—not easy to achieve, as Stiglitz candidly acknowledges. Without such presentation, his convictions, howsoever amply seasoned with reason, might have remained confined to only the researchers’ desks. In fact, the arguments are interspersed with anecdote and personal remembrance, which help the author strike a chord with the common reader.

The principal target of the Stiglitz’s polemical attack is economic fatalism. Inequality is not inevitable, though complete equality is also neither feasible nor desirable. The kind of extreme inequality we now have is a consequence of policies, which imply choices. And choices and policies flow from politics. So the best and most enduring cure of economic inequality is the reform of democratic institutions, which in reality are not democratic enough. Although it deals mainly with America, the sweep of Stiglitz’s argument embraces the entire global economic order, since many countries have either followed or have been made to follow in America’s footsteps.

Stiglitz sees economic inequality as one of the four great contemporary issues, the others being economic mismanagement, globalization, and the role of the state and the market. The consequences are horrifying; but let’s face up to them, he says. A typical American family is today worse off, adjusted to inflation, than it was a quarter-century ago. Oxfam’s 2014 data informs us, he remarks, that the top 1 percent people possess half the world’s wealth. Only twenty-five years ago, 12 percent people held 33 percent of that wealth. In an essay written in 2012 for Vanity Fair Stiglitz notes that the six heirs to the Walmart empire own a combined wealth of some $90 billion, which is as much as the entire wealth of the bottom 30 percent of American society.

Not that American society has been always so divided. The post-war decades witnessed, as a result of policies, income and wealth being more equitably distributed, which in turn enabled wider consumption and high growth. With Reagan, however, things began changing. The new gospel that “the best way to help the poor was to increase the size of the nation’s pie” (without worrying about distribution) has today brought the American society to a point where even national cohesion stands jeopardized. While GDP for some time grew impressively, it did not bolster the economy in the long run because the benefits of growth did not “trickle down” to the majority. An illusion of prosperity was conjured up from time to time around cunningly fabricated bubbles—from dot com to housing—and short-lived flushes of temporary employment. An “ersatz capitalism” had thus become the dominant form of capitalism beginning with Reagan.

Real capitalism has never been, can never be, pure. It is always mixed, according to Stiglitz, with the nature and extent of government intervention varying. What is needed is realistic, sensible capitalism. “I [am] not seeking to wage a new class war, but rather to establish a new sense of national cohesion, one that [has] waned as a great divide has opened up in our society,” he makes clear. The top 1 percent must understand that it is also in their interest that extreme inequality goes, for even a pyramid survives only on a strong, broad base. The base can be strengthened by greater equality of opportunity. And without equal opportunity the American dream has no future. When the dream sours, the sense of identity weakens and social cohesion is eroded. When people feel they have no fair chance to advance, mistrust follows, abrogating the social contract on which nations and societies stand and from which governments derive legitimacy.

So the risks in perpetuating a policy regime that nurtures extreme inequality are palpable and grave. It is imperative, then, that governments should proactively pursue the goal of greater equality. Stiglitz proposes that all countries should strive to ensure that by 2030 the post-tax income of the top 10 percent does not exceed the post-transfer income of the bottom 40 percent. Towards this end, they would need to invest generously in human capital, technology and infrastructure since both greater equality and long-term productivity hinge on these.

However, it is human capital which demands the greatest attention, Stiglitz argues. The single most important thing to do, then, is provide “a quality education for all.” Countries need to spend more on education than on prisons and security. Another important thing is to rein in rent-seeking because it is unproductive and improve wages because these produce real solid wealth.

But so far there is no sign of a serious rethinking on the policy regime, certainly not in India where demagoguery now speaks the language of statistics and GDP is pronounced as a mantra. Worse, there is hardly any communication between economy experts and the public. What India needs most at this juncture is a whole harvest of public intellectuals. Until that arrives, we need translators who will desify the work of public intellectuals elsewhere, especially the work that resonates here, like Stiglitz’s does.

Rajesh Sharma is the author of In/disciplines: Notes on Politics, Culture and Education (Three Essays Collective, 2014). He is Professor of English at Punjabi University, Patiala (Punjab). He can be contacted at [email protected].