Joseph Stiglitz’s commitment to a “progressive capitalism” calls to mind the famous response of Gandhi to the notion of Western civilization: “It would be a very good idea.”
If progressive capitalism were within the realm of possibility, perhaps it would be a good idea too. The Nobel-winning economist dwells on how political power corrupts markets and generates inequality, which further fosters the use of political power to further diminish competition, in a negative feedback-loop. He does not consider whether such a condition, under capitalism, might be irreversible. It’s a hopeful book.
Stiglitz is a giant in the field of microeconomics, the branch of the discipline that deals with the behavior of individuals, business firms, and governments. (To be distinguished from macroeconomics, which is about the large aggregates in the economy: employment, national income, investment, and the like). The micro/macro dichotomy is mirrored in debates among left-of-center writers, with the micro gang often focusing on the problem of “rent-seeking,” which arises when there are distortions to hypothetically ideal, competitive markets. Prominent examples include Dean Baker and Matt Stoller.
Stiglitz distinguishes beneficent “wealth creation” from predatory “wealth extraction.” For him, economic rent is the root of exploitation. In mainstream economic theory, rent is the return to sellers in markets over and above the level of profit (called “normal profit”) required to keep them in the business. Rent accrues to sellers in markets where there are few or only one monopoly supplier, or where sellers have other kinds of market power. It also applies to markets dominated by one or a few buyers, particularly buyers of labor, meaning employers.
This approach should raise eyebrows on the Left. The idea of a market “distortion” suggests a preexisting, pristine, undistorted market, the existence of which may be doubted. A rent-seeking framework points to reforms aimed at fostering competition among business firms, striving for that pristine but problematic ideal. In Marx, by contrast, exploitation is inherent in markets that work perfectly, by conventional standards. Wage labor is itself exploitation.
So the first limitation of Stiglitz’s approach and that of mainstream economics more broadly is their taking the competitive market model as the principal point of reference — even though, ironically, nobody more than Stiglitz has demonstrated the shortcomings of that model on its own terms. The second basic limitation is its reliance on anti-trust policy or enlightened regulation rather than social ownership and control as the remedy. This book is, unsurprisingly, geared toward social-democratic reform, not socialist transformation.
But a market failure, such as the dominance of a monopoly, should open up the question of social ownership no less than competition-oriented measures, such as regulation or breaking up a monopolist into smaller firms. Facebook is an important case in point. While hiving off some of its affiliates, such as Instagram or Whatsapp, might be worthwhile, splitting up Facebook itself would undermine its principal value, as an encompassing network. The more plausible response is to socialize it, purge its advertisers and abusive accounts, and protect its data from private exploitation.
At the same time, socialists need to understand how social ownership can be subject to the same advantages and disadvantages as regulation of private business. On the one hand, a private business can be subjected to close regulation, in terms of pricing, allowable rates of return, and other practices. Public utilities are the leading case in point. Yet it is well understood that the regulation of business firms is susceptible to “capture” by the stakeholders of such firms. So regulation can turn out to be light and inadequate.
On the other hand, a public enterprise could be susceptible to similar pressures. Relevant examples include so-called government-sponsored enterprises (GSEs) that were financed with private capital — and even the US Postal Service (USPS). Constraints imposed on the USPS have been crafted with the objective of advantaging privately owned shipping firms. (Working for the USPS is no picnic either; just ask a postal union member.) Public enterprises are vulnerable to political influence, and not necessarily constructive influence. Closer analysis of specific markets is required to make any determinations about the relative merits of the two approaches.
All this meddling, in regulation or social ownership, points to the difficulty of advancing social-democratic policies in a world where private capital continues to thrive. The obligation for advocates of competition policies is to give more weight to social-ownership alternatives. The corresponding burden on supporters of social ownership is to attend to the problems of upholding the public interest inside of formally public enterprises, under capitalism.
All that leaves macro policy up for grabs. Slack in the labor market due to inadequate aggregate demand — the extent to which able and willing workers cannot find employment — is mostly ignored, even though weak labor demand exacerbates inequality, a central theme in the book. Neither will the reader find any reaction, positive or negative, to Modern Monetary Theory.
There are hints, especially in the closing chapters, of support for deficit reduction nostrums. At one point, the “balanced budget multiplier” is invoked (the theory that an equal increase in taxes and spending moves GDP closer to full employment levels). And at another, the deficits resulting from the Trump tax cut is referred to as a “sugar high” and the resulting debt increases as a detraction from the well-being of future generations. From the standpoint of how Keynesian economics has evolved, these notes are a bad look.
Stiglitz certainly promotes a much expanded public sector. He wants more public investment (especially R&D), public employment, and education, but mostly if not entirely on the strength of a proportionately expanded, progressive revenue system. In other words, more public spending would presumably require “pay-fors.” The Green New Deal would be fully paid for. In this respect Stiglitz matches the posture of Jeffrey Sachs, who has become an economic adviser to Bernie Sanders.
This is a book of social-democratic economics, and for that it is an excellent guide to the panoply of issues pertaining to inequality and political corruption, in the context of a microeconomic analysis of market failure. It is a guide to reform. For those with limited background on the subject, the book is an extremely useful, comprehensive review. Others with more experience will not find much they haven’t heard before, though it will be useful for its ample documentation: the endnotes comprise about 30 percent of the total page count.
There is recognition of the potential for public options that provide competition for private sources of goods and services, including some interesting ones in the fields of student loans and mortgages, but the scope of the proposals is limited and the attention to them is diminished. In a similar spirit, there are shout-outs for industrial policy, active labor market measures, co-ops, and nonprofits, but not much love.
There is always a place for the elaboration of accessible, pragmatic objectives. If that’s what floats your boat, Stiglitz is as good a guide as any. I don’t want to discount the usefulness of this sort of material for the day-to-day business of progressive political advocacy.
But genuinely new economic thinking will seek to put flesh on the bones of proposals coming out of the Sanders campaign. Instead of public adjuncts to predatory private-sector firms, we should be exploring replacements. Instead of leveraging private capital, we would like to leverage the inherent assets of the public sector, such as the powers to tax and to create money. Instead of a focus on decentralized, well-functioning markets, we need more attention to the scope for tenable economic planning.
On the political side, we ought to move past the liberal idea, once promoted by John Kenneth Galbraith and picked up by Stiglitz, of promoting “countervailing power” vis-à-vis capitalist business. We need to give more thought to the prospects for overwhelming power: no Gods, no masters.
Utopian thinking can be useful too.