Inequality is also a constraint on growth, the Nobel Laureate says
Nobel Laureate Joseph Stiglitz said on Tuesday that rising inequality, accentuated by the global economic crisis, is not merely a moral issue but one that constrains the prospects of a recovery. Speaking at a discussion on “Globalisation, development and inequality”, organised by the Azim Premji University, Prof. Stiglitz, observed that the issue of economic and social inequality is confined to “closed rooms and in quiet voices”.
Prof. Stiglitz, Professor at Columbia University, pointed out that 93 per cent of results of economic growth in the U.S. since 2010 has gone to the top 1 per cent of society. The median income of the worker in the country is lower by one-third when compared to levels prevailing in 1968. “It is not inventors or scientists who form the upper crust, but those whose wealth comes from the monopolies they enjoy,” he remarked. Rising inequality — in terms of incomes, wealth and of opportunities — has been accompanied by the rising clout of monopolies, weak corporate governments and the resurgence of rent seeking behaviour, he noted.
The uneven nature of regulatory regimes across countries has resulted in markets not behaving similarly, contrary to expectations of standard economic theories, said Prof. Stiglitz. The lack of enforcement of anti-trust regulations and the skewed nature of bankruptcy laws in the U.S., for instance, favour those who speculate recklessly, he argued.
Observing that the recently concluded Presidential election campaign in the U.S. cost over $2 billion, Prof. Stiglitz said the “nexus” between politics and economics is a major concern in the U.S. “Economic and social inequality is exercised and reflected in the conduct of politics,” he remarked. Those who make campaign contributions are obviously aiming for a higher return from politics than from their main lines of business, he added. Arguing in favour of higher public investment, especially in an economic downturn, Prof. Stiglitz pointed out that this, however, requires “social cohesion.” “But those who control economic power are afraid of a strong government that would insist on them paying their fair share of taxes,” he said. “Speculators, not those who work for a living, pay lower taxes,” he said.
Robert Wade, professor at the London School Economics, said: “The discipline of mainstream economics has fundamentally betrayed the trust of the public that believed that economics is the most influential of the social sciences in public policy.”
Asking, “Are we in a quagmire, or is there hope?” Prof. Stiglitz said the nature of policies pursued countries in Latin America, such as Brazil, in the wake of the crisis offers some hope. He pointed out that the emphasis on education, health and food for children, in particular, have “shown results in its macroeconomic performance.” “Brazil still has a long way to go, but it at least bucked the global trend,” he remarked. “These issues are a matter of choice, not inevitable,” he added.
Ravi Kanbur, Professor of Economics at Cornell University, said although inequality in China has increased sharply in the last 30 years, the pace of growth of inequality has reduced in the last 5 to 7 years because of the conscious efforts made by the state.