September 21st 2019


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Articles from this issue:

COVER STORY Federal Government should abolish Renewable Energy Certificates

ENERGY BP annual Review shows consumption, production up

CANBERRA OBSERVED NSW Labor caught in Panda's paws doing 'whatever it takes'

RELIGIOUS FREEDOM Religious discrimination bill: A litany of questions

FOREIGN AFFAIRS Boris' brinkmanship shakes up Britain, EU

WATER POLICY Angry farmers protest over Murray-Darling Basin Plan ... again

TECHNOLOGY Are we the dumbest devices in the room?

HISTORY AND POLITICS Lord Acton, nationalism and multiculturalism, Part 2

LITERATURE D.H. Lawrence: The Modernist in exile

MUSIC Dialectical transcendence

CINEMA The Farewell: Elegant and bittersweet

BOOK REVIEW Owning up to market imperfections

BOOK REVIEW Heroism and faith under tyranny

BOOK REVIEW The love that comes after love is gone

LETTERS

EDITORIAL Gladys Liu controversy ignores reality of China's interference

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BOOK REVIEW
Owning up to market imperfections




News Weekly, September 21, 2019

PEOPLE, POWER AND PROFITS: Progressive Capitalism for an Age of Discontent

by Joseph E. Stiglitz

Allen Lane, London
Hardcover: 368 pages
Price: AUD$45

Reviewed by Colin Teese

Professor Joseph Stiglitz at present teaches at Columbia University. He enjoys a distinguished academic record of teaching and writing. He won the Nobel prize for economics in 2001 for his work on market economics. He said at the time that markets importantly were characterised by imperfections and asymmetric information. The latter, he explained, resulted in some people having access to more information than others.

Despite the fact that economic modelling took this into account, it remained true that not all participants in market operations had the same degree of access to information. Accordingly, markets were always operating imperfectly.

He held that inherent imperfections made it impossible for markets to function in the self-adjusting manner orthodox economic analysis pre-supposes. Government interventions were therefore essential to ensure that markets delivered optimal outcomes.

With such an academic background, Professor Stiglitz was able to bring important, perhaps unique, insights to his roles as chairman of President Clinton’s Council of Economic Advisers and later as chief economist at the World Bank.

It could also be said that Stiglitz remains perhaps the most outspoken and radical critic of United States economic policy among mainstream U.S. economists. People, Power and Profits, his latest book, is by any measure his most comprehensive in its analysis of U.S. policymaking procedures and the consequences that have followed from them – not least because, in the U.S. context, he makes the necessary connection bet­ween economics, politics and law when making policy. He advances a view that these must proceed in harmony if the full benefits of democratic government are to be realised.

The title of the book succinctly summarises to what extent, and why, U.S. policies currently fall short of what is needed in a fully functioning democracy. The Stiglitz view is that a democratic society must provide for the wellbeing of all citizens. He also believes that a more progressive form of capitalism is capable of realising such an objective.

While he is highly critical of the current Republican Party and its policy attitudes, unlike many on the far left, Stiglitz is not arguing against capitalism or the intrinsic value of the market economy. His attack is on the present attitude to policymaking in the context of the market economy.

A democracy must deliver a situation of reasonably shared wealth to its people. Those most modestly endowed by wealth and privilege should not be denied the right to live and work in reasonable and secure comfort.

Stiglitz maintains that he grew up in the Golden Age of capitalism – the period between 1950 and 1975, when the United States grew rapidly and its growth translated into well paid, reliable jobs for ordinary working Americans.

The wealth of a nation, he insists, should be measured by its capacity to deliver, in a substantial way, high standards of living for all of its citizens. This Golden Age capitalism managed to achieve.

Around 1980 it all began to change. Incomes stagnated. The figures speak for themselves. From 1980 to 2010, pre-tax annual incomes for the bottom 90 per cent of wage earners remained unchanged. By contrast, over the same period, the pre-tax annual incomes of the top 1 per cent rose from some $US400,000 ($A594,000) to around $US1.25 million ($A1.86 million). And the disparity is continuing to grow.

Economic policies contributed greatly to this transformation. Reducing tariffs may have contributed to overall global business growth but winners and losers were created in the process. Low-skilled workers in rich countries were the big losers.

Another factor was that the growth of the finance industry became an end in itself, rather than a means of funding business growth. Overall the end result was that worldwide growth in the period 1950–75 was better than in the following 25 years.

Much of this is known, and has been said before. But Stiglitz goes further. He concludes that it could not have happened without help from deliberate policy settings in politics and even in law. From the beginning of the Reagan era, Republican policy has been firmly anti-government to the point of undermining basic institutions.

In particular, the professional public service and important regulatory agencies have suffered. No less important has been the stacking of the U.S. Supreme Court with judges sympathetic to the Republican position, beginning in the George W. Bush presidency.

Finally, Stiglitz points to Congress and how democracy has been perverted by heavily gerrymandered electorates in many states in favour of Republican candidates and by well organised practices to make it difficult for voters unsympathetic to the Republicans to vote.

The sum total of all this is what Stiglitz calls a democracy based on the concept of “one dollar, one vote”. Nevertheless, Stiglitz remains optimistic enough to believe in the possibility of reforms being achieved. However, given the picture he paints, it is not easy to share his optimism.

All that said, this is an important book, if only because he sets out so clearly what needs to be done.

One question remains, at least for this reviewer: how does Australia compare with the United States?

Not, I would argue, as well as we should. We have unequal wealth distribution, though to a far less extent than the U.S. We have the same low-wage problem and diminished worker rights. It is true that we have no gerrymandered electorates – that problem was fixed many decades ago – and governments have not attempted to stack our High Court appointments.

Against that, we have certainly largely destroyed the idea of a professional public service. And, as to elections, let us not forget the recent electoral experience.

A single individual was able to outlay $60 million and, with the benefit of our preferential voting system, shift 3 per cent of the vote from one major party to another; enough votes to decide the outcome.

This constitutes a radical departure from accepted practices in Australian democracy and is all the more remarkable because it has received so little attention in public debate.

Colin Teese is a former deputy secretary of the Department of Trade.


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