June 18, 2021

Joseph Stiglitz claims a “new social contract” to end inequality

The Nobel Prize in Economics Joseph Stiglitz says in an interview with Efe that the world needs “a new social contract” that seeks a balance between the market, the State and society to end inequality and protests, under the warning that the extreme right “does not work”.

In the Hay Festival of Cartagena de Indias, in Colombia, where he has presented his book “Progressive Capitalism”, the American also warns of the need for a global agenda that includes market reforms, knocking down monopolies and restricting unfair competition, as well such as the creation of progressive tax and expense policies.

Stiglitz predicts a failure on Donald Trump’s economic agenda because he believes that neither the US president nor his team “understand the economy.” “Another four years would make it even worse,” he said of the November elections in which the president will seek re-election.

QUESTION: Are you optimistic about the changes that mass citizen protests can bring?

ANSWER: I am optimistic about the change, it is a flood in countries like Chile. When I looked at the data from Chile, the level of inequality was so high that I was surprised that there were no more civil unrest. Now we have the riots and there will be a real revision of the Constitution.

There is a real beginning of recognition that there is a problem. In Chile they looked for the “Chicago Boys” solution, and it worked for them. Now only with that recognition will they begin to think. What are the alternative economic frameworks? I’m optimistic. Latin America sometimes deviates from one extreme of the market fundamentalists to the other extreme and what I hope is that we understand that the extreme right does not work, it is easier to direct from an intermediate course.

P: Neoliberalism and socialism failed. Today inequality is the engine that drives protests. What is the model you propose?

A: What I am arguing in my book “Progressive Capitalism” is that we need a new social contract; a new balance between the market, the State and civil society, and a richer ecology of institutions, including non-profit organizations, cooperatives.

The problem of neoliberalism was that it argued that the unrestricted market was the solution and said: do not worry about morals, do not worry about exploitation, just leave it to the market; And that didn’t work out.

Q: I insist, inequalities continue to grow and the effect is on the streets. What is the key to closing that gap?

A: There has never been a silver bullet for something that has been going on for 40 years, even for much longer, and in the case of Latin America even more, since the colonial period.

The answer is a complete agenda that includes reforming the markets, reforming the rules of the game, knocking down monopolies, putting more restrictions on anti-competitive behavior, strengthening the power of labor negotiation, reforming corporate governance.

And then we have to have progressive tax and expense policies. We must have programs to ensure that everyone meets their basic needs for a decent life, especially in countries like the United States where we are rich enough to ensure everyone has a decent life if we only wanted to.

Another really important aspect is that we have to deal with the problem of climate change: the world is threatened, it is not just a crisis of inequality, it is a climate crisis and if we do not, our world will not be habitable or we will spend huge amounts of money in response to climate change. However, the president of the United States denies it; The rest of the world cannot deny it, it has to be part of a reformed economy.

Q: And then why do characters like Trump or Bolsonaro come to power?

A: I think it has a lot to do with the failure of neoliberalism to fulfill its promises. There is a great discontent of people. The elites promise that globalization and all these things would result in a better standard of living, and that has not happened.

Thus, I think it is completely understandable that there is an “anti-establishment” feeling in many countries around the world. The sad thing is that these guys are going to get even worse and I think the only thing we can do is connect, keep explaining why Bolsonaro and Trump’s policies are not going to work, show that they are not working.

Q: What is the real scope of the trade war between the United States and China in the rest of the countries?

A: It is very clear that Trump’s trade war has added a high level of uncertainty in the global economic landscape and that companies do not like uncertainty.

This type of uncertainty is particularly destructive because one of the great decisions that a company makes when investing is to ask where it will. You can do it in Vietnam, China and the United States, but if we are in a world in commercial war, if you make investment in one country or another, the barrier increases, you lose a lot of money.

Q: Why do you think Trump’s economic agenda will fail?

A: I think Trump’s economic agenda will fail because Trump and his economic team don’t understand the economy. Let’s take a theme of protectionism, trade agreements. He said that the most important thing is to lower the trade deficit. Multilateral trade deficits are determined by macroeconomic factors: the disparity between aggregate savings and average internal savings is internal equity. And its policies, including the December 2017 tax law, reduced government savings, created a trillion dollar deficit and, therefore, increased these macroeconomic imbalances and predictably the trade deficit, exactly what I predicted.

Meanwhile, he has not made investments in medical care so that millions of Americans have access. If you don’t have a healthy population, you don’t have a productive population, inequalities have increased, growth and job creation are lower than with Obama. I can say that it is already a failure. And the problem is that another four years would make it even worse.


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