Saturday, April 20, 2019

Joe Stiglitz Channels Teddy Roosevelt, Calls for a Renewal of Progressive Capitalism.

Capitalism sucks. The neoliberal order, to which all of our mainstream parties subscribe, has lost sight of how capitalism is supposed to work in a progressive democracy. That was never more horrifically clear than when Trudeau's finance minister, Morneau, told Canadians they would have to get used to a future of "job churn." That Morneau wasn't fired on the spot confirmed a lot of what I had suspected about Justin Trudeau.

Those who read this blog will be aware of how frequently I draw upon Theodore Roosevelt's "Square Deal" speech delivered at Osawatomie, Kansas in the summer of 1910.  I read it at least twice a year when I need to recalibrate my political compass.

Then today I stumbled across Joe Stiglitz op-ed in The New York Times discussing "progressive capitalism." It was as though the Nobel laureate and former World Bank chief economist was channeling Mr. Roosevelt. What follows are excerpts from Stiglitz' op-ed interspersed, in quotation marks and italics, with selected passages from Theodore Roosevelt's Square Deal speech.
Progressive capitalism is not an oxymoron; we can indeed channel the power of the market to serve society.

...This is where we’ve descended to, but not where we have to stay. A progressive capitalism based on an understanding of what gives rise to growth and societal well-being gives us a way out of this quagmire and a way up for our living standards. 
...There is a broader social compact that allows a society to work and prosper together, and that, too, has been fraying. America created the first truly middle-class society; now, a middle-class life is increasingly out of reach for its citizens. 
America arrived at this sorry state of affairs because we forgot that the true source of the wealth of a nation is the creativity and innovation of its people. One can get rich either by adding to the nation’s economic pie or by grabbing a larger share of the pie by exploiting others — abusing, for instance, market power or informational advantages. We confused the hard work of wealth creation with wealth-grabbing (or, as economists call it, rent-seeking), and too many of our talented young people followed the siren call of getting rich quickly.
"In every wise struggle for human betterment one of the main objects, and often the only object, has been to achieve in large measure equality of opportunity. In the struggle for this great end, nations rise from barbarism to civilization, and through it people press forward from one stage of enlightenment to the next. One of the chief factors in progress is the destruction of special privilege. The essence of any struggle for healthy liberty has always been, and must always be, to take from some one man or class of men the right to enjoy power, or wealth, or position, or immunity, which has not been earned by service to his or their fellows."
...The result is an economy with more exploitation — whether it’s abusive practices in the financial sector or the technology sector using our own data to take advantage of us at the cost of our privacy. The weakening of antitrust enforcement, and the failure of regulation to keep up with changes in our economy and the innovations in creating and leveraging market power, meant that markets became more concentrated and less competitive. 
Politics has played a big role in the increase in corporate rent-seeking and the accompanying inequality. Markets don’t exist in a vacuum; they have to be structured by rules and regulations, and those rules and regulations must be enforced. Deregulation of the financial sector allowed bankers to engage in both excessively risky activities and more exploitive ones. Many economists understood that trade with developing countries would drive down American wages, especially for those with limited skills, and destroy jobs. We could and should have provided more assistance to affected workers (just as we should provide assistance to workers who lose their jobs as a result of technological change), but corporate interests opposed it. A weaker labor market conveniently meant lower labor costs at home to complement the cheap labor businesses employed abroad. 
The prescription follows from the diagnosis: It begins by recognizing the vital role that the state plays in making markets serve society. We need regulations that ensure strong competition without abusive exploitation, realigning the relationship between corporations and the workers they employ and the customers they are supposed to serve. We must be as resolute in combating market power as the corporate sector is in increasing it.
"At many stages in the advance of humanity, this conflict between the men who possess more than they have earned and the men who have earned more than they possess is the central condition of progress. In our day it appears as the struggle of freemen to gain and hold the right of self-government as against the special interests, who twist the methods of free government into machinery for defeating the popular will. At every stage, and under all circumstances, the essence of the struggle is to equalize opportunity, destroy privilege, and give to the life and citizenship of every individual the highest possible value both to himself and to the commonwealth."
In the 1980s, Ronald Reagan’s regulatory “reforms,” which reduced the ability of government to curb the excesses of the market, were sold as great energizers of the economy. But just the opposite happened: Growth slowed, and weirder still, this happened in the innovation capital of the world.

We are now in a vicious cycle: Greater economic inequality is leading, in our money-driven political system, to more political inequality, with weaker rules and deregulation causing still more economic inequality.
"Practical equality of opportunity for all citizens, when we achieve it, will have two great results. First, every man will have a fair chance to make of himself all that in him lies; to reach the highest point to which his capacities, unassisted by special privilege of his own and unhampered by the special privilege of others, can carry him, and to get for himself and his family substantially what he has earned. Second, equality of opportunity means that the commonwealth will get from every citizen the highest service of which he is capable. No man who carries the burden of the special privileges of another can give to the commonwealth that service to which it is fairly entitled."
If we had curbed exploitation in all of its forms and encouraged wealth creation, we would have had a more dynamic economy with less inequality. We might have curbed the opioid crisis and avoided the 2008 financial crisis. If we had done more to blunt the power of oligopolies and strengthen the power of workers, and if we had held our banks accountable, the sense of powerlessness might not be so pervasive and Americans might have greater trust in our institutions.
...There are many other areas in which government action is required. Markets on their own won’t provide insurance against some of the most important risks we face, such as unemployment and disability. They won’t efficiently provide pensions with low administrative costs and insurance against inflation. And they won’t provide an adequate infrastructure or a decent education for everyone or engage in sufficient basic research. 
Progressive capitalism is based on a new social contract between voters and elected officials, between workers and corporations, between rich and poor, and between those with jobs and those who are un- or underemployed. 
Part of this new social contract is an expanded public option for many programs now provided by private entities or not at all. It was a mistake not to include the public option in Obamacare: It would have enriched choice and enhanced competition, lowering prices. But one can design public options in other arenas as well, for instance for retirement and mortgages. This new social contract will enable most Americans to once again have a middle-class life. 
As an economist, I am always asked: Can we afford to provide this middle-class life for most, let alone all, Americans? Somehow, we did when we were a much poorer country in the years after World War II. In our politics, in our labor-market participation, and in our health we are already paying the price for our failures. 
The neoliberal fantasy that unfettered markets will deliver prosperity to everyone should be put to rest. It is as fatally flawed as the notion after the fall of the Iron Curtain that we were seeing “the end of history” and that we would all soon be liberal democracies with capitalist economies. 
Most important, our exploitive capitalism has shaped who we are as individuals and as a society. The rampant dishonesty we’ve seen from Wells Fargo and Volkswagen or from members of the Sackler family as they promoted drugs they knew were addictive — this is what is to be expected in a society that lauds the pursuit of profits as leading, to quote Adam Smith, “as if by an invisible hand,” to the well-being of society, with no regard to whether those profits derive from exploitation or wealth creation.
"The absence of effective State, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power. The prime need to is to change the conditions which enable these men to accumulate power which it is not for the general welfare that they should hold or exercise. We grudge no man a fortune which represents his own power and sagacity, when exercised with entire regard to the welfare of his fellows.  ...We grudge no man a fortune in civil life if it is honorably obtained and well used. It is not even enough that it should have been gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community. This, I know, implies a policy of a far more active governmental interference with social and economic conditions in this country than we have yet had, but I think we have got to face the fact that such an increase in governmental control is now necessary."
"No man should receive a dollar unless that dollar has been fairly earned. Every dollar received should represent a dollar’s worth of service rendered — not gambling in stocks, but service rendered. The really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and in another tax which is far more easily collected and far more effective — a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate."


This post, while long, was a rushed effort. Eventually I hope to re-edit it with additional passages from Roosevelt's 1910 speech.

When I launched this blog a dozen years ago I dedicated it to "the restoration of progressive democracy." My thinking has always been that, if we restore progressive democracy, we will restore progressivism to the economy. Stiglitz seeks the same result in the other direction, through economic reform or what he calls "progressive capitalism." Roosevelt shows us that the two - progressive democracy and a progressive economy - are simply two sides of one coin. And, being two sides of one coin, both were sent packing when Reagan, Thatcher and Mulroney implemented the neoliberal order.


Anonymous said...

Well said Mound. Don't forget the Corporate Welfare paid by we sods in which we can do nothing. Now here we are with Jason Kenney going to lower corporate tax to by 4% in 4 years to 8% ...way to go furthing the inequality of the population again. Anyong.

Owen Gray said...

Interspersing Roosevelt with Stiglitz puts a lot of things in perspective, Mound. Progressivism was a terrific idea. And some of us -- small and self centred -- trashed it.

John B. said...

Exposure of the fraud fundamental to the libertarian ethos is a task at which political parties that lay undeserved claim to the descriptor “progressive” have proven themselves to be totally ineffective. Now we have to deal with the ignorance of at least two generations of situational rugged individualists. I believe this failure is born of the idle-minded approach to the problem that mentally effortless social justice activism has taken. Shaming the rugged individualists can only be achieved through a process that must begin with acquiring a better understanding of the minds that must be changed. The libertarians wouldn’t have achieved the success that they have without employing such a process.

bcwaterboy said...

Excellent post. The failed neoliberal experiment of Reagan, Thatcher and Mulroney- perpetuated by every leader since, has given rise to the horrific abuses of overseas labour, massive inequality, unfair elections and the doozy- politicization of climate change. The sad state of politics will prevent any meaningful action. Canada faces the dirty side of the coin in October while the US could very well re-elect their fraudster in 2020. So at least a full generation on the horizon before even baby steps are taken to fix any of this and then it's a long shot. We can still scream from the roof tops though.

Lorne said...

Thanks, Mound. That there is another, better way is something people have become conditioned to not even imagine. Your potent reminder that there is could not have come at a better time.

Danneau said...

Long ago, in the wake of a discussion of Camus' play Caligula, I wondered about what happens when those involved in deep exploitation confront the possibility that any human being can assume the same attitudes as the exploiters, and that all and any means are available once the bonds of society have been degraded. It seemed more of a subject for contemplation in 1970, whereas today it seems more of a frightening potential outcome of the lines of neo-whateverism.

Anonymous said...

"No man should receive a dollar unless that dollar has been fairly earned" - Wynne's guaranteed income brainfart comes to mind

The Mound of Sound said...

@ Anon 10:33, I'm sure you know better. The guaranteed income initiative is a reflection of the modern problems we have with automation, robotics and the gig economy. Roosevelt was addressing wealth inequality and how great treasures absorb even greater wealth. Nice try. No, it was a pretty stupid try that chose to ignore what Roosevelt was getting at. That would make you a troll.

The Mound of Sound said...

Owen, BCW, John B., Lorne - I have a sense that our path down Neoliberal Lane has shown it to be a one-way, dead end. Even as it has failed so many, it defies predictions of its looming demise. We have to find our way out and that, IMO, means doing what Stiglitz advocates - a return to basic progressive principles.

Like the ancient law of Equity, progressivism, to have any lasting meaning, is founded on principles that need to be applied with some consistency. Otherwise you risk winding up with "palm tree justice" that varies from situation to situation often on strength of emotion. If your cause is attractive, you win. If your cause is less attractive yet equally deserving, you do not win. That inconsistency destroys the whole thing. Many self-proclaimed progressives have no understanding of the importance of discipline. To them, progressive means being nice - as they understand "nice."

The Mound of Sound said...

Danneau, I'm only peripherally familiar with Camus or his contemporaries but your comment brings to mind one of the issues I've addressed with some regularity on this blog - the decline of social cohesion as we have divided, first into partisan camps and more recently into tribes.

I have long suspected this status has not been some inadvertent result but has been groomed into us. A house divided against itself cannot stand, sort of thing.

A people divided against themselves are weak and vulnerable. If you want to siphon wealth out of the general population you'll be well advised to siphon off their political power at the same time.

The great elixir to cure that is electoral reform. We expected the Liberals to keep their promise of abolishing FPTP but we were the greater fool. If you had just received a powerful majority on the strength of slightly less that two votes out of five you might have a powerful vested interest in preserving the electoral status quo.

Purple library guy said...

Well, it's a good idea. It always is. And if it succeeds for thirty years or so, after it has been taken down and deep inequality has returned, it will be a good idea again. And yet again.

We should bear in mind that the postwar "Golden Age" was not ended by Reagan and Thatcher coming up with some ideas out of nowhere. It was ended by concerted effort on the part of the plutocrats, whose power, though diminished from what it had been before the Great Depression, was still great. They did not want their wealth and power to stay diminished, they wanted the rest of the pie back. They started think tanks to come up with ideas to their benefit, and then legitimize those ideas, and they systematically publicized those ideas in the media which, even then, they owned. They endowed chairs of economics and schools of business at universities. The likes of the FBI and the RCMP harassed, discredited, infiltrated and divided the political left for them. And of course they funded politicians and political parties. They printed masses of copies of the works of Ayn Rand and distributed them free to school and other libraries--some irony there. They laid the groundwork systematically that led to the likes of Reagan and Thatcher.

Cut them back, but leave them in the same structural position, where the owners of capital ultimately control the economy, and they will do it all over again.