GROWTH AND SOCIAL JUSTICE
By Joseph Stiglitz
Under rightwing leadership, the economic situation of most Americans has worsened in the last seven years. Whoever seeks a sound strategy for more growth and social justice must elect democrats
[Joseph Stiglitz teaches at Columbia University in New York and is the winner of a Nobel Prize for economics. This commentary published in: The Financial Times of Germany, 8/27/2008 is translated from the German on the World Wide Web, http://www.ftd.de/meinung/kommentare/406175.html?mode=print.]
Both America’s left and right say they are for economic growth. How should the voters decide? Should they see this as only choosing between different management teams?
Oh, if only it were so simple! In the 1990s, the US economy profited from cheap energy and high-speed innovations. China increasingly supplied top-flight goods at ever-lower prices. All this led to low inflation and rapid growth in the US. Former democratic president Bill Clinton and Alan Greenspan, head of the Federal Reserve, really don’t deserve commendation. Bad policy has led to a mess. The problems we battle today – including high energy- and food prices and a weak financial system – can largely be referred back to a misguided policy.
Great differences exist between the growth strategies of the right and the left, which produce different results. The greatest difference is how growth is seen. Increased gross domestic product is not the only imperative. Growth must be sound and stable and not based on environmental destruction, debt-financed consumer intoxication or exploitation of scarce resources.
CORPORATISM IN A NEW GARMENT
Growth must be extensive and a majority of the citizens must profit from it. The trickle-down economy does not function because increased efficiency can worsen conditions for most citizens. America’s growth was neither economically sound nor extensive. Most Americans are worse off today than seven years ago.
Equality and growth do not exclude each other. Governments can promote growth by integrating more people. People are the most valuable resource of a country. Therefore guaranteeing everyone’s potential is vital. This requires education possibilities for everyone. However a modern economy also demands readiness for risks. People take risks when a good security net exists. If promoting the solidarity of society is lacking, additional costs can arise for protecting property and imprisoning criminals.
A second great distinction between the left and the right is the role of the state in economic development. In the left’s opinion, the government has a central role in providing infrastructure and education, developing technology and even acting as an entrepreneur. So the government created the foundations for the Internet and modern biotechnology.
The last distinction may seem strange. The left understands the market and the role the market can and should play in the economy. The right above all in the US doesn’t understand either. The new right embodied in the Bush administration is nothing but the old corporatism in a new garment. The Bush administration is not liberal. It believes in a strong state with stable executive authority. However this state is used to defend established interests without rightly respecting the principles of the market.
In contrast, the left tries to make the markets function. Markets left to themselves do not run well as the financial crises proves. Advocates of markets admit markets can fail, sometimes even catastrophically. But they insist markets correct themselves within an acceptable time frame. No government can sit idle when the country skids into a recession – even when this is triggered by the boundless greed of bankers. When the government assumes the hospital costs of the economy, it must also slow these costs.
THE POWER OF THE MARKET IS LIMITED
The right often counts Adam Smith as one of its intellectual fathers. While Smith knew the power of the market, he also knew the limits of this power. In his time it was clear to businesses that profits rose faster through price agreements than through more efficient production of innovative products. Therefore a new anti-trust law is necessary.
Giving a party is simple. For a certain time, everyone can have fun. Championing sound stable growth is hard. Unlike the right, the left has a positive agenda, an agenda offering social justice and not only more growth. The election in November should be easy for voters in the US.