In pursuit of Decent Middle-class life for All

Stiglitz book on People, Power and Profits is commentary on “what is holding us from making average American citizen love a decent middle-class life” and some of the interventions required at Government and Society levels that can help improve the situation.  

For those outside America, book is as much insights into the disproportionate impact of globalization on the impacted as the fallacies and limitations of the alternate prescriptions being proposed or tested in America, under the present regime.  The book recounts the well-known evidences of the broken promises of capitalism and free market economy and the prescriptions are also not entirely new. 

What does the book tell us about our experiences, that is not America specific?

Markets are rarely perfect and hence in real form has limitations; Serves the interests of rich Corporates more than interests of consumers, workers, citizens, and future generations.  Markets shall always under-serve and under-provide for public goods – climate and environment concerns.   

Trickle effect, in the form of growth and prosperity overtime percolating downwards doesn’t work.

Inequality is likely to rise overtime, further facilitated by the inter-generational advantages and disadvantages for the already rich and poor.

Globalization, that was meant to be win-win for all, involved transitions within societies, say for moving from industrial to service economies, which created segment of population that lost (unemployed) and were not adequately supported or cared for during the transition. 

With enhanced global trade, the expectation that world will become more democratic and we shall see increasing harmonization of values (freedom of speech, status of women, respect of environment etc.) has not happened- reverse may actually be happening as each country sees its distinct Values and source of competitive advantage.  China access to personal information about its citizen at levels Europe cannot imagine, gives it advantages in digital innovation and leverage. Countries that impose some form of carbon tax / environment related trade practices (disclosure norms) are disadvantaged against those who don’t.

Advances in the new technologies are likely to exacerbate concerns linked to job eliminations, lowering of wages, greater inequality & institutionalized discrimination (AI backed), corporate monopoly powers, while introducing new concerns linked to privacy and cyber-security.  Addressing these concerns would require collective actions by governments, then waiting markets to provide solution.

What does Stiglitz prescribe?

Government cannot rely only on Monetary policy stimulus to push employment.  Fiscal lever needs to be employed as well.  Government needs to inverts in infrastructure, basic research and public education. Teachers’ salaries have to be enhanced to be able to attract talent to this profession. 

Government needs to think in terms of ‘right to job’ for all those willing to work by proving jobs within government, wherever corporates are not doing enough.  He also seeks way to further enhance workforce participation by women and elderly.  Stiglitz looks towards MNERGA program in India as good option with long term benefits to the society.   

Governments approach towards moving from multi-lateral trade agreements to bi-lateral trade negotiations, focused on extracting favors in the form of reduced tariffs has limitations and may be counter-productive in the long-run.  Universal Basic Income, while offers the necessary safety net for all, is likely to be not substantive enough and may require tax-based funding that may not be feasible.

Tax systems, credit systems and other financial instruments may have to be re-looked into so that investments are funded, jobs created and the inequality is not encouraged in the process. Financial transactions (say short term share transactions) are zero –sum game and has no real benefits, so needs to be taxed.

Besides book contains several comments on the state of affairs and specific suggestions that reflect Stiglitz take on the US policies, current administration dispositions and political context.   It gains importance, given the inter-linkages between political and economic systems and if Stiglitz proposals for economic reforms needs to be implemented it would require supportive political support as well.

The book serves the important needs for all of us to keep in mind that markets have limitations and cannot be relied on for providing decent life to all.  This is not to say that markets are not to be leveraged but go for progressive capitalism, where market created sources of discontent and gaps are proactively and suitably addressed through well designed, directed and intended interventions by the government. 

The Third Pillar: High on INSIGHTS, modest on PRESCRIPTIONS

This book is an insightful and serious read for those interesting in understanding various phenomenon around us, explained in the evolutionary and current context. The book traces the inter-play of State, Markets and Communities and its impact on social and economic across nations like US, Europe, China and India. Accordingly, the suggestions are also centered on role of each of these pillars and their relationships.

Rajan take on the China growth story is interesting and covers whole set of factors starting with retrenchment of staff from loss making PSUs to release labour, shifting focus to cities as epicenter for economic development and government's ability to delicately balance the need to the control and to support the start-ups and private enterprise. Future challenges to China growth would off-course require some rethink. Rajan attributes India relatively slower economic progress to difficulty in land acquisition, dearer credit, procedural delays; the costs associated with vibrant but chaotic democracy. Surely Rajan understanding of India goes much deeper, than the cryptic analysis shared in this book.

Rajan convincingly explains the surge of Populist Nationalists, riding on the disenchantment of majority against the elite, and how this surge may come with its own set of issues, including social unease. The remedy proposed as combination of constitutional patriotism (nations identity linked to shared values), and communities with hold stronger ethnic and cultural entities is an interesting paradigm- but how much of this can be designed and how much this comes as emergent structure as an outcome of societies evolutionary journey is an open question. 

Similarly the phenomenon behind residential sorting and its impact on the inequality in the society is another dimension that require conscious intervention at different levels.

How much should the international institutions decide for the world for cause of common good, and how much should sovereigns have rights to decide for themselves. A very touchy issue, especially in light of widespread mistrust within the community of nations, provoked by the real and imagined capture of international agreements by stronger nations and through the big corporations. Rajan uses the global insistence of Basel norms adoption for financial institutions to drive this fact well. 

Similarly the stringent intellectual property rights (and infringement claims) tends to disproportionately discourage innovation in the relatively less developed societies. The advice is to move towards more inclusive, transparent and negotiated approach to global common goods, then pushing for harmonized rules and regulations across nations. Easier said, than done!

Recognizing the limitations of taking shareholders vs stakeholders benefit maximization as guiding objectives for the Corporate, Rajan middle-path suggestion for taking up the value maximization which comes as sum of value created for genuine set of stakeholders is an interesting concept- that may be worthy of further research.

Clearly the book leaves reader with much to chew, with provocative and creative in its advice and without being prescriptive.