The Good Society and its Enemies
Review of ‘The Road to Freedom, Economics of the Good Society’ by Joseph Stiglitz
The collapse of the Soviet Union led the West to economic policies promoting an extreme form of capitalism. Referred to as ‘neoliberalism’, this is part of the focus of Stiglitz in his book. Neoliberalism’s hallmark is the near total ending of the regulation of the private sector marking a withdrawal of the state from almost every sphere of the economy other than defence.
A Critique of Neoliberalism
The author states categorically that neo-liberalism has failed. His argument is based mainly on the experience of the United States (US). First, he makes the observation that from the time of the Reagan presidency, the US economy has not grown any faster than it did in the quarter century after the Second World War, a time of considerable government intervention in the US economy. Next, he points to the worsening income distribution accompanying the stagnant real incomes of the American working class, the global financial crisis of 2008 which followed the deregulation of finance in the US, and the devastation during COVID-19, when Western governments privileged the drug companies over people by refusing to invoke compulsory licensing, which would have enabled greater supply affordability of the cure, as following from the adoption of neoliberalism. Neoliberalism also had an influence on the global economic architecture when Western nations were able to influence, and in some cases arm-twist global multilateral institutions to create a world order conducive to deploying capital, which they potentially had a surfeit of. Stiglitz cites evolving global rules on intellectual property rights, taxation of multinationals, investment agreements, and trade policies, most of which benefited the US economy and its giant corporations as instances of this.
But the critique of neoliberalism is only part of Stiglitz’s book. The greater part of it is on freedom and how to expand it. He rejects the usefulness of the neoclassical view of markets as efficient, and bases his arguments on what he considers is the character of actually existing market economies. The core of the author’s argument is best conveyed in his own words: “I began the book with a straightforward observation: One person’s freedom is another’s unfreedom. Externalities are pervasive, and the management of these externalities - including environmental devastation – that are inevitably the by-products of unfettered markets requires public action(s), including regulations. Indeed, any game needs rules and regulations. I’ve delineated (here) the need for regulations to curb the agglomeration of power and the exploitation of some by others.”
Another key observation by Stiglitz is that people can accomplish together what they cannot accomplish on their own. But, he points out, in many arenas of collective action, the ‘free rider’ problem could arise. Therefore, good i.e., efficient outcomes may require some form of coercion of the kind that only a government can properly impose. Also, it may be desirable to encourage voluntary collective action, through subsidies, for instance. The author produces a plethora of examples of externalities to convey that they are ubiquitous in the world we live in, requiring corrective policy intervention. All in all, Stiglitz’s is a clear statement, comprehendible to an undergraduate student of economics, which is quite unusual in a profession that tends to value complexity and jargon over communication. However, an observation would be in order here. From the first proposition in the passage that I have quoted above does follow a case for regulation, which, of course, would be rejected by neoliberals and the economists whose work influenced them, namely von Hayek and Friedman. But is it always the case that “one person’s freedom is another’s unfreedom”? Surely not. To see this, consider Isaiah Berlin’s concept of ‘positive freedom’—by which he meant an individual’s freedom to pursue one’s own goals—or Sen’s idea of freedom as the ‘capability’ to lead the life an individual has reason to value. It is not obvious that the positive freedom enjoyed or capability attained by one person must lead to the ‘unfreedom’ of another. Stiglitz does provide instances of what he has in mind, such as polluting the river or fouling the commons, yet his proposition referred to above is not universally true. Of course, it goes without saying that your freedom to pursue the kind of life you value is meaningfully circumscribed by the caveat that it cannot constrain another’s.
The Good Society
If neoliberalism, which has had a run of close to four decades by now has failed, what should we replace it with? Stiglitz engages with this question at length, providing a definite account of his idea of the ‘good society’ he has in mind. First, the good society would have no imbalance of political or economic power. In particular, firms would not have the freedom to exploit consumers. At the global level there would be institutions based on inter-governmental cooperation, that bring justice and fairness to interaction between states and private actors, such in cases of debt repayment. A key feature of a good society would be that there be much greater public investment than is currently the case in the US, a situation brought about by the adoption of neoliberalism. This investment would be in children and their future, in research and more broadly, in social and physical infrastructure. The author is quick to clarify that these investments would not just promote growth; they will enhance the opportunities of citizens. The good society for Stiglitz would have greater equality. However, he cautions that equal outcomes can blunt incentives for performance. Of course, this would be true in the space of production , which is surely what Stiglitz has in mind. However, if we were to work with Sen’s proposal that when we talk of equality we should be aiming to equalise ‘capabilities’, being the embodied endowments that enable individuals to achieve the ‘functionings’ they value, there need be no blunting of incentives. Altogether, I cannot help thinking that were the author to engage at least a little with the prior work of Berlin and Sen on freedom and social justice, respectively, some of the pitfalls in his argument, which I have pointed out here, would have been avoided. It applies equally to his statement that the philosophical traditions of “the Benthamites and John Rawls can help us think through what set of rules make sense in a good society”. How this works is perplexing, as the former’s utilitarianism is blind to the distributional concerns which for Stiglitz are of the essence in the context.
The combination of regulating private enterprise, correcting market failure and providing both public and private goods that promote well-being is eminently sensible, but there is a catch. Stiglitz insists in terming the arrangement “progressive capitalism” which he thinks of as a “rejuvenated social democracy”. Some may argue that the term ‘capitalism’ only refers to a mode of production a la Marx. On the other hand, ‘social democracy’ was conceived of as an arrangement far more capacious, also possessing an ethical dimension. It was to be a combination of political freedom and socialism’s concern human progress through greater equality. Capitalism is not usually associated with either of these goals to any degree. However, this need not restrain us from endorsing Stiglitz’s description of the contents of the good society entirely.
As someone living in India, I am led to reflect on how Stiglitz’s book matters for this country. Before I do so, I speculate on how two strands of opinion here are likely to perceive it. Narendra Modi’s supporters would be peeved by the near complete omission of the country from the discussion. Modi is spoken of as a “demagogue” in the league of contemporary authoritarians constituted by Trump, Putin and Bolsonaro. As a former Chief Economist of the World Bank, Stiglitz is unlikely to be ignorant of the feature that India is today the fastest growing major economy of the world but he is equally likely to be apprised of India’s lowly ranking in the global per capita incomes table. Elsewhere, he has spoken perceptively of the agricultural challenge and environmental degradation here. A second cohort that is likely to be dismayed by this book would be India’s old left-wing establishment. The author barely mentions the Soviet Union, suggesting that there is nothing to be learned from its economic history. He brackets “Hitler, Mussolini and Stalin” together, and speaks of Russia and China having imposed hardship on their own peoples. Even as he savages the neoliberals in America, Stiglitz displays no nostalgia for the erstwhile communist regimes. He is an uncompromising champion of democracy.
India in Context
Finally, there are two absences from this book which are of particular relevance to India . Stiglitz devotes considerable time to the monopoly power of the “for-profit private sector” which can be a source of exploitation of consumers. Indeed, he believes that the tech giants have become far too powerful in the US. Naturally, he calls for a regulation of this sector by the American state. There is in India a force that is similar in its power vis-à-vis the public as the giant corporations of the US. This is the bureaucracy that wields power by controlling the apparatus of governance. This apparatus was set up in the colonial era to extract revenue for the colonial state, initially from the peasantry and subsequently, in a more sophisticated and less transparent way, through budgetary transfers to England by the colonial government of India. The colonial machinery of government was carried over lock, stock, and barrel after 1947. As a result, India remains saddled with an unaccountable bureaucracy that extracts income from its poorest citizens by demanding financial gratification for routine services rendered. This when it is not presiding over waste and pilferage in the public sector that it lords over. The bureaucratic maze once installed to control Indians by a foreign power now serves a small coterie of natives who enrich themselves at the expense of the vast majority. The politician class, who alone can change this state of affairs, does little, as it relies on the bureaucracy to further the agenda of their parties. So, while the private for-profit sector certainly needs regulation, as argued by Stiglitz, in India the power of the bureaucracy would have to be curbed in the good society to come.
I turn now to the second aspect missing, or at least not stressed enough, in this book. India remains a space of perpetual threat to the well-being and physical safety of women. In the latest National Family Health Survey, anaemia among women was found to be at 57%, having increased over the preceding half decade. Notably, men suffer less from this infirmity that stunts humans. Further, though female education levels may have grown, this has not translated to a higher labour force participation rate. World Bank data show this rate to be lower in India than in Saudi Arabia, reflexively assumed to be among the most patriarchal of societies in the world. After the recent incident in which a young woman doctor was first sexually assaulted and then murdered while on night duty in a Kolkata hospital, we can see why this would inevitably be the case. Women face violence at the workplace, and must fear steppin-out of their homes. In a heart-rending statement made on national television soon after the event took place, the mother of the young woman who had her life taken from her observed that “women are not safe anywhere.” This is a serious indictment of Indian society, and points to how far it must go to become the good society described in Stiglitz’s book. No amount of welfare schemes that transfer money to women can compensate for the toxicity that they routinely face in India’s public spaces, including their workplace. The road map to the good society in India would be useless if it does not include women’s empowerment. The challenge is that most of this would have to come from the women themselves, for the guardians of patriarchy are male.