Joseph Stiglitz, a Nobel Prize-winning economist widely credited as coining the term “the 1%” is one of the world’s leading experts on inequality. The professor at Columbia University and Chief Economist at the Roosevelt Institute came to Sauder for a public conversation with Dean Robert Helsley and took questions from an audience of Sauder students.
Here are some highlights of what he had to say:
The state of inequality:
It’s getting worse. I think one of the important insights is that it’s not just the result of economic forces. If you look around the world, among the advanced countries where there are similar economic forces at play, there are marked differences in outcomes. In America we have more inequality than any other country by a significant margin. There are eight Americans in two families who inherited their money – so they didn’t get it from working – who have as much wealth as the bottom 44 per cent of the entire country. That speaks to the amount of wealth at the top, but also to the lack of wealth at the bottom.
The creation of inequality:
The middle of the 20th century was marked by rapid economic growth along with high taxes and debt loads, which undermines the views that taxes and debt are bad for growth. Then in the late 70s and early 80s, we began to rewrite the rules of the market economy. U.S. President Reagan and UK Prime Minister Thatcher led by lowering tax rates at the top to incentivize the system, then stripped away regulations, particularly in the financial sector. They said yes, it would cause more inequality, but because of the greater economic growth, everybody would be better off. Well, they were right about one thing: it did lead to more inequality. But even they underestimated how much inequality would be generated – and it actually led to lower economic growth. The result of this experiment is that the bottom 80-90 per cent of Americans have seen no increase in their income – almost total stagnation. The median income is lower than it was a quarter century ago. An economic system that has failed for a majority of its citizens is a failed economic system.
Inequality is a choice. It’s not an inherent property of the market economy and capitalism – it’s the way we’ve structured the market economy. Markets don’t exist in a vacuum – they have to be structured by laws, rules, regulations, and the way they’re enforced and implemented. And we’ve done that in ways that have led to slow economic growth and more inequality.
Inequality is a choice. It’s not an inherent property of the market economy and capitalism – it’s the way we’ve structured the market economy.
- Joseph Stiglitz
Some of the makers of inequality:
One of the striking things happening in the U.S. is that the ratio of CEO pay to that of ordinary workers has gone from 20 or 30 to one, to an average of 300 to one, and there are many companies where it’s over 1000 to one. I was talking to the CEO of one of the largest Japanese companies and he said, “It would be terrible for the morale of our company if we got paid that way. It would be irresponsible for us to take that kind of pay.”
Bankruptcy laws determine who gets paid first when a company can’t pay its debt. In almost all countries, the workers get first claim – except in the U.S. We said, the first claimants on a firm if it goes bankrupt are the derivatives, so our legal structure is providing incentives for what are very risky financial products. Meanwhile, student debt cannot be discharged even in bankruptcy.
One of the sources of inequality is the intergenerational transmission of advantage and disadvantage. Public education plays an important role to level the playing field. If you have systems that rely very heavily on private education, then you’re going to get more intergenerational transmission of advantage.
The economic costs of inequality:
It’s now become a mainstream view, with the IMF doing a large amount of research showing that economies with more equality perform better and they have more stability and higher economic growth. It’s a question of economic efficiency, growth and performance. Low levels of equality of opportunity mean that large fractions of the population are not living up to their potential. So you’re wasting human resources – your most valuable resources.
Low levels of equality of opportunity mean that large fractions of the population are not living up to their potential. So you’re wasting human resources.
- Joseph Stiglitz
What corporations should do:
The most important corporate responsibility is paying taxes – your social contribution to society. Too much of the intellectual power has gone to tax avoidance. Also, don’t discriminate. That’s a major source of inequality in our society.
What governments need to fix:
For one, they need more transparency. If you’re negotiating in secret there’s no incentive to do the right thing.
In the United States, the incentive is to serve special interests because of big campaign contributions. But these contributions are more accurately described as investments. Our banks get a higher return from their political investments than they did from their financial investments. So I think public financing of political campaigns is important.
And another problem is the revolving door. People go from say, Wall Street, to the government and then back to Wall Street. And it’s clear to me that when they were in the government they were thinking about their next job.
On the Trans-Pacific Partnership:
I think the TPP is a really bad agreement. If it was a free-trade agreement it would be very simple. Three pages: you get rid of your tariffs, we’ll get rid of ours, you get rid of your non-tariff barriers, we’ll get rid of ours, you get rid of your agriculture subsidies and we’ll get rid of ours. But these trade agreements go on for thousands of pages. They are managed trade agreements for the large corporations. They call it a partnership agreement – that’s a euphemism. You have to understand that this whole agreement was negotiated in secrecy, but the corporations were at the table. Big Pharma was at the table and generics were not, so it’s going to make drugs more expensive and access to medicine more difficult. The effect on health is going to be enormous. So this is a big deal.
Watch the full webcast here.