Taming Global Capitalism Anew
One of the greatest achievements of the twentieth century was a social contract that provided far more economic security and prosperity for working Americans than had existed in any previous period. But successive waves of changes in the world economy, together with the ascendancy of a strain of economic philosophy that puts the freedom of capital above the interests of society, have placed enormous strain on the postwar social contracts of all Western countries, resulting in stagnating wages, greater insecurity and levels of income and wealth inequality not seen since the early 1900s. And even more far-reaching challenges arising from the current pattern of globalization, with its emphasis on the outsourcing of service as well as manufacturing jobs, may lie ahead.
Developing a strategy for taming global capitalism anew therefore constitutes the overriding challenge of our time. For that reason, we have invited some of the leading progressive thinkers in this country and a longtime observer of the American economy to offer their ideas on how the United States, as the major capitalist country and the major player in globalization, could reshape both capitalism and globalization in ways that build a new social contract serving the needs of working people everywhere.
A Progressive Response to Globalization
JOSEPH E. STIGLITZ
Globalization is often viewed as posing a major threat to "capitalism with a human face." Trade liberalization puts downward pressure on unskilled wages (and increasingly even skilled wages), increasing inequality in more developed countries. Countries trying to compete are repeatedly told to increase labor-market flexibility, code words for lowering the minimum wage and weakening worker protections. Competition for business puts pressure to reduce taxes on corporate income and on capital more generally, decreasing funds available for supporting basic investments in people and the safety net. And international agreements, such as Chapter 11 of NAFTA and the intellectual property provisions of the Uruguay Round of trade talks, have been used to short-circuit national democratic processes.
Yet Sweden and the other Scandinavian countries have shown that there is an alternative way to cope with globalization. These countries are highly integrated into the global economy; but they are highly successful economies that still provide strong social protections and make high levels of investments in people. They have been successful in part because of these policies, not in spite of them. Full employment and strong safety nets enable individuals to undertake more risk (with the commensurate high rewards) without unduly worrying about the downside of failure. These countries have not abandoned the welfare state but have fine-tuned it to meet globalization's new demands. We should do the same.
At the same time, we must temper globalization itself--not by withdrawing behind protectionist borders and not by trying to enhance the well-being of our citizens at the expense of those abroad who are even poorer. Rather, we should reshape globalization to make it more democratic, and we should moderate its pace to give countries more time to cope. There will still be losers in a reshaped globalization, but the vast majority of citizens in both the North and the South will be better off with the right policies.
Coping with globalization entails recognizing both the consequences of globalization and the limitations in the standard responses. Increased education is important, but it is not enough. At this time we should make taxation more progressive in order to offset the economic forces increasing inequality, not decrease the degree of progressivity as we have done in the past five years. We should strengthen our safety nets, not weaken them. The United States has one of the worst unemployment insurance programs in the advanced industrial countries. A redesign of our social insurance program to make it more of an integrated lifetime social insurance program, along the lines of the provident funds of Singapore, could provide substantially more complete insurance coverage without weakening economic incentives.
Most important, we should have a true commitment to full employment. The high priests of the financial markets have convinced many of the dangers of even moderate inflation, contending that even slight increases in inflation are very costly, especially to the poor, and that the costs of reversing inflation are extremely high. This is all nonsense, as we demonstrated in successive issues of the Economic Report of the President while I was chair of the Council of Economic Advisers. Today we should be worried not about inflation but about our lackluster growth, which leaves a large "jobs deficit." Full employment is the most important social protection. And even moderate unemployment, even of the disguised kind (discouraged workers, increased numbers on disability and large numbers who work part-time involuntarily), puts downward pressure on wages, exacerbating the problems brought on by globalization.
There are two other elements of a progressive agenda that are sometimes not given sufficient attention. The first is enhancing savings among lower-income individuals, including by matching grants (for example, by cashable tax credits). Some conservatives have embraced the concept of the ownership society--by which they too often mean simply that those who own more get to own still more. But it is important for individuals of modest means to have a cushion to protect themselves against the vagaries of the market.
The second is enhancing investment in research, strengthening our competitive advantages, so necessary if we are to maintain robust growth. Today, a disproportionate amount of our nation's research budget is spent on military objectives; funds for basic science, or even advances in applied technology that would improve living standards and help us protect the environment, are scarce.
Globalization's advocates often portray it as presenting unprecedented opportunities. For those committed to creating a society based on principles of social justice, it is also presenting unprecedented challenges. These are some of the elements of the progressive response to these challenges.
Joseph E. Stiglitz, University Professor at Columbia University, won the Nobel Prize for Economics in 2001 and is the author of The Roaring Nineties.