Tikkun Magazine, September/October 2010
Economics for a Global Community -- A Conversation with Joseph Stiglitz
Michael Lerner (ML): Many of the interviews with you as a public intellectual and liberal economist focus on your analysis of current economic realities. For a Tikkun readership, the equally interesting question is your larger vision of what a decent economic arrangement for the United States and the world would look like in the twenty-first century, and how we would get there. What is your picture of a rational and ethically sound economic arrangement for the world and the United States?
Joseph Stiglitz (JS): We would partly begin with asking the question, how do we create a fairer society with more opportunity for everyone? I think that when you are talking about these issues you have to put them in the context of where we have been going. One of the major concerns that should be put at the top of the agenda is that there has been growing inequality in the United States. Very serious, growing inequality. The way we have often characterized it, as a set of trade-offs between growth and inequality or efficiency and inequality, is probably wrong. If we really had a more equal society and were able to tap the potential of everybody, our economy would be stronger. To achieve these results one needs a certain degree of collective action, acting together as a community. And part of the way of acting together as a community is through government activity, through research, education, and a whole variety of ways in which we could act together collectively.
ML: Do you imagine some kind of democratic arrangement? Would it be a decentralized one or a globalized one, for dealing with investment? And how should production decisions and investment decisions be made?
JS: Inevitably, I think, the market economy, which involves a high degree of decentralization with decision-making occurring at the level of the enterprise or firm, is both necessary and probably the most efficient way of running an economy.
The problems that we face today with the market economy are partly caused by the concentration of power, for instance, in the hands of relatively few banks, large corporations, and so forth. And they exercise their influence not just through the economy but also through the political process, indirectly.
Now, there is a general principle that they talk about in Europe a lot, and it's called "subsidiarity," which means that different problems need to be addressed at different levels, with the general principle being that the problem should be addressed at the lowest possible level that is consistent with the nature of the problem. So there are local problems, national problems, and global problems. And we need to address these problems simultaneously at all these different levels. But there are many problems today that can only be addressed globally, such as global warming, global health, or global poverty.
ML: Given the current realities of the United States, how do you imagine that we could get to a place where increasing democracy would be possible with decisions of investment and production?
JS: When you talk about democracy and the general set of principles I described, they revolve around a number of levels. There is democracy in the political arena, but there is also democracy in the workplace -- worker participation in the decisions that affect them. That is not possible in all enterprises, but it is possible in many enterprises. There is a lot of evidence that enterprises that engage in that are actually more efficient and more innovative.
ML: Some progressives thought democracy in the workplace was the answer until Yugoslavia tried it and found that it didn't seem to do much to humanize the society, which subsequently broke into ethnic conflict.
JS: That was a failed experiment. You cannot evaluate workplace democracy in a context without overall political democracy. And that is why I emphasized the importance of the political context. There have been some very successful experiments in Spain. I don't think it is a panacea and that it will work everywhere, but there will be many enterprises for which it is a way to achieve both more individual fulfillment and greater efficiency.
David Korten: Joe, in terms of the worker participation, you mentioned Spain; I assume you are referring to Mondragon, which I also very much admire. It also has the very clear element of worker ownership. I would be interested to hear your thoughts on that piece of worker participation.
JS: I think they thought through a lot of the problems with worker ownership. The Yugoslav experiment did not work very well and a lot of people who have been involved in this movement learned a great deal from why that did not work very well. I haven't visited [Mondragon] for several years, but when I visited I was struck with how thoughtful they were in trying to figure out how to adapt the model to the changing technology and the changing globalization. For example, how to integrate workers who were owners and workers who were not. They took a fairly practical approach that I think seems to have worked pretty well.
ML: I want to ask you about two proposals that we are discussing in the Network of Spiritual Progressives and in Tikkun -- proposals that were a focus of our conference in Washington in June. The first is the ESRA, the Environmental and Social Responsibility Amendment to the Constitution, which would overturn the Supreme Court's Citizen's United decision and require corporate environmental and social responsibility. It includes (and this is the most controversial part) a proposal that corporations with incomes over $100 million a year would be required to get a new corporate charter once every five years. The charter would only be granted to those corporations that could prove a satisfactory history of environmental and social responsibility to a jury of ordinary citizens. The jury would have the power to require changes in the organization if they found it did not have satisfactory responsibility. It could remove the charter from the current board of directors and assign a new board of directors or a new ownership scheme to the workers themselves or to some other group that could prove that it could run the corporation in a more environmentally and socially responsible way.
JS: I think those are interesting ideas. I think Citizen's United was a deeply flawed decision in every respect, from a legal perspective but also from a more deeply democratic perspective. Corporations are not people. They are a social construction, and in a decision about what rights to endow them with, we have to keep that always in mind. Clearly if they unbalance the political process, that is not healthy. Some of the proposals being discussed, including in Senator Chuck Schumer's bill, I think, are approaches that could rectify that decision if we can't directly overturn it.
Exploring ways of increasing corporate social responsibility is important. I am very sympathetic with the sentiment of the proposal, but I worry that there are real difficulties of setting and agreeing on the appropriate standards. And the uncertainty until those standards are solidified would have significantly adverse effects on some businesses, which would worry about their ability to function in five years.
ML: Wouldn't that be a good worry for them to have?
JS: It may be a good worry, but the question is going from worry to anxiety and not being willing to undertake investment: that would not be good. In general, economists are very worried about the destructive impact of excess uncertainty. I think it would probably be preferable to create clear standards of expectations, because "corporate social responsibility" are words that mean very different things for different people. I have heard some firms feel socially responsible if they put green light bulbs in, even if they are lending to tobacco companies that are killing people.
ML: If the amendment mandated Congress to set those standards, would that be sufficient or would they have to be spelled out in the amendment itself?
JS: Well, that is part of the problem. Once you go to Congress to do it, you know what kind of process will set in. The special interests will play an important role. So I understand and I find intriguing the idea of leaving it up to a group of peers, but I think that is too capricious.
ML: We do that with human life when it comes to people who are accused of crimes such as murder.
JS: That's true, but there we have very well structured laws such as burdens of proof, very clear rules of evidence, and innocence until proven guilty.
ML: Owning a corporate charter is not a right, as opposed to life being a right.
JS: I understand that, but still the process is not ambiguous. You're caught between two difficulties. You are caught between the difficulties of having the constitution lay out too much detail, because norms will change over time and different circumstances. On the other hand, if you don't spell it out you leave too much uncertainty and ambiguity. To give some examples, I would certainly claim that the whole cigarette industry by its very nature is an exercise in corporate irresponsibility. Or consider the food industry: those parts of the food industry that encourage products that cause obesity are irresponsible. But as a man of democratic principles I feel nervous about delegating that to a jury if we can't get it through Congress. There are really big issues in corporate responsibility. In some sense, they are issues of life and death. While the goal is really lofty, one has to think very carefully about how one adjudicates and sets the standards.
ML: Yes, these considerations will be addressed by the Network of Spiritual Progressives as we move forward with our campaign for the ESRA. To move on to a different question, the second program we are advocating for is a Global Marshall Plan: we want the United States to take leadership with the other industrialized countries to commit between 1 percent and 2 percent of U.S. GDP each year for the next twenty, to once and for all end global poverty, homelessness, hunger, inadequate education, and inadequate health care. In other words, it's time for a huge commitment, far beyond what the current UN millennium development goals are. The underlying argument is that this approach (we call it the Strategy of Generosity) is a more effective path to homeland security than any of the military spending and wars we've been pursuing for the past fifty years. We also emphasize that a Global Marshall Plan (GMP) would only work if it were done in a spirit of generosity and not done just with the goal of homeland security and advancing U.S. interests or with the covert agenda of strengthening our global empire. It would have to be accompanied by a transformation in the consciousness of Americans, a recognition that our well-being in the twenty-first century depends on the well-being of everyone else on the planet. And our campaign for the GMP would become a vehicle for championing and popularizing that kind of change in consciousness. Done in that way, the campaign for the Global Marshall Plan would be more likely to gather mass support than a program like the One program or the millennium goals. Those programs' goals are seen as extravagant from the standpoint of inside-the-Beltway realism, but in terms of actually solving the problem they are more like welfare than like solutions. My experience as a psychotherapist at the Institute for Labor and Mental Health for the decade before we began Tikkun magazine, and the experience of others who are behind this, is that it may be easier to support a program that really ends poverty than a program that merely ameliorates poverty. What we discovered was that many Americans resented welfare not because they didn't care about poor people, but because they felt that the Democratic Party solution, welfare, never solved the problem of poverty but only ameliorated it. The Democrats who supported it, of course, did so because they wanted to be "realistic" and thought that it would be better to achieve some help than no help, so instead of fighting for a program to eliminate poverty, they fought for minimal increases in levels of aid to the poor. Yet this approach eventually caused a great deal of resentment among the American people, who felt that they were throwing endless money down a sinkhole that would never solve poverty anyway, so they asked themselves, "Why should I pay higher and higher taxes for a program that potentially keeps people in poverty rather than eliminating it, and that leads those who receive the support to feel angry rather than grateful for the help they are receiving?" That same dynamic would occur on a global level unless we develop a full-scale program to eliminate, not simply reduce, the global poverty, starvation, hunger, homelessness, etc.
JS: I think a GMP would be a very good idea. And I hope we can marshal support to do that.
The irony is how many Americans actually think we give more money than we do. Surveys show that most Americans think of themselves as generous, think of themselves as giving a lot in foreign aid and giving a lot more money than we are actually giving. So on one level there is a lot of support for the idea, but on another level there is a lack of understanding about how little we actually do give. A dose of realism, though -- I think that even spending 2 percent of global GDP or the U.S. and Europe's GDP on a Marshall Plan is not going to be enough to alleviate poverty in the developing world in ten years. The problems are more deep-seated than that. But unless we do something of that scale we won't be able to make significant progress. So even though I am not as sanguine as you that it will eliminate poverty, I still think it is desirable.
Your remark about ameliorating poverty: I remember a meeting I had with Clare Short, who used to be the head of aid in the U.K. government. She said very forcefully that they wanted to end poverty, not ameliorate it. And I think that's the right mindset to have. And I think we can do it. But it is not something that will happen in twenty years. But we can make huge progress. To put it in perspective, China has reduced poverty by between 300 million and 500 million people over the last thirty years. But it has taken them thirty years and enormous investment, close to 50 percent of GDP, with significant amounts going to poverty alleviation.
ML: Part of our proposal is that the United States would take the leadership in convincing other leading industrialized societies to make a similar commitment to join in this Global Marshall Plan.
Let's move now to focus on the present realities in America. We saw what happened with both parties' actual responses to the economic crisis. What would have happened if instead of that, the Democrats had said: "No, we are not going to do this, we are going to once and for all test out the theory that Republicans and conservatives have been articulating that the marketplace will solve all problems. We want to let the banks and Wall Street work their own problems out rather than rely on big government. However, if that isn't working, we would like to set up a U.S. national bank funded with a few trillion dollars to give loans to those enterprises that cannot get loans from the failing banks, on the biblical principle of no-interest loans. Similarly, the national bank would give loans to ordinary people who would otherwise be reliant on the existing banks that are in the current moment dealing with the fallout from the free marketplace. And we will give no-interest loans to projects that have some social value, whether that be to fund education, to help families deal with impossible-to-pay mortgages, or to enable small businesses and other enterprises to expand employment." What if that had been the response? I know that at the time, we were told that the sky would fall and all rational behavior on the planet would be over.
JS: I am very sympathetic with the major thrust of Tikkun's thinking on this question. I think that if we had taken most of the money that we spent on the big banks and lent it out to homeowners to redo their mortgages at a low interest rate, to businesses to give them access to capital, to ... new banks focused on venture capital to create new enterprises, and to small and medium-sized businesses, I think we would have had a much stronger recovery than the one we did. And I think our social cohesion would be much stronger. Instead, we wound up in a bailout that has not restarted the economy and certainly not restructured anything in a way to make things more fair or efficient. So I feel the major thrust of what you are saying is true, but I worry a little bit about the disruption that might have occurred in many of our enterprises if we had simply let all the big banks fail under the ordinary rules of capitalism. It would have been very disruptive and very costly. But I do think that if we intervened with these big banks, we should have effectively used the laws of capitalism, which means: "If you can't meet your obligations, you go bankrupt. And if you go bankrupt, you convert debt into equity, and if you don't have enough debt, the government, through deposit insurance, will take over the banks." It is a standard procedure we do all the time. So one of my main criticisms is that we suspended the ordinary laws of capitalism, and that was really a very big mistake at the time and as a matter of precedent. It has undermined the fiscal strength of the economy.
Source Citation: Lerner, Michael. 2010. Economics for a Global Community -- A Conversation with Joseph Stiglitz. Tikkun 25(5): 12