Ajith Vijay Kumar
Nobel laureate Joseph Stiglitz, in an exclusive interview with timesnownews.com, talks about what is wrong with current American capitalism, rise of a new kind of politics emerging from dissent towards government and more. Here are some excerpts from the interview: Nobel laureate Joseph Stiglitz, in an exclusive interview with timesnownews.com, talks about what is wrong with current American capitalism, rise of a new kind of politics emerging from dissent towards government and more. Here are some excerpts from the interview: Interviewer: Professor Stiglitz, it is such a pleasure to have you with us for this Thinker’s interaction. I would like to start with your view as to how the world is changing today, there seems to be so much of turmoil that we are seeing and especially the rise of certain kind of leaders which I would call as the leaders that define the coalition of restoration. How would you really react to that?
Stiglitz: I think it is a period in which there is some underlying economic turmoil. I think you can see this on 2 different levels. Significant fractions of those advanced countries are not doing very well. Median income of a full-time male worker in the United States is not on the rise but full-time workers are the lucky ones at the same level as it was 42 years ago. Real wage at the bottom is at the same level as it was sixty years ago. Life expectancy in United States is declining rapidly amongst those who are not college graduates. There are lots of symptoms that something is wrong, people are unhappy and understandably so.
The second is that at the national level, the level of the nation-state we are seeing a rebalancing. With the collapse of the Soviet Union in 1989, there was only one superpower. The United States dominated and then with the collapse of Lehman Brothers in 2008, it was clear that there were flaws in the American style of capitalism. Meanwhile, China and other emerging markets like India have been growing at 5-6-7-8-9-10-11-12-13% and that meant they are closing the gap. Income is still lower but they are closing the gap and (there are) a lot of people in those countries. So, by sheer numbers even if the income per capita was lower, the economic weight was gaining.
To point by 2015, in purchasing power parity - the norm where we compare countries - China has become the largest country in the world. Now that was an interesting moment where neither country made a great deal about it. Obviously, it is not a surprise that the United States’ newspapers did not say that the US becomes number 2. But interestingly China didn’t either because it didn’t want pressure from the United States about it being number one.
Along comes Trump and at a moment of time where the disgruntlement over large parts of America was significant. America’s national security teams were beginning to worry about our place in the world. He is able to sense and exploit this unhappiness and to come up with a very ugly narrative but it was what he referred to, looking to the past, the restoration of power, what (we can do) to go back to the world after World War 2, where the US was dominant. Well, the fact of the matter is that you can’t go back in time and there is no way that you can go back to the period where the US was ‘the’ dominant power. But Trump doesn’t really understand that and those who support him don’t really understand that. They would also like to go back to a world of the past where a single worker in a family could support the whole family, where America’s middle class seemed to have everything.
I grew up in the 1950s in Gary, Indiana, an industrial town and the reason I became an economist was because I was upset about what I saw. I saw industrial strife, unemployment, massive discrimination and huge inequality and it was this that motivated me to be an economist. So, going back to that world was not the idea that some people think of it as. But inequality was not anywhere near as bad as it is today. How can United States accept this new geopolitical reality which means greater respect for the emerging markets? We will have to move to a multi-polar world. It means making sure that the benefits of globalisation and the advancement of technology are shared widely and don’t go just to the one percent. So that's what we should be doing. The problem is not with Mexico and not with China, the problem is with ourselves, we like to blame somebody else but the problem is really with ourselves and that’s a hard message for people to accept but it is. If we want to address the problem of those who have not been doing well, we will have to face that reality.
Interviewer: Very interesting Prof. Stiglitz. There are two remarkable points that come out of this. One is that there is something wrong with the American style of capitalism and the second thing is that there is a problem within the US. What are those problems you would really like to catch up on in? What is the thing that is affecting the US right now? And what is wrong with the American style of capitalism?
Stiglitz: Let us begin with the question about what’s wrong with American style of capitalism. Every successful economy is a mixture of government, the private sector and lots of other institutions. For instance, I think one of the real strengths of America is its universities. It is what attracts people to America, it is about innovation economy. Almost all our universities are not-for-profits, they are foundations. The other going universities, universities like the University of California and Berkley - a state university. There are people who have given money and they’re self-perpetuating, you can call them charities and they work very efficiently.
The really bad institutions are the poor private universities like Trump university who excel in only one thing, taking advantage of people who don’t know they are being taken advantage of, the vulnerable people. So, I am mentioning this because here is an important sector, a growing sector, education, where the for-profits are really terrible and we have good state universities and we have good not-for-profits. So, when we think about a successful economy, it’s a rich ecology of institutions. Unfortunately, beginning with president Reagen in 1980, there developed an ideology that the only good institutions were for private corporations. And they had few simple ideas; get rid of regulations, lower the tax rates at the top and the idea was that the lower tax rates would incentivise, the getting rid of regulations would increase the scope.
So that combined, the two incentives and scope of action, would mean that a faster-growing economy, more productive economy from which everybody would benefit. Well, a third of the century later we can declare that that experiment was an utter failure. Growth slowed but growth record went to relatively few people at the top, the upper one per cent or even more the upper the one-tenth of one per cent. Majority of Americans saw their income stagnate and those who didn’t have much education did really, really, badly. The result was the kind of a world where opportunity was being destroyed, the American dream became a myth, America became the country, amongst the advanced countries, among the worst where opportunity was at the lowest, that meant the income, the future prospect of young Americans was more dependent on the income and education of their parents almost of any of the other advanced countries. So, the contradiction between what we thought of ourselves and the reality, what the statistics said was just startling. I think we can say that America has been afflicted by an ideology that doesn’t work.
We saw the consequence, we saw how alleged instability, the irony was in the ideology was to say the government to get out of the way led to the largest innovation in the market in the history of mankind. 700 billion dollars bailed out at the banks where we gave to one company, AIG more money than we spent in years and years and years in welfare for ordinary Americans. We said we didn’t have enough money to help poor Americans but somehow in a moment, we found more than 150 billion dollars to help one company. So, you understand that not only was the system dysfunctional, not working, but it led to widespread feelings that the system was rigged, unfair and that, of course, gives rise to mistrust in government, in institutions and in societies that do not function very well.
Interviewer: Is it not what you are really describing, that is a huge reflection of what we are seeing within the United States today? The disenchantment, the inequality that actually exists. So that is how you are really electing your political leadership, which is effectively saying that we have to redraw the institutions or we have to redraw the very narrative that the country was based on for ages. And which has driven the US to be a power which was respected and which was like the innovative economy and so on and so forth.
Stiglitz: The election of 2016 was to me a very interesting election because the 2 candidates that did well and in sense were the anti-establishment candidates - on the Democratic side it was Bernie Sanders and on the Republican side it was Donald Trump. They both were saying that something was wrong with the system. There was a fundamental difference though, between the anti-establishment candidates. Trump was blaming the problems on others, on foreigners, on migrants and his response was swap the Chinese trade and it was the worst predicament ever. He didn’t know what was inside the agreement and when the negotiators began to negotiate. He didn’t have any coherent set of demands. He focused on bilateral trade deficit, every economist knows what matters motto of lateral trade deficit in other words if we change the trade between China and United States or Mexico and United States. We are not going to get jobs back in United States, it’s just going to move to some other country and so it's not going to solve the problem but he wanted to blame foreigners. Simplistic explanations, simplistic solutions.
Bernie Sanders is anti-establishment as well but he presented complaints that were, I thought were more coherent. He said that one of the reasons there is no hope is because young people can’t afford going to college, so he said let us do something to make college affordable. One of the reasons a lot of Americans land up in bankruptcy is hospital bills, medical bills. Let’s have a healthcare system like many of the Europeans have which delivers better healthcare at a fraction of the cost. We don’t have to have a banking system that makes its money by taking advantage of others. We ought to have a financial system that serves the society rather than one that exploits the society. It was interesting that Hillary Clinton articulated some of the same concerns, some of the same issues but she tended to be much more problematic when she made a proposal she costed out. She would make sure that the budget was feasible. That’s not what the voters wanted, they wanted someone to hear the concern, the voice… I hear you. And both Trump and Bernie Sanders conveyed that message.
Interviewer: I hear you saying something very interesting here and that is that voters are not really going to define who they are going to vote depending on the economic development rather is it the social issues which will define the future? Was it about that?
Stiglitz: Well when I say social issues, I think the better of saying it is the following for a third of the century Republicans had said that government is the problem, it’s not the solution. The result of that is that today most voters don’t expect the government to solve their problems. I don’t know where they are going to get the solution from, but they don’t expect the government to solve their problems. What they want is the government to be empathetic to be concerned, they are looking for somebody that understands and gives them dignity.
The essence was, Trump understood them. Of course, he didn’t care about them. Of course, he was only exploiting them, but he was exploiting them in a new way that they didn’t fully understand. And that is why he could get away with it. He could talk as if he cared about them, as if he cared about their problems and he had a solution. Because it wasn’t a solution but it was because he blamed the foreigners, if you just build a wall, their problems will be solved. That was nonsense!
Interviewer: Maybe we are at the beginning of a war cycle, maybe a trade war, maybe an actual war that can actually happen. Are we hitting into a point in time which was probably akin to the depression years or the years prior to that or I am just being too sceptical?
Stiglitz: There are grounds for worry. I think that one force that a number of people have identified as a source of concern is that it has often been the case that when you have a rising power and a declining power, the power that was at the top doesn’t like it, going in to second place. Those are often moments of conflict. One historian said that there have been 2 cases or 3 cases where that has not happened, they mentioned that when the US overtook the UK as the dominant country within the West that was done peacefully but more often there can be conflict. In my mind there doesn't have to be a conflict, I don’t think the average American, it doesn’t affect their standard of living if somebody else’s standard of living is going up. In fact there are mutual benefits, if somebody else’s standard of living is going up, they can buy more of our goods, advantages, mutual advantages, as we all get wealthier. So to me, it is not a zero sum game. One of the big mistakes of Trump shows is that he sees it as a zero sum game. So he sees the rise of China as causing all the problems in United States which is not true. It’s our problem, and our income is going up, it’s not like it is going down. It is just that all the increased income is going to few people at the top. There is no evidence that our growth rate is caused in any way by the increase of growth of China.
Interviewer: If we just dig deeper into this, when you talk about the things you have said like the US government or corporates, you are saying that the government needs to be empathetic towards people and then you’re saying they can’t solve problems, they have to create the conditions to solve the problems and if corporates are there, how would corporates solve the problem? Where do you see the whole capitalistic role of the large corporate or the enterprise in solving this?
Stiglitz: Well, I think what I see is the economy as consisting of these ecologies, mixture of government, NGOs, universities, co-operatives and the private sector and they each have a part to play. So, for instance, basic research is almost always done by the government and the big breakthrough is the discovery of the lasers, the internet, the browser, these are all either done or effectively financed by the government. The private sector is very good and well I could say they work to the last mile, taking these innovations to people and designing products that meet people’s needs, but it’s a very different role between basic research on which everything else depends and that last mile of making products that actually are what people really, really want. One also has to realise that the private sector sometimes has a proclivity for taking advantage of other people. You can make a lot of money in 2 ways; by innovating and by exploiting and often it is easier to make money by exploitation than by innovation. And one of the jobs of the government is to make sure that the rules of the game includes the private sector to do things, to do, serving humanity, they are serving the citizens rather than exploiting them and this is always going to be a big tension because the private sector is interested in profits. Period.
One of the other natural conflicts that come up is in paying taxes. The private sector, when it’s profitable, those profits are partly a reward for those who have undertaken risks, provided their capital. But some of the profits are actually in part, a result of the government creating an environment where they secure property rights, they educate the labour force, infrastructure. You can have brilliant people, say Steve Jobs if he had never come to United States and was living in Syria, would not have been able to do what he did in America. That had cost money, to create that environment which can nurture innovation. Somebody has to pay for the infrastructure, somebody has to pay for the enforcement rules and laws, somebody has to pay for the education of the young people.
Take Apple, the most profitable firm probably in the history of mankind, it uses the same ingenuity that it uses to create the iPhone to avoid paying taxes. After having viral earnings something called the double Dutch and other tax gimmicks so that it was paying a tax rate of 0.02%. Now you can say that I don’t know what a fair tax rate is, but 0.02% is not a fair tax rate and……
Interviewer: Everybody would accept that.
Stiglitz: I think everybody would accept that, except Steve Jobs or except Tim Cook. and their view is they are maximizing the wellbeing of the shareholders and of course themselves because they get paid and that’s where all the share price goes, so that’s a natural conflict and what I find so disturbing is these companies like Apple make a big pretence about being good corporate citizens. I say the first aspect of being a good corporate citizen is paying your taxes.
Interviewer: Very well said! But you also made a very powerful remark in between that it is the basic research which is done at universities and you have talked about IP at certain points in time. How do you look at intellectual property and protection of intellectual property? How would you look at patenting intellectual property and the system that actually exists?
Stiglitz: So academically it is called national innovation systems. Countries have to create a national innovation system. I’ll describe it like a portfolio and a mixture and on the one hand you need basic research provided by the government. It’s even important for countries like India, because you have to have an understanding of the basic research if you know are really able to take ideas that are on the forefront and translate them into products. Banks can be viewed as an example of a prize system. You give prizes, a prize which is a monopoly power, a temporary monopoly power, to whoever discovers the idea first. Well it has been a lot of research, even practice of saying there are other kind of prizes, you can give a cash prize. Historically there have been number of instances where governments or societies have provided a prize for the first person who is said to have made a mechanical chimney sweep so you didn’t need the boys going down in the chimneys, imagine what it does to the lungs? That was a prize that they did that. What did they do with the prize is rather apparent. The point was they wanted to be sure that the moment they discovered this mechanical chimney sweep, it was disseminated as widely as possible that everybody would make use of it so that little kids didn’t die in chimney sweeps or had their health impaired.
Same has been the case in some category of innovations, those concerning drugs. When we discovered the drugs, medicines that deal with HIV, we wanted to make sure that everyone who has HIV lives but if you left that to the drug companies they will charge you a very high price and if you’re too poor, you die. Or they can charge governments a very high price and that would mean the government will have less revenue to spend on other important areas of health or even other areas of development. So especially in the area of health a price system that is not a patent system, not a monopoly is particularly important.
Now to come back to the intellectual property regime it gives a temporary monopoly that introduces an inefficiency. The cost of another person using a piece of knowledge is zero. When I know something and I tell you that knowledge, I still know it but now you can use that knowledge for whatever beneficial purposes, so we would like and practice knowledge to be disseminated as widely as possible. Restricting the use of knowledge is inefficient. So the patent system creates a tension between the short run efficiency of the economy and the long run dynamism of the economy because the patent system is supposed to incentivise more innovation. But when you don’t have a well-designed, and our patent system is not well designed, it can actually impede innovation.
In many areas of modern innovation, there are many patents involved and there is what we call the patent thicket. If I come up with an idea what I may find that I can’t put into practice without I pay off dozens of patent holders. It’s a lot like maybe to make a chip we may require thousands of patents and so that impedes innovation and anyone of these guys can block the whole thing by saying you can’t use my idea. We call that a hold up and there are lots of holdups. Famous case was where Blackberry was sued and basically told if you don’t pay us this ransom, you’re shut down. I was involved in the case of a suit by a very little company and it said that all the advanced processors made by Intel intruded on their patent and that means Apple will be shut down, the advanced products of HP would be shut down, many medical devices would be shut down unless you paid a ransom. It turned out that in the end there was a finding that it didn’t do that, I mean that the patent was invalid but at the moment nobody really knew that I had the easy task of saying that it would be disadvantageous to American Welfare, they have already shut down. So that patent system can really intrude an innovation. In fact, historically this has been the case, the Wright brothers had a patent on the airplane, key part of the airplane but the patent officers gave a patent to somebody else as well and the development of the airplane in the United States was impeded as a result. And it wasn’t till World War 1 when the government said that it’s too important for us to have an airplane so we could fight World War 1. The patent system really acted as an impediment. So the bottom line is a well-designed patent system can be an important part of a national innovation system in creating certain hassle, has a limited but an important role and incentivising innovation but if you don’t have a well-defined intellectual property regime it can really impede innovation.
One of the problems that countries like India face is that the US trade office which represents the interest of the American companies, not of the American people, often tries to force our intellectual property regime on other countries including India and American companies often try to extend the life of a patent by all kinds of mechanisms which are collectively called evergreening. And the US likes that, but as America’s public policy, that’s really bad public policy and it is important for countries like India to realise that and say no we won’t have any part of that.
Interviewer: Well, very interesting. So, is open source going to be the solution or it has to be because there would be many corporates who would come back very heavily on this kind of an argument. That it is an infringing on our profitability, it is actually infringing of our livelihood so on and so forth. So those kinds of arguments will actually come forth.
Stiglitz: What I said before is needed is a portfolio, open sources are an important part but it can’t be an important part. It has actually proven to have a more compliant role in other areas more recently. But no, it’s not going to replace intellectual property but the argument that if India or small African countries don’t recognize intellectual property of American pharmaceutical companies that will destroy innovation is absurd. The American companies do not make their calculations of how much they spend on innovation and the miniscule amount they are going to get from the African countries or from India. And they said, say in the case of drugs that you can have compulsory licenses. And you should use that flexibility, you should use those compulsory licenses when they are charging ten thousand dollars for a drug that costs a hundred dollars. So it seems to me there is absolutely nothing wrong with doing that, it’s just one way of looking at it is that every dollar more you give the drug company, you’re one dollar less that you have to spend on the health of Indian or African countries. Except for huge transfers, it will not affect the pace of innovation. The intellectual property regime itself should have made it clear that you can’t engage in evergreening.
To me in the area of drugs in the United States, we reached an accord between the generics and the big pharma and that resulted in the generics having over 80 percent of the market. And yeah America remains very innovative. So this is just nonsense. And finally, remember the point that most of the basic research is supported by the government. So that is the driver of whether we have real innovation or not.
Interviewer: How do you foresee India in the coming years?
Stiglitz: Well, I am very optimistic about India. I think it has been growing very strongly. It has some of the strong technologies, well-educated people at the top. You might say overall it’s record in recent years has been very impressive like growing at 5,6,7,8,9% and I see no reason why that shouldn’t continue. But I see three problems, one is a political one, India was founded as a secular state, it was founded as an inclusive country bringing together Muslims and Hindus with a commitment to help those at the bottom and to create greater equality within the country. I worry that the current government is leading to divisiveness. It is leading to infringements on basic rights or encouraging others to infringe on basic rights. It is part of a strand that you see in so many countries including the United States, Turkey… the growth of leaders who seem un-attuned to fundamental democratic values. So, that’s the first and probably the most important danger. The second is the challenge of jobs. There are large number of people entering the job market every year. And while India has been successful in creating a lot of jobs in the market economy, the gap between the new entrants and new jobs is huge and with advances in artificial intelligence, robotisation and improvement of productivity in many sectors in manufacturing and many other sectors even in IT, I worry that the gap between jobs available and jobs being sought would increase to a point where it would be politically untenable. And third is the agriculture sector is not keeping up with the rest of the economy. That’s often the case at the stage of development. But that would be a bit worrisome because productivity in agriculture, remains remarkably below in East Asia. So there is ample room for increases in productivity in the rural sector. But even more disturbing is that in many parts of the country the growth areas have been at the expense of the environment. Groundwater at some places is being relied upon and diminishing very rapidly. And there are various other environmental issues that raise the question is that even that low rate of growth may not sustainable. Now, what does that mean? It means that there will be pressure for more people to leave the rural sector and move to the urban sector. And there will be more demands in the urban sector for jobs and not enough job creation. So these three issues I see as very much related and if they are not solved, the politics in India may get ugly. And to me it is important that all three of these issues be addressed.
Interviewer: Am I hearing you say that US and India are same in terms of how politics is defining it?
Stiglitz: There are similarities, there are global similarities that we both have failed to create inclusive growth. We have grown but the benefits of that growth have not been equally shared and we are seeing in United States the consequences of the induction of Donald Trump who is not committed to democratic institutions, in fact, has been undermining our institutions, weakening the institutions of the state which you see. Over and over again criticizing the judiciary, attacking the media which I feel is a very important part of our democracy, probably because it’s a part of our system of checks and balances. It creates an alternative reality, undermines discourse, exploits divisions and makes those divisions larger making it more, more difficult for us to work together as a country. So, I think there are similarities both in the underlying economics and in the political consequences of those underlying economics.
Interviewer: And last question but not the least, if you really have to give a suggestion to India, what is the one thing that you would like India to do to really solve the problem that it actually faces? To really solve the problem of many jobs or the issues of environment, making it a much more just and humane society?
Stiglitz: I think that one has to recognize these as problems first. One has to recognize that there isn’t going to be any single solution that is going to take a comprehensive agenda. That there are some things that can help all of them together. For instance, if you impose a carbon tax that simultaneously raises revenues that you can use to promote education and health or development, infrastructure. Secondly, it provides incentives for a better environment, to make sure that you don’t have pollution in air or carbon dioxide or greenhouse gases. And thirdly, it can stimulate the man because people will have to retrofit their houses, their establishments, their firms to reflect the new relative prices the new economic realities and so it does all the things. It promotes growth, raises revenue and promotes a better environment. So those are the things to look for where you get synergies. I think that well-designed policies that promote a more equal society can do the same. They create demands because when you redistribute from top to the bottom, those at the bottom spend more, it increases demand and creates a more equal society and that helps in the reinvention of economic growth. I think unfortunately there is no magic bullet here. One has to first recognize the magnitude of the challenge and not shy away from it and then say can we find a common ground of a few things that have effects in addressing multiple problems simultaneously.
Interviewer: And but then I believe you still believe and we will agree on this that it’s going to be capitalism and it’s going to be the democracy that’s going to solve the problems in the world in the long run.
Stiglitz: It’s a 21st-century market economy in which government plays an important role, civil societies and non-profit institutions play role and market forces, capitalism which is what you call it plays a role. But it’s not going to be any one of these institutions on their own that can solve it, they are too big. And each of them, each of these institutions has their limits. That we have seen firms on their own are more interested in exploitation than they are in development. We know that government has some strengths but in general, in most countries is not able to undertake the multiplicity of the activities related to development. It’s the ecology, it’s the whole system and I think it’s wrong to say that the market is the solution, capitalism is the solution. 21st-century capitalism is a capitalism in which the market and civil societies, NGOs all play an important role.
Interviewer: Awesome! Professor Stiglitz, it was such an honour to talk to you and thanks a lot for joining us for this interaction.
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