Joseph Stiglitz: ‘We know where fascism led last time’

When Joseph Stiglitz talks, the left listens. The Nobel laureate has advised
multiple Democratic presidents and the World Bank, where he worked as
chief economist and senior vice president. He’s long been a leading critic
of the liberal leanings that have dominated the West’s economic policy for
four decades. So when we meet in The Spectator’s office, I ask him if the
Labour party has sought his advice. It wouldn’t be unthinkable.
‘I just met with, in a TV show, one of the Labour shadow ministers. We
had a good discussion,’ he says, smiling. But the New Keynesian economist
is in the UK for four days, and his new book, The Road to Freedom, is
keeping him busy. No summits on ‘securonomics’ this time.
The aim of the book is to reclaim the word ‘freedom’ from the economic
right, which Stiglitz believes has forgotten about trade-offs. The book’s
thesis is that ‘one person’s freedom can often amount to another person’s
unfreedom’. Once you accept this premise, the Columbia professor
argues, the case for ‘coercion’ – and a bigger state – becomes much more
palatable.
‘The idea was that if you lift up the top, everybody would benefit. That
clearly didn’t work’
‘Traffic lights are a kind of coercion,’ Stiglitz, 81, says. ‘In a place like New
York or London, if you didn’t have traffic lights, you would have gridlock
and you couldn’t go anyway. So by having this little coercion that you’re
not allowed to go, everybody has more freedom.’ It’s the same example
he uses at the start of his book: a ‘metaphor’, he says, for how in ‘lots of
other areas where if we co-operate, we expand what we can do’.
It’s a curious critique, not least because free-market economics is about
voluntary co-operation (Adam Smith’s butcher and baker famously come
together, voluntarily and out of their own interest, to make the world spin
round). But what’s notable is what’s lacking: any kind of credit given to the
achievements of the free enterprise system. The unprecedented fall in
world poverty in the past 20 years, the decade added to life expectancy in
the past 30 years: are these signs that economic liberalism has failed?
‘I think it has,’ Stiglitz says. ‘A lot of the reduction in poverty globally
occurred in China, and China didn’t follow the neo-liberal doctrines.’ It
was ‘on their own terms, which included capital controls, strong industrial
policies, a lot of policies that were the antithesis of neoliberalism’.
Strip out China, however, and the fall in world poverty in recent decades is
still extraordinary. But it’s the inequality, especially in western countries,
that Stiglitz takes issue with. ‘The benefits of growth that occurred went to
the top; the middle and the bottom stagnated and some of them even
went down. Trickle-down economics didn’t work: the idea was that if you
lift up the top, everybody would benefit. That clearly didn’t work.’
His dismissal of ‘trickle-down economics’ reminds me of a passage in his
book. ‘Many on the right,’ he writes, ‘would claim that such taxation –
even with representation – is tyranny.’ What serious politician or
economic thinker says this? ‘The extremists on the right,’ he responds, ‘in
the House of Representatives, in the Republican party, call themselves the
Freedom Caucus, and they’ve been advocating a reduction of taxes.’ They
want tax cuts, but is that the same as saying tax is tyranny? ‘I’m not saying
that anybody said that all taxation is tyranny,’ he concedes.
Like ‘trickle-down economics’, the idea that tax is tyranny seems to be a
phrase that’s attributed to right-wing thinkers rather than advocated by
them. Still, this group is the biggest bogeyman in The Road to Freedom. It
seems like the left’s response to ‘the blob’: ‘the right’ is a term he uses to
encompass every political philosophy that might have reservations about
an ever-growing state. Anarchists are lumped in with One Nation Tories;
classical liberals, neoliberals, libertarians, social conservatives, liberal
conservatives and even centrists are described as if they are one
homogeneous bloc.
‘When you write a book you want to achieve some clarity,’ he says, ‘and
that [out] of necessity entails some simplification. I try to highlight, maybe
too much in footnotes and less in text, some of the complexity of these
and the fact that there are divisions among what I call “the right” on these
issues. But I think the broad landscape that I try to paint [is] that
neoliberalism… was about deregulating, about lowering taxes.’
What’s the alternative he’s proposing? ‘Progressive capitalism’ is his
answer: ‘something along the lines of a rejuvenated European social
democracy… a 21st-century version of social democracy or of a
Scandinavian welfare state.’
And what, specifically, does he think Sweden, Denmark or Norway do
differently that countries like America should emulate? ‘What I admire is
how they have gone to try to create a more inclusive society,’ Stiglitz says.
‘Investments in children, investments in preschool education, social
protection… they were much more aware of the need to have active
labour market policies and social protection to make it politically
acceptable and to get efficient use of the labour force so that they don’t
remain underemployed. We in the United States didn’t do that.’
But are these countries rejecting what he calls ‘neoliberalism’, or simply
using the fruits of capitalism slightly differently? Sweden has no
formalised minimum wage and has abolished inheritance tax. Its
education is indeed world-renowned, but it allows profit–seeking
independent schools in the state sector. The Heritage Foundation’s Index
of Economic Freedom ranks Denmark, Sweden and Norway the seventh,
ninth and tenth most free countries, respectively. The United States
comes 25th on the list.
Is Scandinavia really a good example of a rejection of market policies?
‘When I was writing the book, I was sensitive to all the things you [are]
saying. They haven’t fully adopted the policies I would have advocated,’
he says. ‘Norway has a very active industrial policy, and part of the
doctrines of neoliberalism is that government shouldn’t be directing the
economy. The government effectively owns the most important industry,
Statoil, or Equinor as it is called today… Sweden has a very high carbon
tax, so they are intervening in the market. It’s not a free-for-all.’
What makes Stiglitz so convinced that a bigger state will lead to the
outcomes he desires? Surely the bigger state could lead to a Chinese-style
autocracy rather than to a Swedish utopia? What happens if you grow the
size and powers of the state, and then hand that over to somebody like
Donald Trump?
He suddenly turns very serious. ‘I worry about everything you said,’ he
says. ‘Anybody who’s been through a Trump administration worries about
what you exactly said. It could go the other way. But on the other hand, if
we don’t do enough for ordinary citizens there is going to be a backlash.’
A more interventionist state, he says, is how you avoid electing Trump in
the first place. ‘We won’t achieve that inclusive society without more
government action.’ It’s about how to ‘deal with the dangers that you
present: money in politics, transparency, trying to build institutions,
checks and balances within government and within our society. All human
institutions are fallible and we have to recognise that. I’m not Pollyanna
on this, I recognise the dangers, but I recognise even more the dangers of
not doing enough.’
Stiglitz suggests that communism and Reagan–Thatcherism are at
opposite ends of the spectrums more than once in his book. ‘Communism
went too far in one direction,’ he writes, ‘Reagan-Thatcherism went too
far in the other.’ Does he really think this is a fair and equal comparison? ‘I
never said they were equal and opposite,’ he says. ‘But they were at the
end of the spectrum that we’ve experienced… We could go further. I don’t
know where [Javier] Milei is going to go in Argentina. He may go further
than Reagan and Thatcher.’
Maybe so, but is it really possible to compare liberal supply-side reforms
with a system that killed an estimated 100 million people? ‘We haven’t
seen yet, fortunately, where this could go,’ Stiglitz says. ‘We know where
fascism led last time.’ So Thatcherism is fascism? ‘I think we’re on that
road, yes I do,’ he says. ‘But we aren’t there. The book is written because I
wanted people to be aware of the road that we were on.’
Is it possible that we’re ‘not there yet’ because the Thatcher-Reagan path
is not an extension of fascism but its antithesis? Like communism, fascism
led to atrocities, while neoliberalism led to unprecedented prosperity?
‘The fact is that, in the advanced countries, neoliberalism failed,’ he says.
‘Growth slowed, and what growth occurred went to the top and that has
provided the fertile field for populism and given rise to Trumpism.’
It’s not just America where Stiglitz wants more to be done. The Labour
party may not (yet) be formally asking for his advice, but he has some to
offer anyway: ‘Take stronger actions than you’ve promised so far… if you
borrow money for good investments and you persuade the market that
you are actually using that money… if you were a firm and you get returns
well in excess of what your cost of capital [is], it makes the firm balance
sheet go up and it makes them better off. And the same is true for a
country.’
This was the gamble made by a recent prime minister who went further
than she promised and thought the markets would respond well to her
massive borrowing request. But Liz Truss’s problem, he says, was that
‘borrowing for an unfunded tax cut is, especially for the top, not a good
investment’. Of course she was also borrowing for what, at the time, was
thought to be a £100 billion energy subsidy – a glitch Stiglitz attributes to a
‘poor regulatory system for energy pricing’.
His advice, in short, is that Labour should break free of neoliberal notions
like the need to balance the books; to continue on the path of the past
four decades is to fall behind the times. The United States ‘is moving away
from neoliberalism’, he says, ‘and I would say the whole world [too]’. His
comments certainly feel on trend, as the pandemic ushered in a new era
of growing government. But at what cost will these changes come?