Joe Stiglitz certainly knows how to make a point, as he did to Fairfax Media in calling our budget changes to health and education “absurd” and a “crime”. He did this on the basis of the relative performance of our system as against the USA. In health, for example, America spends twice what we do as a percentage of GDP for three years shorter life expectancy.
In his Fairfax article he claims:
Two big lessons of economic research over the past 10 years are that inequality is not the result of inexorable laws of economics but rather of policy; and that countries that adopt policies that lead to high inequality pay a high price – inequality not only leads to a divided society and undermines democracy, but it weakens economic performance.
In this he explicitly diverges from Piketty, as he said in conversation with The Conversation:
I think he [Piketty] is absolutely right to emphasise the increase in inequality that has occurred. I think he is absolutely right in his key idea that the period from World War II to 1980 was unusual in the history of capitalism, capitalism has typically been associated with high levels of inequality.
What I differ with is I don’t think it is the inexorable result of economic laws, of economic forces. It is a result of policies and politics, it is the result of rent-seeking behaviour, which the laws and regulations help create or don’t do enough to counter. There is almost a tone in his book that this is just the way of capitalism, and my view is that the kind of inequality that we’ve seen is really a result of the fact that we don’t have a well-functioning market economy.
So to Stiglitz markets are a human artefact and need regulation, and the nature of laws and regulations governing markets matters. As do state provisions and interventions.
Joe Hockey defended his budget saying you can’t expect equality of outcomes, only opportunities. Stiglitz has a more nuanced and interactive view:
While there are many dimensions to growing inequality, perhaps the most invidious is inequality of opportunity. Western democracies pride themselves in providing a level playing field, in which all who would work hard can prosper. But it’s a myth, and nowhere more so than in the US, in spite of the rhetoric about the American dream. The life prospects of a young American are more dependent on the income and education of his parents than is the case in other advanced countries. And there is a vicious circle: inequality of outcomes leads to inequality of opportunity which leads to further inequalities of outcome. The prospect for America’s future is thus still more inequality of outcomes and opportunity.
Stiglitz says that only about 8% of those in the bottom half of the income scale get a college education. He says our Australia’s HECS system works and is the envy of the rest of the world.
But Australia is neither the best nor the worst in terms of equality. In his article in The Guardian he compares our Gini coefficient unfavourably with that of Norway, a resource-rich country that has done a particularly good job of managing its wealth for the benefit of all citizens. He links to the OECDiLibrary. I can make more sense of the CIA Factbook which places Norway on 25 and Australia on 30.3, close to the European Union average of 30.6. The USA looks third world at 45.
On the one hand we are the best in the Anglosphere, with Canada on 32.1, the UK on 32.3 and New Zealand on 36.2. On the other, we are worse than half of Europe.
A third area where we do better is in “basic welfare support and systems of social protection.” In America with
almost one out of four children living in poverty, and with deficient public support, the prospects for their future are not rosy – and this will inevitably translate into weaker overall economic performance for the country.
In Stiglitz’s ideal world one’s opportunities are not constrained by the circumstances of birth. Society should help individuals to become whatever they can be, which is in turn better for society and the economy. In Hockey’s world society gets you to a mythical starting line from which reward is dependent on individual effort. Social support is not universal. The social safety net has holes in it through which fall the unworthy.
I sense that for Stiglitz freedom and equality are integrated through a sense of justice, as for John Rawls. Full individuality is attained in a cooperative and mutually supportive social context. This contrasts with the individualistic competitiveness which seems a leading feature of Hockey’s world.
One day listening to Radio National I did hear about research which purported to show that societies with a Gini coefficient of 33 or more tended to become socially dysfunctional and corrosive. Unfortunately I did not get a name or a link. It seems to me, however, that the sense of outrage felt towards Hockey’s budget stems from the sense that it is taking us as a society into territory where we feel that the social contract between the people and the state has been breached.