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The Price of Inequality

Some days ago I had the chance to attend Prof. Dr. Joseph Stigltz’s present­a­tion of his latest best-selling book “The Price of Inequal­ity”. The event took place at the Ger­man Coun­cil on For­eign Rela­tions in Berlin.

Who is he?

Let me intro­duce you shortly to the author before get­ting to the gist of the present­a­tion. He was born in the USA and is one of the world’s the most pop­u­lar eco­nom­ists, apart from teach­ing at Columbia Uni­ver­sity. He is a recip­i­ent of the Nobel Memorial Prize in Eco­nomic Sci­ences (2001) and the John Bates Clark Medal (1979). Even though he was a senior vice pres­id­ent and chief eco­nom­ist of the World Bank, he keeps a crit­ical view of the man­age­ment of glob­al­iz­a­tion, free-market eco­nom­ists and some inter­na­tional insti­tu­tions like the Inter­na­tional Mon­et­ary Fund and the World Bank.

The book

I can­not use another quote than this: “The top 1% of Americans control 40% of the nation’s wealth”. As he com­ments, those at the top enjoy the best health care, edu­ca­tion, and bene­fits of wealth, while they fail to real­ize that “their fate is bound up with how the other 99 per­cent live.”

Not much of a pos­it­ive sig­nal for the major­ity of the pop­u­la­tion. He describes that today’s divided soci­ety is endan­ger­ing the future of the next gen­er­a­tions. Stat­ist­ic­ally speak­ing, the level of inequal­ity has risen which can be con­firmed by the amount of wealth and total income gathered at the hands of this minor­ity, 30% and 25 % respect­ively. Last but not least, another reason why inequal­ity is on rise is due to lack of oppor­tun­it­ies. Dur­ing the 50s the USA used to be the coun­try where every­one could chase and real­ize their dreams. The Amer­ican dream seems to be fad­ing away. Just think about the per­cent­age of stu­dents who have access to higher edu­ca­tion, not to men­tion access to the top-ranked uni­ver­sit­ies and insti­tu­tions. Prof. Stiglitz men­tioned, and I totally agree, that young people are in most cases depend­ent on their par­ents’ back­ground and wealth. For instance a daugh­ter com­ing from a well settled fam­ily is more likely to enter MIT than another one com­ing from the lower social class.

The same pat­tern applies for the social com­mod­ity of pub­lic health. The fact that the aver­age life expect­ancy in the US has dropped by 4 years under­lines a grow­ing mal­func­tion. In good and pros­per­ous times humans live longer, because they enjoy the high qual­ity of social wel­fare, includ­ing pub­lic health­care. He also marks the fact that this 1% of the priv­ileged pop­u­la­tion does not really need pub­lic com­mod­it­ies. What they do care about is a power­ful state and what they fear is any poten­tial threat to their wealth accu­mu­la­tion circle.

Later in the present­a­tion he referred to some coun­tries that have reversed the pro­cess of grow­ing inequal­ity, such as the Scand­inavian coun­tries and Brazil. These coun­tries con­tinue to pre­serve a strong pub­lic wel­fare sys­tem while provid­ing oppor­tun­it­ies to their cit­izens. As for the host­ing coun­try, Ger­many, he said that it is mov­ing away from the “equal­ity model”, in com­par­ison to 30 years ago.

The fin­an­cial crisis was dis­cussed, too, since it has widened the gap between the social lay­ers. Accord­ing to Stiglitz, someone should earn as much money as their respect­ive con­tri­bu­tion to the soci­ety. Some­thing that did not exactly hap­pen with the bankers, who earned and are earn­ing money from bonuses just because they were prof­it­eer­ing. In addi­tion to this he named “the trickle down the­ory” a big lie. Why? Simply enough because the lead­ing 1% is con­trolling the amount of money “trick­ling down” to the remain­ing 99%.

The causes of inequality:

1) “Rent seeking”

The reason, accord­ing to Stiglitz that our eco­nomy is being over­whelmed by polit­ic­ally engin­eered mar­ket advantages—special deals that he labels with a term famil­iar to eco­nom­ists: “rent-seeking.” By this, he means eco­nomic returns above nor­mal mar­ket levels that are derived from favor­able polit­ical treat­ment. He also chron­icled the blatant tax and spend­ing giveaways to big agri­cul­ture, big energy, drug trade and even stu­dents’ loans. Yet he also poin­tedly argues that much of the rent-seeking that plagues our eco­nomy takes a more subtle form, “neg­at­ive extern­al­it­ies,” or costs those eco­nomic pro­du­cers impose on soci­ety for which they don’t pay. As such no real wealth is created.

2) Bank­ruptcy law pro­vi­sions (law terminology)

3) Decon­struc­tion of the middle class

The middle class and tra­di­tion­ally the wider social layer in the West­ern soci­et­ies is pay­ing a high price. It is frus­trat­ing, not to men­tion unac­cept­able, to hear some people sup­port­ing that the middle class should not com­plain since it was “cre­ated” thanks to a wealthy minor­ity that decided to through some money to the pop­u­la­tion and take advant­age of the bene­fits. In other words, the middle-low class is work­ing harder and pro­duces wealth, the biggest amount of which is going to the pock­ets of the “lead­ers”. They give jobs, they define wages.

Clos­ing up

Stiglitz pas­sion­ately defen­ded eco­nomic the­or­ies by passing the buck to polit­ics. “The more eco­nomic instabil­ity, the more polit­ical tur­bu­lences”, he argues. He also under­lined the need for a stronger reg­u­lat­ory sys­tem and thus some restric­tion to free mar­ket cap­it­al­ism. Even the IMF itself claimed the neces­sity of rules in cap­it­al­ism. He added that glob­al­iz­a­tion is bet­ter under­stood now than in 90s, which shall be a good begin­ning for the writ­ing of a new brighter future.

To the tricky ques­tion “Is there any hope?” Mr Stiglitz expressed him­self pos­it­ively yet dip­lo­mat­ic­ally, say­ing that inequal­ity can be tackled with sacrifices.

The glass is half empty or half full? I am leav­ing it up to you.

–  Styliani Kampani

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