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  • Joseph Stiglitz

Time is up for neoliberals

Democracy requires a new, progressive capitalism.


Joseph Stiglitz is a professor of economics at Columbia University and winner of the 2001 Nobel Memorial Prize in economics. His newest book is “The Road to Freedom: Economics and the Good Society.


Amid another election season, our impulse to debate American democracy through a single political lens is understandable. But we’d be better served considering a second closely related question too: Which economic system serves the most people?


On one side of the economic debate are those who believe in largely unfettered markets, in which companies are allowed to agglomerate market power or pollute or exploit. They believe firms should maximize shareholder value, doing whatever they can get away with, because bigger profits serve the common good.


The most famous 20th-century proponents of this low-tax/low-regulation shareholder-centric economy, often referred to as neoliberalism, are Milton Friedman and Friedrich Hayek. These Nobel Prize-winning economists took the idea beyond the economy, claiming this kind of economic system was necessary to achieve political freedom.


They worried about the growth of government in the aftermath of the Great Depression, when under the influence of John Maynard Keynes, the state was taking on new responsibilities to stabilize the economy. In “Capitalism and Freedom,” Friedman argued that “free markets” were indispensable to ensure political freedom. In Hayek’s words, government overreach would lead us down “The Road to Serfdom.”


We’ve now had four decades of the neoliberal “experiment,” beginning with Ronald Reagan and Margaret Thatcher. The results are clear. Neoliberalism expanded the freedom of corporations and billionaires to do as they will and amass huge fortunes, but it also exacted a steep price: the well-being and freedom of the rest of society.


Neoliberals’ political analysis was even worse than their economics, with perhaps even graver consequences. Friedman and his acolytes failed to understand an essential feature of freedom: that there are two kinds, positive and negative; freedom to do and freedom from harm. “Free markets” alone fail to provide economic stability or security against the economic vagaries they create, let alone allow large fractions of the population to live up to their potential. Government is needed to deliver both. In doing so, government expands freedom in multiple ways.


The road to authoritarianism is not paved by government doing too much but too little.


The surge in support for populism, especially of the ugly nationalist variety, has many causes. It would be overly simplistic to ascribe it just to economics. Still, it is no coincidence that populist nationalism is a graver threat in countries such as Israel, the Philippines and the United States than in Sweden, Norway and Denmark, where high-quality free public education, strong unemployment benefits and robust public health care free their citizens from the common American anxieties over how to pay for their children’s education or their medical bills.


Discontent festers in places facing unaddressed economic stresses, where people feel a loss of control over their destinies; where too little is done to address unemployment, economic insecurity and inequality. This provides a fertile field for populist demagogues — who are in ample supply everywhere. In the United States, this has given us Donald Trump.


We care about freedom from hunger, unemployment and poverty — and, as FDR emphasized, freedom from fear. People with just enough to get by don’t have freedom — they do what they must to survive. And we need to focus on giving more people the freedom to live up to their potential, to flourish and to be creative. An agenda that would increase the number of children growing up in poverty or parents worrying about how they are going to pay for health care — necessary for the most basic freedom, the freedom to live — is not a freedom agenda.


Champions of the neoliberal order, moreover, too often fail to recognize that one person’s freedom is another’s unfreedom — or, as Isaiah Berlin put it, freedom for the wolves has often meant death to the sheep. Freedom to carry a gun may mean death to those who are gunned down in the mass killings that have become an almost daily occurrence in the United States. Freedom not to be vaccinated or wear masks may mean others lose the freedom to live.


There are trade-offs, and trade-offs are the bread and butter of economics. The climate crisis shows that we have not gone far enough in regulating pollution; giving more freedom to corporations to pollute reduces the freedom of the rest of us to live a healthy life — and in the case of those with asthma, even the freedom to live. Freeing bankers from what they claimed to be excessively burdensome regulations put the rest of us at risk of a downturn potentially as bad as the Great Depression of the 1930s when the banking system imploded in 2008. This forced society to provide banks hundreds of billions of dollars in the largest bailout ever. The rest of society faced a reduction in their freedoms in so many ways — including the freedom from the fear of losing one’s house, one’s job and, with that, one’s health insurance.


Sometimes, how these trade-offs should be made is obvious: We should curtail corporations’ freedom to exploit workers, consumers and communities. Sometimes the trade-offs are more complex; how to assess them is more difficult. But just because they’re difficult is no reason to shirk addressing them, to pretend that they don’t exist.


Some cases of unfreedom can benefit a society as a whole, expanding the freedom of all, or at least most, citizens. Stop lights — which curtail my freedom to cross the intersection — provide a good example. Without them, there would be gridlock. Their intrusion on my freedom enhances that of all of us — in a fundamental sense, even my freedom.


This reasoning applies broadly. Russia’s invasion of Ukraine has reminded us that if we are to be free from the fear of harm coming from outside, we need defense, and that has to be paid for. We also need money to make the necessary social investments for a 21st-century economy — in basic research and technology, in infrastructure, in education, and in health. (Much of the country’s success evolves from initial research done at our universities, all either state-supported or nonprofits.) This all requires tax revenue. And taxation, as we know, requires compulsion to prevent the free-riding by some on the contributions of others.


Neoliberal capitalism has thus failed in its own economic terms: It has not delivered growth, let alone shared prosperity. But it has also failed in its promise of putting us on a secure road to democracy and freedom, and it has instead set us on a populist route raising the prospects of a 21st-century fascism. These would-be authoritarian populists reduce our freedom while failing to deliver on their promises, as the form of crony capitalism offered by Trump illustrates. The elimination of Obamacare or a tax cut for billionaires and corporations funded in part by a tax increase for the rest of us would decrease the security, well-being and freedom of ordinary Americans. Trump’s first administration gives a glimmer of what a second might look like.


There is an alternative. A 21st-century economy can only be managed through decentralization, entailing a rich set of institutions — from profit-making firms to cooperatives, unions, an engaged civil society, nonprofits and public institutions. I call this new set of economic arrangements “progressive capitalism.” Central are government regulations and public investments, financed by taxation. Progressive capitalism is an economic system that will not only lead to greater productivity, prosperity and equality but also help set all of us on a road to greater freedoms.

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