Joseph Stiglitz is a Nobel (Riksbank) prize winner in economics and former chief economist at the World Bank, as well as an adviser to the leftist Labour leadership in the UK. He stands to the left in the spectrum of mainstream economics.
He has just published a new book called People, Power, and Profits: Progressive Capitalism for an Age of Discontent, in which he proclaims that “We can save our broken economic system from itself.” He is very concerned about the rising inequality of incomes and wealth in the major economies, especially in the US. “Some 90 percent have seen their incomes stagnate or decline in the past 30 years. This is not surprising, given that the United States has the highest level of inequality among the advanced countries and one of the lowest levels of opportunity — with the fortunes of young Americans more dependent on the income and education of their parents than elsewhere.”
You see, capitalism used to be ‘progressive’ in that it developed the economy and raised the human condition, using scientific knowledge and innovation; and it worked well, with the rule of law and democratic checks on ‘excesses’. But then in the 1980s, Ronald Reagan and Margaret Thatcher came along and changed the rules, deregulating the economy – and now Trump is breaking down the checks and balances. So the progressive capitalism of the 1960s has been destroyed. By relying on uncontrolled markets, exploitation and inequality has run riot.
“The result is an economy with more exploitation — whether it’s abusive practices in the financial sector or the technology sector using our own data to take advantage of us at the cost of our privacy. The weakening of antitrust enforcement, and the failure of regulation to keep up with changes in our economy and the innovations in creating and leveraging market power, meant that markets became more concentrated and less competitive.” (Stiglitz)
What is Stiglitz’s solution? “Things don’t have to be that way. There is an alternative: progressive capitalism. Progressive capitalism is not an oxymoron; we can indeed channel the power of the market to serve society.” You see, it is not capitalism that is the problem but vested interests, especially among monopolists and bankers. The answer is to return to the days of managed capitalism that Stiglitz believes existed in the golden age of the 1950s and 1960s.
How are we to return to the golden age of progressive capitalism? On Democracy Now, the online broadcaster, Stiglitz was asked in an interview: “should it be progressive capitalism or workers power?” He replied, “the market is going to have to play an important role. So, that’s why I wanted to use the word “capitalism.” But I wanted to signal that the form of capitalism that we’ve seen over the last 40 years has not been working for most people. And that’s why I talk about people. We have to have progressive capitalism. We have to tame capitalism and redirect capitalism so it serves our society. You know, people are not supposed to serve the economy; the economy is supposed to serve our people”. When he was asked “Hasn’t capitalism always done that (ie serve the rich and the monopolies rather than the poor and workers)?”, he responded “Not to the extent that it has.”
Stiglitz’s views are either pure naivety or clever sophistry –or maybe both. Does he really think that there was a period when capitalism benefited both workers and corporations; rich and poor? The ‘golden age’ after 1945 up to the late 1960s was the exception in advanced capitalist economies and then only for those economies, not for Latin America, Asia, the Middle East and Africa. For the greater part of the globe, those decades were ones of dire poverty and a battle against imperialist exploitation.
Anyway, it is a myth that in the 1950s and 1960s that everybody gained from ‘progressive’ capitalism in the West. And what gains that were made in public services, a welfare state, relatively full employment and rising incomes were mainly the result of struggle and pressure by the labour movement, forcing concessions from the owners of capital.
And Stiglitz never explains why this supposed regulated, democratic progressive capitalism came to an end in the 1970s, except to suggest it was down to the vile politics of Reagan, Thatcher etc. But readers of this blog know that there was a change of objective conditions from the mid-1960s, namely a sharp fall in the profitability of capital globally.
That meant that capital could no longer accede to rising real incomes, more public services and free education and health etc. The years of high profitability that allowed for concessions were over. Profitability is the driving force of capitalism, so politicians were elected (both right and left) committed to reducing the welfare state and labour power; privatising and deregulating. Above all, progressive” capitalism had a series of major slumps that weakened the labour movement and restored (to some extent) profitability.
Indeed, Stiglitz never mentions the causes of recessions at all except to suggest that they are due to rising inequality: “If we had curbed exploitation in all of its forms and encouraged wealth creation, we would have had a more dynamic economy with less inequality. We might have curbed the opioid crisis and avoided the 2008 financial crisis.” And yet the international slumps of 1974-5 and 1980-82 took place when inequality was at its lowest since industrial capitalism began (according to Thomas Piketty – graph). So rising inequality was not the cause of the Great Recession but the result of efforts to raise profitability after the 1980s.
And how do we get back to this ‘progressive capitalism’ anyway? Stiglitz proposes regulation, breaking up the ‘monopolies’, progressive taxation, ending corruption and enforcing the rule of law in trade. “The prescription follows from the diagnosis: It begins by recognizing the vital role that the state plays in making markets serve society. We need regulations that ensure strong competition without abusive exploitation, realigning the relationship between corporations and the workers they employ and the customers they are supposed to serve. We must be as resolute in combating market power as the corporate sector is in increasing it.” These prescriptions are the stock of the reformist left in the US and elsewhere. America’s Left Democrat Senator Elizabeth Warren has made similar proposals with her “accountable capitalism” plan.
What on earth would make the top 1% and the very rich owners of capital agree to reduce their gains in order to get a more equal and successful economy? And how would regulation and more equality deal with the impending disaster that is global warming as capitalism accumulates rapaciously without any regard for the planet’s resources and viability? Programmes of redistribution do little for this. And if an economy is made more equal, would it stop future slumps under capitalism or future Great Recessions? More equal economies in the past did not avoid these slumps.
Unlike 1949, in 2019, none of Stiglitz’s ‘progressive’ measures are possible. Indeed, radical change is now probably only possible with ‘workers’ power’ and if that became a reality we could move beyond such measures to real democratic control of the economy, by replacing capitalism, rather than ‘saving it from itself’’.
Michael Roberts Blog 
Agreed. I wonder sometimes wouldn’t some international sociology adn international relations enrich our analysis of whether capitalism could be progressive: There is a need to tackle aspects like infrastructure and scientific progress and whether they are really progressive or “by-products” of capitalism’s functioning and the profit drive or both, but also the bourgeois promotion of “human rights”, “aid”, NGOs, “civil society”, etc globally. The latters have really been part of the dominant belief in “liberal values” and even “Western arrogance”. Are not the major Western powers, despite their blunder and “mistakes”, perceived as “progressives” facing Russian and Chinese authoritarianism, for example?
“the market is going to have to play an important role. So, that’s why I wanted to use the word “capitalism.””
Market doesn’t equal capitalism. Capitalism presupposes the existence of the market, but not every market economy is capitalist. E.g. market existed both in the Bronze Age, the Ancient Age and it even continued to exist in the Middle Ages. It is a myth that exchange can only exist in capitalism: not only it existed before, but it will continue to exist in socialism. That’s one major point of of confusion among Western leftist intellectuals in relation to China’s “market socialism”, that is, why they don’t consider China socialist, even though all the evidence indicates it is.
“If we had curbed exploitation in all of its forms and encouraged wealth creation, we would have had a more dynamic economy with less inequality.”
If Stiglitz really said that, then I’m really beginning to doubt the vaunted Western educational system. Wealth creations rises with rising exploitation. To state wealth creation rises when exploitation lowers is simply bad faith.
‘’It is a myth that exchange can only exist in capitalism: not only it existed before, but it will continue to exist in socialism’’
Yes, it’s a myth. The market has existed before Capitalism and will exist in Socialism. The market already existed in the real Socialism of the twentieth century. That myth is a serious error of knowledge of economic history in a good part of the Left.
‘’why they don’t consider China socialist, even though all the evidence indicates it is’’
No, China is not socialism today. Socialism, in essence, in its economic core (capital) is with the Social Property (State and with command and control of its workers), the means of production. That social property must be 100% of the country’s economy or almost. China today has its state social property below 30% of its economy. Therefore, China is not socialist today. This is a mathematical calculation and is not rebuttable.
You should only look at who owns the property of productive capital to distinguish the modes of production: Slavery and Feudalism (INDIVIDUAL property), Capitalism (PRIVATE property, -may include many partners) and Socialism (SOCIAL Property – all citizens they are partners and equal or similar parties.)
Interesting take on Stiglitz. There are many discussions of this kind of wishing well reformed capitalism at redfortyeight.com /Toward a New Socialism. The idea of (ecological socialism) as ‘democratic market neo-communism’ suggests putting ‘capitalism’ inside communism but only after revolutionary expropriation.and the creation of a Commons that would license resources to market/communist entities. Planning, and an anarchist sector coexist with a post social democratic system moved beyond the realm of private propertyi. There are many books on ‘market socialism’ pro and con but this approach is different and would work because it hybridizes the best of capitalism and socialism/communism without state capitalism.
There are also various books on these issues, by J. Landon…
Revolução ou barbarie, deixemos de lado as tentativas fracassadas de reformar o capital, e passemos a substitui-lo.
What Stiglitz and the whole reformist Left propose is a return to a mythical past, which in their imagination is much like the Garden of Eden.
It’s no coincidence, I think, that we see all that nostalgic attempts to resurrect the figures of Keynes and Franklin Delano Roosevelt; those appeals to the New Deal and the War on Poverty. Conversely, in their narrative Reagan and Thatcher, Friedman and Hayek, play the role of the Serpent.
Leaving aside the facts that (1) that Garden of Eden never really existed and that (2) in any case, we have been expelled from it and cannot go back, even if we tried; there’s something else.
A return to the past — like the one the “Progressive Left” proposes — is, by definition, a retrogression, not a progression. They should at least be consistent and call themselves the Retrogressive Left.
M.R.: “Unlike 1949, in 2019, none of Stiglitz’s ‘progressive’ measures are possible.” Good conclusion, but you did not explain why not.
Dear Michael Roberts, we have read (studied) your and Carchedi’s book, World in crisis, and we have also read your recent papers issued in your blog about Marx’s Law of value. We belive that in order to a better understanding of the Law it is very important what Marx wrote about the increase in the productiveness of labour, first in Foundations of the Critique of Political Economy and later in The Capital. We mention here only a few passages (we are sorry but we don’t dispose of an english edition of Grundrisse and so we translate them from the Italian edition):
“Increasig of productiveness of living labour increseas the value of capital (or decreases the value of the worker) non because it increases the amount of the goods created with the same labour, but because it reduces necessary labour and so, in the same measure in wich reduces it, it creates surplus labour or, that is the same, surplus-value…….Increasing of productivness can increase surplus labour only as it reduces the relationship between necessary labour and surplus labour and only as it reduces this relationship”. Furthermore:” The more working-day fraction espressing necessary labour is already reduced, the less is the increasing of surplus value that capital gains from increasing of productivness of labour. The surplus value increases, but in an always lower proportion when related to the increase of productivness of labour”. (Foundations of the Critique of Political Economy, Notebook III)
“….the proportional increase or diminution in surplus-value, consequent on a given change in the the development of the productive force of labour, depends on the original magnitude of that portion of the working day which embodies itself in surplus-value; the smaller that portion, the greater is the proportional change; the greater that portion, the less is the proportional change”. (Capital, Vol. I, cap 15)
Finally, a passage from the third volume of Capital: “ In relation to employed labour-power the development of the productivity again reveals itself in two ways: first, in the increase of surplus-labour, i.e. , the reduction of the necessary labour-time required for the reproduction of labour-power. Secondly, in the decrease of the quantity of labourpower (the number of labourers) generally employed to set in motion a given capital. The two movements not only go hand in hand, but mutually influence one another and are phenomena in which the same law expresses itself. Yet they affect the rate of profit in opposite ways……..One of these factors, the rate of surplusvalue, rises, and the other, the number of labourers, falls (relatively or absolutely). Inasmuch as
the development of the productive forces reduces the paid portion of employed labour, it raises
the surplus-value, because it raises its rate; but inasmuch as it reduces the total mass of labour
employed by a given capital, it reduces the factor of the number by which the rate of surplusvalue is multiplied to obtain its mass”. (Capital, Vol. III, cap. 15)
We have developed some simple schemes that we think could illustrate what Marx explains. We use these schemes in the work of awareness that we carry out, mostly among workers of some large italian factories. We have translated our schemes in english as we would be pleased to recive your opinion about them. Since they include some drawings, we ask you how can we send them to you.
Fraternal greatings
Gruppo di lavoro 21 febbraio 1848
Hi Salvatore and your labour group.
It sounds that you are doing some very good work to explain the law. Please send me your email and I shall contact you to discuss.
MR
Salvatore, also my colleague Mino Carchedi who is Italian would probably like to make contact too.
You ask “What on earth would make the top 1% and the very rich owners of capital agree to reduce their gains in order to get a more equal and successful economy?” Higher taxes is the answer used in the 1950s. Corporations paid three-times the portion of revenue than today. And the top marginal tax rates were 91% on incomes above $3 million and 81% on incomes above $1 million. The head of GM in 1950, “GM’s president “Engine Charlie” E. Wilson told Congress in 1953, ‘What’s good for America is good for General Motors, and vice versa.’ He took home $586,100 a year when the minimum wage was $0.75 an hour and gasoline was $0.27 a gallon.
Adjusting for inflation Wilson’s income would be today $5.8 million. Today, a CEO earning “just” $5.8 million is less than mediocre. William Lazonic reports, “In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards.” What’s more remarkable about Wilson’s income is comparing the pre-tax, $5.8 million, with the post-tax income, $1.6 million. He paid an effective tax rate of 73%. Contrast that with today’s effective tax rate for the top one percent at 33%.” I took that off my blog page, http://benl8.blogspot.com/2016/03/the-1950s-and-today.html — Economics Without Greed. You can also see a graph that shows the portion of income going to the lower-earning 90%, (first page of blog) how it maintain a range of about 55% from 1945 to 1980, and then it drops steadily to 38% in 2010. The drop 17% of national income represents $2.6 trillion, the amount that once went to the lower 90%, and that comes to $22,807 per household for each of the 114 million households in the lower-earning 90%. This is the aim we could re-achieve. Stiglitz is not that far off. He does not support such a drastic reduction in top incomes, but once the entire country actually supported it. The top rate was close to 80% on incomes over $1 million from 1935 to 1982, nearly 50 years. Large fortunes, except in oil extraction, did not form during those years. Capitalism should be driven into a new form with worker ownership, community ownership, and government ownership. William Lazonick has shown that over 90% of large corporate profits, over a ten year period, were spent on shareholder dividends and stock buybacks. A travesty of economic justice. Libertarian socialism may be the ideal form of a modern political economy, but getting to it will require steps. It’s not rocket science to tax high incomes, wealth, and place workers on corporate boards, raise the minimum wage, legalize the strike and unions once again. Getting to a communal paradise will always be elusive.
My position is that it is and, has been possible for more than a century, for the working class to take more of what it produces from the capitalist class. The working class is producing way more wealth than it ever did back in the “good old days”. The question is, “How does the working class pry that wealth away from the capitalist class and have it put into the social wage i.e public health, education and welfare until it is politically and industrially strong enough to establish social ownership and democratic control of the wealth it creates and that which lies in natural resources?”
The answer lies within the praxis of the workers themselves. The old conservative premise of “a fair day’s wage for a fair day’s work” has never been successfully critiqued and embraced by the working class, although Marx and Engels did their best to do just that. After the death of Engels in 1896, the leadership of the left abandon the notion that another system of producing and distributing wealth, socialism, would be brought about by the workers organising politically and industrially as a class in order to emancipate themselves from the wage system. Instead, socialism came to be know by workers as a jobs program for leftists to get into positions of power in political States and the unions. Some, on the farthest reaches of the left, said it was a transitory wage system designed to get the workers to the New Jerusalem aka communism.
So yeah, if we were class consciously organised, we, because we’re the immense majority, could elect politicians committed to progressively taxing the upper 10% and the wealth/companies that they own in order to fund a larger and larger social wage while enjoying more leisure time based on our ever increasing productivity. Sure we could, just like if we had ham, we could have ham and eggs, if we had eggs. Instead, we have left-wing capitalism, an infantile disorder, being presented to us by professors of economics and other assorted realists resigned to the best of all possible worlds where, “a fair day’s wage for a fair day’s work” is the norm.
Is it any wonder that the workers themselves have remained politically ignorant and are now thinking seriously about re-electing Trump in the U.S.A. while back Duterte in the Philippines and Bolsonaro in Brazil and so on.
The golden age of capitalism was the product of a war that killed 90 million people and destroyed much of the productive property of Europe and Japan. It has been constant war ever since.
The US is a “has been” at the center of a reconstituted but precarious imperial system, the profitability of which depends on increasing technological costs (especially military and policing costs) that make profitability problematic and a new “golden age” for (Western) capitalism impossible, more “elusive” (except for Keynesians) than even a “communal paradise”.
In the second paragraph, “technological costs” should “read “technological inputs/costs”…
“Anyway, it is a myth that in the 1950s and 1960s that everybody gained from ‘progressive’ capitalism in the West. And what gains that were made in public services, a welfare state, relatively full employment and rising incomes were mainly the result of struggle and pressure by the labour movement, forcing concessions from the owners of capital.”
Really. Sounds like Lassallean Iron Law of Wages stuff rather than Marx to me. Why was it possible do you think that workers were able to succesfully struggle in the 1950’s and 60’s compared to the 1920’s and 30’s. Could it be, as Marx and Engels suggest, writing of earlier periods and as Trotsky writes in Flood Tide, and The Curve of Capitalist Development, writing about the 1920’s, that it was precisely because in the 1950’s and 60’s, the demand for labour-power was much higher, relative to supply, which made it much easier for workers to rebuild their organisations, that competition between capitals caused wages to rise, which enabled the workers to gain confidence.
The idea that workers real living standards didn’t increase in the 1950’s is just a repetition of the old Varga’s Law, that even Varga himself abandoned to the distaste of Stalin, and the Soviet leaders. Moreover, the first proposals for the introduction of a welfare state in Britain were put forward by Tory Chancellor Neville Chamberlain in the 1920’s, then taken up by the Liberal Beveridge, before being implemented by the social democrat Attlee – the same Attlee that opposed the General Strike, and after 1945 turned out the troops to strike break.
As Engels put it,
“The history of these Unions is a long series of defeats of the working-men, interrupted by a few isolated victories. All these efforts naturally cannot alter the economic law according to which wages are determined by the relation between supply and demand in the labour market. Hence the Unions remain powerless against all great forces which influence this relation. In a commercial crisis the Union itself must reduce wages or dissolve wholly; and in a time of considerable increase in the demand for labour, it cannot fix the rate of wages higher than would be reached spontaneously by the competition of the capitalists among themselves.”
Of course, Michael didn’t say workers didn’t gain from capitalism in the 50s and 60s. He said NOT EVERYBODY gained. More than a technical difference.
The notion of “progress” can be used, misused, and distorted by just about anyone to prove anything. For example, it is possible to prove that wages of black workers, living standards of black workers, . experienced continued “progress” during the post WW2 period of apartheid rule in South Africa.
So exactly what does that mean? That apartheid rule was of benefit, was “progressive” in South Africa?
Capitalism has cyclical rotation within secular trends. We know what those secular trends have been since WW2 and how the “progress” of capitalism flipped itself over into the reaction and attacks on workers post 1970.
What was it Marx wrote? “Be the price of beef high or low, it all involves the same sacrifice for the ox”? Something like that.
“Progress” or “progressive” is an attribute assigned to a system to deflect from reaction that is immanent to such “progress”
I liked this part: “because in the 1950’s and 60’s, the demand for labour-power was much higher, relative to supply, which made it much easier for workers to rebuild their organisations, that competition between capitals caused wages to rise, . . .” Competition between nation states, meaning war, created large armies. In the U.S. “an average of 10.9 million able-bodied workers were employed in the US military” between 1943 and 1945. That was 3.5 times more than the average employed by the New Deal jobs programs, WPA and PWA, says Philip Harvey in The New Deal’s Direct Job-Creation Strategy. Unemployment rate was below 2%. Managed capitalism is the preferred method of gaining full employment by left economists. At best that method would still suffer from slack demand for labor as well as slack demand from consumers whose incomes did not match productivity, in fact were divorced from productivity gains. Without a high demand for labor the unions are likely to collapse, and there goes the wage rate and the leftward correction. There is still the possibility of direct job-creation at high wages, with the right political will. In Robert Kuttner’s book “Can Democracy Survive Global Capitalism”, page, 78 he says that C. Atlee was elected in 1945 with almost two-thirds majority in parliament, he promised pensions, national health, education and housing, and his government nationalized 20% of GDP taking over railroads, steel mills, coal mines, banks. Capital controls prevented foreign capital involvement and speculation that would have raised interest rates. Today 4.2 billion people, 58%, still live in poverty, says Michael Roberts. It is a disgrace.
I dealt with the arguments about wages, and the subjectivist conclusions about their determination on the basis of industrial struggle back in 2010 in Wages, Prices and Profits.
I read your essay. This issue, I’ll call it the destruction of the urge to accumulate, is critical to our age. I found your array of reasons daunting. It would take a scholar to understand, and maybe I should apply myself, but I won’t right now. The logic perceivable to most is that accumulation “has gone hog-wild”. I believe it’s a sociological problem ahead of an economic problem. The solution will evolve out of a common sense of fairness, a trust in social ownership and production, mechanisms for transparency, and an understanding of abundance as opposed to scarcity. Ecological issues also are playing a limiting role. Don’t a dozen men own more, in capital assets, than half of the planet’s adult population? It’s insane, no other word describes it better. How does society limit self-interest? There are ways, but a social ethos is primary.
It may sound silly but could anyone advise as to what “Ext. Penn” stands for in this post?
Not silly. It’s my fault for not spelling out the source. There are the Penn World Tables that provide macrodata on every country in the world. But there is also another series developed from the Penn Tables by Adalmir Marquetti that is better oriented for Marxist categories. These are called the Extended Penn World Tables. I use both databases.
https://www.rug.nl/ggdc/productivity/pwt/
https://sites.google.com/a/newschool.edu/duncan-foley-homepage/home/EPWT
Reblogged this on Scott Andrew Hutchins and commented:
A perfect summation of why capitalism must end.