The Price of Inequality, by Joseph Stiglitz, Allen Lane, £25/WW Norton, $27.95, 448 pages
For most of my writing career I have been unmoved by the “equality” brigade. I remember the late Lionel Robbins, a leading British economist and a former chairman of the Financial Times, saying: “Equal opportunity to compete for equal prizes. What an ideal to put before a young person.” Nevertheless, I have always believed that we had a duty to help, collectively if necessary, those who drew the short straw in terms of income and wealth. But I did not feel that the best way to do this was to despoil those at the top, because they simply did not have the resources for the purpose; and even a modest disincentive effect would negate the attempt. Much of the hostility to “the rich” was based on envy. If those at the bottom were really to be helped, most of the rest of us would have to make a contribution, whether by supporting welfare payments or by funding public services such as health and education, which have a redistributive element.
“When the facts change, I change my mind” is a banality often attributed to John Maynard Keynes, although there is no evidence that he ever said this. (What he might have said is simply: “When I change my opinion, I say so.”) Yet there are times even for a banality. The view just outlined made sense in the early 1980s, when the share of personal incomes going to the top 1 per cent amounted to 7-8 per cent of the total in both the US and the UK. It is much less plausible when it amounts to 18 per cent in the US and heading that way in the UK. It could be a passing phase but this looks unlikely. It is particularly hard to justify after a decade in which the real income of the median US family fell 7 per cent. If there was a rising tide, it certainly did not lift all boats.
Joseph Stiglitz is a professor at Columbia University and a winner of the Nobel Prize in economics – an accolade that often feels to me like it is cited by admirers of particular economists across the political spectrum partly to foreclose debate. He first came to broad attention outside the academic world when, as chief economist at the World Bank at the end of 1999, he launched a blistering attack on the International Monetary Fund’s “shock therapy” for developing world debtors and resigned a month before his term expired. Looking back on this episode, even free-market supporters should admit that the IMF made itself unnecessarily vulnerable to such criticism.
Since then, Stiglitz has been a relentless harrier of those whom he calls “the right”. The Price of Inequality is a long book but, unless I have missed something, he does not make his own ethical position too explicit. If you think of income or wealth as a pie to be divided up by a central authority, like a mother cutting a cake for her children, then there is indeed a presumption in favour of equality. If you believe in some version of the entitlement theory, in which what each person receives from others is a reward for services rendered, then it is redistributive measures that have to be justified. If either theory were carried to its logical conclusion, we should have a hell on earth.
Stiglitz is implicitly more attracted by pie theory. While the shrillness and bitterness of this book reflects the present state of US politics, the basic analysis is pretty mainstream market economics and centres round the term “rent”. This does not just mean what the tenants refuse to pay the landlord in La bohème. It refers to anything that a business or individual can extract over and above a normal market return. Indeed, some political analysts prefer to talk of “extraction” as distinct from creation. The thesis is that through a mixture of lobbying, misuse of regulation, business capture of politics and much else, “rents” have been pushed to higher and higher levels.
Moreover, the “top 1 per cent” are hardening into a hereditary elite. Interestingly, this is almost identical to the thesis put forward recently by Luigi Zingales, a free-market economist who left his native Italy for Chicago Business School to escape “crony capitalism”, only to find it gathering force in the US.
When it comes to remedies, Stiglitz is unsurprising. His initial ideas, such as curbing excessive financial risk-taking, making banks more competitive and transparent, and curbing the powers of chief executives, might well appeal to many Conservative members of the UK’s Commons Treasury Committee. But when he goes on to advocate top tax rates above 70 per cent, active steps to manage the trade balance, curbs on globalisation, and restoring union powers, my sympathy begins to wane. There is an argument to be had on all these issues. But just as Dr Samuel Johnson in his parliamentary reports strove to ensure that the “Whig dogs should not have the best of it”, Stiglitz tries to do the same for non-interventionist attitudes. I find more refreshing Zingales’s proposals inA Capitalism for the People for a “pro-market but not pro-business agenda”.
Finally and unfortunately, I have to say how poorly produced The Price of Inequality is as a book. A good quarter of the text takes the form of endnotes. The lesson that an occasional simple chart is worth a thousand words has been ignored. There is not a single chart or even a table. Indeed, I found it easier to follow the trend to increased concentration of income from one chart in Robert and Edward Skidelsky’s How Much Is Enough, which is only incidentally about this subject. I am reminded of broadcasting producers who are so terrified of boring their target audience with programmes on political economy that they end up confusing them even more.
Samuel Brittan is an FT columnist