Go left for economic growth
TheStar.com – Opinion – Go left for economic growth
August 25, 2008. Joseph Stiglitz
Both the left and the right say they stand for economic growth. So should voters trying to decide between the two simply look at it as a matter of choosing alternative management teams?
If only matters were so easy! There are big differences in growth strategies, which make different outcomes highly likely.
The first difference concerns how growth itself is conceived. Growth is not just a matter of increasing GDP. It must be sustainable: Growth based on environmental degradation, a debt-financed consumption binge or the exploitation of scarce natural resources, without reinvesting the proceeds, is not sustainable.
Growth also must be inclusive; at least a majority of citizens must benefit. Trickle-down economics does not work: an increase in GDP can actually leave most citizens worse off. America’s recent growth was neither economically sustainable nor inclusive. Most Americans are worse off today than they were seven years ago.
But there need not be a trade-off between inequality and growth. Governments can enhance growth by increasing inclusiveness. A country’s most valuable resource is its people. So it is essential to ensure that everyone can live up to their potential, which requires educational opportunities for all.
A modern economy also requires risk-taking. Individuals are more willing to take risks if there is a good safety net. If not, citizens may demand protection from foreign competition. Social protection is more efficient than protectionism.
Failures to promote social solidarity can have other costs, not the least of which are the social and private expenditures required to protect property and incarcerate criminals. It is estimated that within a few years, America will have more people working in the security business than in education. A year in prison can cost more than a year at Harvard. The cost of incarcerating 2 million Americans – one of the highest per capita rates in the world – should be viewed as a subtraction from GDP, yet it is added on.
A second major difference between left and right concerns the role of the state in promoting development. The left understands that the government’s role in providing infrastructure and education, developing technology, and even acting as an entrepreneur is vital. Government laid the foundations of the Internet and the modern biotechnology revolutions. In the 19th century, research at America’s government-supported universities provided the basis for the agricultural revolution. Government then brought these advances to millions of American farmers. Small business loans have been pivotal in creating not only new businesses, but whole new industries.
The final difference may seem odd: The left now understands the role that markets can and should play in the economy. The right, especially in America, does not. The New Right, typified by the Bush-Cheney administration, is really old corporatism in a new guise.
By contrast, the new left is trying to make markets work. Unfettered markets do not operate well on their own – a conclusion reinforced by the current financial debacle. No government can sit idly by as a country goes into recession or depression, even when caused by the excessive greed of bankers or misjudgment of risks by security markets and rating agencies. But if governments are going to pay the economy’s hospital bills, they must act to make hospitalization less likely. The right’s deregulation mantra was simply wrong, and we are now paying the price, which, in terms of lost output, may be more than $1.5 trillion in the United States alone.
It is easy to host a party. For the moment, everyone can feel good. Promoting sustainable growth is much harder. Today, in contrast to the right, the left has a coherent agenda, one that offers not only higher growth, but also social justice. For voters, the choice should be easy.
Joseph Stiglitz received the 2001 Nobel Prize in economics. He is the co-author, with Linda Bilmes, of The Three Trillion Dollar War: The True Costs of the Iraq Conflict.