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neoliberals
Democracy requires a new, progressive capitalism.
By Joseph Stiglitz
May 13, 2024 at 5:45 a.m. EDT
(Chris Gash for The Washington Post)
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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?Sign up for the Prompt 2024 newsletter
for opinions on the biggest questions in politicsOn 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.
