PEOPLE, POWER AND PROFITS: PROGRESSIVE

CAPITALISM FOR AN AGE OF DISCONTENT

The Book by Joseph E. Stiglitz

Book Review by Gaganpreet Kaur Chadha, JNU

Summary of the Book

This book is a direct attack on Trump’s policies. It shows why neoliberalism failed.
Neoliberalism is the idea based on unfettered markets. It relies purely on market mechanism
by leaving everything to the market and asks for state intervention only in the case of
market failure.

Trumponomics as defined by Stiglitz is basically the peculiar combination of low taxes for
the rich and financial & environmental deregulation. It also involves nativism and
protectionism with highly regulated globalization regime. Author explains why
Trumponomics is bound to fail.

The key issues that are asked and discussed include, rising inequality, excessive
financialization, mismanaged globalisation, increasing market power and attack on
democracy. The interlinkages between these themes are also brought to the notice of the
readers. The way market power is causing America’s money-driven politics to work in the
favour of the rich and how democratic institutions are attacked to stop the dissenting voices.
These further reinforce inequality and exploitation through market power. Similarly,
mismanaged globalisation has protected the interests of the multinational companies who
are getting benefitted from reduction in wages. They are also able to exploit consumers and
workers. This further adds to their market power. And this vicious cycle continues to cause
an even increasing inequality!

In the second part of the book, the author has provided prescription to the diagnosis. He has
basically given the solutions to all the issues described in the book and also warned that
incremental tweaks in the policies will not be enough at all. To counter the impact big
damages to the economy and society, there is a need for massive restructuring. As per
author, the solutions in terms of economic policies are not difficult but the politics
behind their implementation is!

About the Author

Joseph E. Stiglitz is an American Economist who won the Nobel Memorial Prize in
Economic Sciences in 2001. His contribution in the field of Asymmetric Information won

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him this prestigious award which he shared with George Akerlof and Michael Spence.1 In
his autobiography written at the time of the award, he mentioned that poverty,
discrimination and periodic unemployment in his place of origin, i.e. Gary, Indiana made
him inquisitive about these issues in an early age.2

Some of his numerous contributions in the field of economics include, asymmetric

information in insurance market, efficiency wages and the theory of optimal taxation.3 He is
currently a distinguished professor in Columbia University and also holds the position of
chief economist at Roosevelt Institute. He has also held several positions as economist in
international and governmental organisations. He is an avid reader and his best-selling
books include Globalization and Its Discontents Revisited: Anti-Globalization in the age of
Trump, Freefall and The Price of Inequality, etc.

Overall Review

The book as expected is very well written. It is contemporary in nature and is based on
extensive research. Not only for America, it is particularly relatable for India as well. The
issues that are at the centerstage today are voiced by the author with tremendous boldness.

He has not hesitated a little bit in criticizing the policies of the present government of the
United States. Had he specifically mentioned about the policies of our country as well, it
would have been a desirable addition.

Stiglitz also emphasised the need to abandon the faith in trickle-down economics. I
completely agree with this view as there is sufficiently vast evidence against this. At one
point, he joked about Adam Smith’s invisible hand asking why its not visible. He went on
saying that its because it is actually not there. He specifically mentioned the need for
government’s role in providing healthcare, education, employment, retirement support, etc.
He has said this in support of his arguments, “Government played a central role in the
transition from agriculture to a manufacturing economy. Now it needs to play a similar role
in the transition to a new economy of 21st century.”4

He gallantly described the deliberate attacks on democratic institutions being made to

further the growing divides not only in incomes and wealth, but also in the beliefs. The
American Style Capitalism has made the lives of poor and middle-classes a mockery. When
the process of deindustrialization paved the way for globalization and financial

1Joseph E. Stiglitz – Facts. NobelPrize.org. Nobel Media AB 2020. Sun. 13 Sep 2020. https://
www.nobelprize.org/prizes/economic-sciences/2001/stiglitz/facts/
2These autobiographies/ biographies were later published in the book series Les Prix Nobel/
Nobel Lectures/The Nobel Prizes.

3 The Library of Economics and Liberty- https://www.econlib.org/library/Enc/bios/Stiglitz.html

4 Quoted from the book- Ch-9, Restoring a Dynamic Economy with Jobs and Opportunity for All
(page 188)
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liberalisation, the people who were made to believe that those policies are for their good are
the ones suffering from these polities.

The ease of writing style has made the reading of the book quite interesting. Instead of using
complicated terms, it is written in a manner which makes it lucid. The part of the motivation
behind this book is the hope that if there is a greater understanding of the importance of the
democratic institutions, there would be more rallying around them when they are subject to
such attacks. A strong democracy is required which can offset the political power of
concentrated wealth.

The cherry on the cake is that he has himself suggested the economic polices to all the
issues described in the book. But then he does not hesitate to show us the reality that
economic reforms are possible only when they are preceded by political reforms. Hence, the
author stresses again and again that Economics and Politics are intertwined and we can’t
talk about one in isolation of the other.

Detailed Review of the Book

The Book is divided into 2 parts. Part I is named as “Losing The Way” and part II as
“Restructuring American Politics and Economics: The Way Forward”.

In Part I, all the major problems faced by America are discussed at length. It begins with
providing an alarming picture of the reality of ever-increasing inequality. The author says
that the three richest Americans, Jeff Bezos (Amazon), Warren Buffet (Berkshire Hathaway)
and Bill Gates (Microsoft) have net worth more than the bottom fifty percent of US
population combined.5 This way of beginning the book with a chilling note is appreciable as
it grabs the attention of the readers.

While talking about the issues of gerrymandering and attempts at undermining of

democracy, Stigitz mentions about behavioural economics! He said that beliefs and
perceptions of people can be manipulated. Just as it is possible to sell bad products, one can
sell bad ideas as well.6 The way behavioural economics is brought in the picture shows the
multi-directional thinking ability of the author. This way of writing can make even a non-
fiction book captivating!

He even tried to provide motivation about egalitarian policies to the top 1% by saying that
when country’s overall growth is being hurt, there is less wealth to trickle up. He said,
“Growth is affected by economic policy and actions that increase inequality lead to slow
growth, especially over the long run.”

5Author has taken this information from Oxfam, Reward Work, Not Wealth, Oxfam Briefing Paper,
Jan 2018
6Quoted from Ch- 1, Introduction (page 18)
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He has slammed the trickle-down economics multiple times in the book. One such
instance is when he mentioned, “As the country went through the process of
deindustrialization, the elites had promised that lowering taxes on the rich, globalisation and
financial market liberalisation would lead to faster and more stable growth that would
trickle down to the lowest sections of the society. On the contrary, the growth rates of
income for lower and middle-classes have stagnated or are even falling. Elites focussed on
GDP instead of people.”7 Since there is huge debate over this, Stiglitz has tried to show the
true picture of the theory which is not backed by any school of thought!

There is an entire chapter dedicated to inequality where author has talked about inequalities
in race, ethnicity, gender, health, wealth and opportunity. He concluded this chapter by
saying that the slogan “leave it to the market” never made sense. One has to structure
markets and that entail politics. Showing this true picture is considerable.

The author has explained the present situation of expansion of market power by few large
corporations owned by some selected individuals. There has been a diminishing share of
labour and capital and an increased share of rents in the national income. These abnormal
profits are inefficient for the economy as they reduce the size of economic pie. He has
further warned the competition authorities about the new way of gaining market power
which is especially used by new tech giants, i.e. pre-emptive mergers, which is about
buying potential competitors before they can be a competitive threat and before an
acquisition would receive careful scrutiny by the government for reducing competition. For
example- Facebook’s purchase of Instagram and Whatsapp. While drawing on all this, the
author has implicitly explained Euler’s theorem to the readers effortlessly!

The author has elucidated the current debate on Globalization admirably. Stiglitz said,
“Trump is wrong to blame globalisation, whether unfair trade rules or unwanted immigrants,
for the country’s woes, but globalisation’s advocates are also wrong in arguing that
globalisation has played no role in the plight of the large parts of the population that have
seen their income stagnate or decline, and that its just technological progress that is to
blame. The real onus of blame, though, should be on ourselves: we mismanaged the
consequences both of globalisation and of technological progress. If we had managed these
well, both could have generated the blessings that their advocates claimed.”8 He also
touched upon the issue of US-China trade war by saying that the global rules-based trading
system is under attack.

On Financialization, Stiglitz has criticized the banking sector of performing

“disintermediation” as banking has shifted its focus from intermediation between savers and
firms wanting to expand and create jobs. Stiglitz has argued against the growing tendency of
banks and financial markets to engage in short-sighted products like, derivatives, credit-
default swaps etc. He has called these lucrative practices of banks as “unproductive” for the
society. It is actually very disheartening to see government injecting millions of dollars for

7 Quoted from Ch-1, Introduction (page 22)

8 Quoted from Ch- 4, America at War with Itself over Globalization (page 81)
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bailing-out the banks without putting in any conditions on them about how they could use
that money. Stiglitz has rightly mentioned that the finance which was supposed to be a
means towards an end has become an end in itself. He has asked for strict regulatory
measures for strengthening this sector.

The linkages between Big Data and Market Power are elaborated very well. The readers
are made aware about the massive amount of data that companies like Amazon, Facebook
and Google can collect from each individual. Along with Artificial Intelligence, this data
can be used further to enhance the market power and profits of these organisations at the
expense of consumers. This makes competitive entry even more difficult. Since these firms
can do perfect price discrimination and are in a position to grab entire consumer surplus,
these privacy concerns are immensely important.

In Part II, suggestions to the above problems for restructuring of American Politics and
Economics are provided.

For Restoring Democracy, the author has talked about the merits of a United Opposition.
He further discussed various ways to reduce the power of money in politics, such as,
enacting better disclosure laws, curbing campaign spending, etc.

For providing jobs and opportunities to all in this dynamic economy, it is felt that enough
solutions were not suggested. He discussed about labour force growth and participation but
not of the ways to increase labour demand. At one point, he even appreciated India’s
implementation of NREGA saying that if a poor country like India can provide guaranteed
employment, then America can also do that! But the suggestions are only about generation
of unskilled employment. He has rightly stressed on the need for expanding public
investments in research and for enhancement of the scope of unemployment insurance.

The author has suggested many other reforms and economic policies in various areas, like
education, home ownership, social security, access to healthcare for all, retirement benefits,
inheritance taxes, etc. He has also emphasised numerous times about the need for
government to enter into arenas such as, health insurance, retirement annuities, mortgages,
etc. He is of the view that competition between public and private sector will break the
nexus of the ever increasing market power. He has warned us fairly well about the barriers
in enforcement of these policies in terms of resistance from politics. But apart from being
aware and raising their voices on unlawful practices of the policy makers, there is not much
hope for the poor and middle class citizens unless there is a political will to carry out the
required structural reforms!

Comparison of the Book with Other Texts of the Author

The author has been a critique of what he calls as the “market fundamentalism” and asks for
the active involvement of the government to correct for the market failures. He seeks
government’s role in restoring an egalitarian society with strong regulations to curb market

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power. One of his bestsellers, Freefall9 provides a detailed description of why so many
Americans feel disillusioned today and how the dream of a prosperous economy and a
moral society can be realised. In the Price of Inequality10 , the author examines how greed
and power have combined to drive a deep wedge in a country where the privileged few
ensure that their status remains undisturbed at the cost of the majority. Similarly, his another
bestseller, Globalization and its Discontents11 doesn’t criticize globalization outrightly, but
gives elaborate account of the reasons why it failed to live upto its expectations and
provides policy recommendations. Thus, there is a common theme that runs through the
texts of the author which is the hope to see an egalitarian society!

My Recommendation

This book as expected is well researched and beautifully written. It is a bold critique of
Donald Trump’s policies and market fundamentalism. The author has covered all the major
concerns being faced by America such as, excessive financialization, mismanaged
globalization, exploitation and market power, inequality, big data and new technologies,
unemployment in a great detail and lucid manner.

Only towards the end in the Part II, the book feels a little stretched. But the book is worth
the time for anyone willing to understand the present situation of the American economy.
Even though, this book is written from America’s point of view, most parts of the book is
relatable to Indian context as well. The author has refrained from using complicated
economic terms so that anyone willing to read can understand the book. I want to end this
with a statement that Stiglitz has emphasised multiple times in the text,

“Economics is not difficult, but Politics is!”

9https://avrl.catalogue.library.ns.ca/Record/878006/Excerpt

10 https://blogs.lse.ac.uk/lsereviewofbooks/2013/06/04/book-review-the-price-of-inequality-
stiglitz/, https://magazine.columbia.edu/article/book-review-price-inequality
11https://www.piie.com/commentary/speeches-papers/review-globalization-and-its-discontents,

Ferri, Giovanni. (2003). Joseph E. Stiglitz (2002) Globalization and Its Discontents. Economic
Notes. 32. 123-142. 10.1046/j.0391-5026.2003.00107.x.