Nobel-laureate economist argues governments should care about more than GDP, they should care about the wellbeing of their citizens too.
People across the world are becoming increasingly concerned about the lack of resilience in their nation’s economies and they want change, according to former World Bank chief economist Professor Joseph Stiglitz.
This week more than 2000 people joined a webinar to hear Stiglitz in conversation with Dr Richard Denniss, part of Stiglitz’s Australian speaking tour on the role of government in the modern economy, hosted by thinktank The Australia Institute.
He argued that many around the world are considering how to reshape the economy to better serve citizens, right down to creating better working conditions to reduce exploitation.
“We have to rethink all the rules and regulations,” Stiglitz said.
“We have to go from corporate governance laws that say you have to maximise shareholder value to ones that say you have to take into account all the stakeholders, [like] workers, communities, environment, [and] customers.”
Noting that Australian treasurer Jim Chalmers recently proposed a wellbeing framework for the upcoming budget, Stiglitz said this is a good idea that could lead to a better understanding and measurement of Australian society.
“A country cares about the well-being of its citizens, not how many goods are being produced,” he said.
“GDP can go up, but the well-being of the citizens could go down. GDP has gone up every year in the United States [but] our life expectancy is going down. The incomes of the people in the middle have stagnated [and] the bottom are going down. You know, anybody looking at the United States… [would say] things are not good.”
GDP, he argued, doesn’t show how the “median” person is doing.
“It doesn’t tell you anything about what’s happened to the environment, health, a sense of insecurity or anxiety. There are so many dimensions to what most people think constitutes a good society,” he said.
Economics in the public interest
In response to a question about why authorities so often use economics to justify hurting vulnerable populations and rewarding those more powerful, Stiglitz said it wasn’t surprising that those in a position of power could create arguments that better serve themselves.
“I find it a little bit disappointing that so many economists join them in that effort,” he said.
Citing pioneering Scottish economist Adam Smith, Stiglitz said “whenever firms get together, they conspire against the public interest to create monopolies that could exploit people”, adding that governments needed to play a large role in order to minimise such occurrences.
A strong public sector, he added, can provide critical information to the public along with healthcare and education to enable them to be “as productive as they could be in society”.
“A small government harms growth,” he said.
Stiglitz argued that neoliberalism has failed, as it hasn’t produced benefits for “people at the bottom”.
“Growth is lower than in the era that preceded it, and a disproportionate share of that limited growth went to the people at the top. People at the bottom are actually worse off,” he explained.
From systems needing government bailouts in times of crisis, to monopolies reducing supply and competition, Stiglitz said time and again the economy had been proven to not be resilient, and to be unable to manage risk.
Cost of living crisis
The cost of living crisis is another issue that can be dealt with by governments, Stiglitz said, arguing that governments should be helping low and middle income people to manage rising costs.
He said the idea that raising interest rates would combat inflation was “a fantasy” that wouldn’t help produce more oil or food.
Action is needed to solve the bottlenecks of the economy, along with better competition policy to help drive prices down.
Stiglitz also said he was in favour of a windfall profits tax on Australia’s fossil fuel exporters to redistribute wealth to consumers.
A government’s role in crisis
Governments around the world had played a vital role in how nations approached COVID-19, Stiglitz told the audience.
Reflecting on how the pandemic had affected the role of government, Stiglitz said he hoped that countries had learned how necessary it was to prepare for the worst.
“A good government helps you prepare for crises,” he said.
Stiglitz said the United States government had previously had a pandemic preparedness office, but that it had been disbanded by President Trump, with stockpiles of PPE left to erode.
“And that’s why we had more than a million Americans die in the pandemic, because of the lack of preparedness,” he said.
He did praise government action to prevent unemployment from rising too much, but said employee connection to their place of work had been eroded over the pandemic.
But the lesson learned was that government involvement over the pandemic was “absolutely critical”.
Stiglitz cited the creation of vaccines as another example of positive government involvement in managing the response to the pandemic,
“The bottom line is the response to the vaccine, to the pandemic in terms of health, was also crucially shaped by the government,” he said.
“And when [COVID] hit… no one thought for a minute that market solutions would get us through. Everyone turns to their government in a crisis. And no one said, ‘oh, we can’t afford to respond’. They all said, ‘we will do what it takes to address this disease, both in terms of health and in terms of the economy’.”
“It was a moment of collective action. It worked. And I hope that’s the lesson that we take out of this pandemic,” he said.