In a recent op-ed piece in the Washington Post Joseph Stiglitz, Nobel Prize winner and former chairman of President Clinton’s Council of Economic Advisors, argued that the United States is in the midst of a state of inequality and recession.
He cited last month’s figures released by the Federal Reserve showing that recession has a devastating impact on income and wealth of low and middle income Americans. The past three years of the financial crisis has seen median wealth drops 40 percent, which means in effect a deadly blow to almost two decades of wealth accumulation.
Stiglitz argued that inequality prolongs the economic downturn and that in it exacerbate inequality and that austerity measures advocated by conservative economists and regimes will make things worse in both accounts. For one they will lead to more recession and societies will become more divided politically with inequality and declining opportunities fuelling discontent.
Though Stigliz argument was addressed to the domestic American scene, yet it applies worldwide bearing in mind a heated similar debate in the wake of the Eurozone crisis and the political reaction to it with Greek elections last month highlighted that issue.
The election of a socialist president in France with comfortable parliamentary majority and a political agenda emphasizing growth more than austerity shows that such debate is going to move from purely academic and theoretical one into practical policies with all the ramifications for the society and state at large.
For more than 70 years the capitalist theory has been challenged by its socialist and communist adversary. The collapse of the Soviet Union and its model in eastern European satellite states reinforced the old belief that capitalism has the ability to reinvent itself, stand up to challenges, come up with solutions and forge ahead.
The downfall of Berlin Wall was seen as symbolizing this trend, leading to the growing belief in the ability of capitalism and liberal democracy to write the last chapter in the history of the mankind.
However, globalization and communication revolution that have engulfed the whole world show clearly that in a changing world environment it is hard for any group or a theory to write the last chapter.
The 2008 financial crisis that started in the United States has develop into an international one engulfing currently the Eurozone, and even slowing down the Chinese dragon economic growth is simply one aspect indicating clearly that it is too early to speak about writing the last chapter.
To complicate things more, distributing wealth in each society and in the world at large became an integral part of the debate. Last year, and according to a Boston Consultancy Group, the number of millionaires household grew in 2010 by 12.2 percent to 12.5 million. The reference was to those with one million dollars of investible assets. The United States tops the list with 5.2 million millionaire households, followed by Japan’s 1.5 million and China 1.1 million, then England 570,000 millionaires, while Singapore leads the world in terms of millionaires’ density, now that it has 15.5 percent of its population regarded as millionaire households.
However, all those millionaires represent less than one percent of the world population, or only 0.9 percent to be exact according to the study, but these extremely minor figure controls 39 percent of the world wealth, or $47.4 trillion. More worrying is that the trend is on the rise. The amount of wealth amassed by the rich has actually risen over the preceding year from 37 percent, or $41.8 trillion.
That takes up the argument of Stiglitz adopting austerity measures will eventually lead to deeper recession, throwing the country to be more divided politically because of growing inequality and in effect lack of opportunity. In the heart of such debates issues like increasing taxes to spend on social services like health or reduce taxes to allow the wealthy spend more on job creation are shaping the US presidential debates yet again.
Those who believe in the ability of the capitalist system in adjusting itself to challenges and changing environment need to remember that such adjustment happens only when there is serious threat.
The rise of the communist bloc came with a challenge of providing basic social services to citizens. To that challenge the capitalist systems managed to come up with the innovative ideas around the concept of welfare state. That as far as citizens pay their taxes they are entitled to all sort of health, education, recreation and so on services.
The system worked fine especially in most of Western Europe and Canada, but with the collapse of the Soviet Union and declining of a challenging threat, the great drive to dismantle the welfare state started to the extent there is hardly any remnants now to it except in some Scandinavian countries and Canada.
The question now is whether the system will be able to fix its problems without visible serious alternative.
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