If you have to debate a Nobel Prize winner in economics you hope that the venue is in private, that the topic is uncontroversial and that the laureate is shy and unaccustomed to the public eye.
None of these luxuries were afforded to me in 2018. The venue was a packed hall at the World Economic Forum in Davos, Switzerland. The topic was corporate tax. The laureate was Joseph Stiglitiz, former chief economist to the World Bank and prolific author.
In these circumstances, an honourable draw was a precious win. A grasp of detail and experience of tough public meetings just about saved me.
The eminence of Stiglitz is due to the range of his writing and academic excellence. This was recognised in a Nobel Prize for research on the impact of information on the operation of markets.
His most famous work is Globalisation and Its Discontents, published in 2002. It was a stinging critique of the management of the global economy and the institutions charged with maintaining economic stability, notably the International Monetary Fund.
He argued that budget policies that quickly reduced borrowing, that mandated privatisations and allowed money to move easily across national borders were the wrong policies for developing economies.
This approach became known as the Washington Consensus, and Stiglitz was its leading critic.
He made the case for “globalisation with a more human face”, contending that “The most fundamental change that is required to make globalisation work in the way that it should is a change in governance”.
This agenda has been developed in further works, most notably in Making Globalization Work (2007) and People, Power and Profits (2020).
His latest work, The Road to Freedom, continues this tradition of searing criticism of neoliberalism and the suggestion of alternative models of economic policy. There is, also, a more philosophical tone to this book.
Stiglitz moves on to the home-ground of free market advocates when he seizes the concept of freedom as a guide for an active not a shrinking state.
He argues that “the enhancement of one person’s freedom often comes at the expense of another’s”. Critically, he goes on, “only through collective action, through Government, can we achieve a balance of freedoms”.
The distribution of freedom between competing demands is too precious to be left to markets. This work is devoted to making the case for a rejuvenated social democracy that can “enhance the freedoms of most citizens”.
The opening chapters analyse the nature of freedom. They make the case that the freedom of one person causes the “unfreedom” of another. Contracts; arrangements between citizens; or the citizens and the state, are a crucial mechanism for ordering this trade-off.
In a beautiful passage, Stiglitz argues that ‘managing externalities is at the foundation of civilisation’
The author notes the fundamental difference between social contracts and ordinary contracts. A social contract, the consent that a citizen offers to the state, is based on trust. The erosion of this contract has profound consequences, but they incrementally accumulate. Clear rules and procedures exist to regulate ordinary contracts. Trust is not essential.
This balancing of the trade-offs that are inherent in freedom is the key theme of this book. The clearest example of this is an externality, where an action by one person creates a cost for another.
In a beautiful passage, Stiglitz argues that “managing externalities is at the foundation of civilisation”.
Differing views on how we use our freedom are discussed. The classical view, that preferences and attitudes to choice are set and informed by perfect rationality, is critically assessed.
This is contrasted with the more realistic framework of attitudes, based on incomplete information and lack of perfect rationality, that can change. Individual choices can be influenced by the institutions that regulate and shape our society.
Those familiar with the works of Stiglitz will not, therefore, be surprised by the concluding chapters. They consist of proposals to create a better society, where freedom flourishes.
Detailed tables of policy content feel inconsistent with the polished tone of the book, but this is the signature aspect of this economist. He does not just diagnose discontents, he proposes solutions.
The continual focus on coercion in this book, as a key tool of the State cedes too much to a negative view of Government. Similarly, the focus on “unfreedom” diminishes the recognition of the wonders of choice and autonomy.
However, the following conclusion that “reasoning, a core Enlightenment value, and discourse based on that reasoning can enable us to better understand the full complexities of what is at issue and help to reach common ground in the pursuit of the common good” remind us of the value of the author as a leading public intellectual.
I have disagreed with Stiglitz on corporate tax policy, but we are lucky to have him. This book is a reminder of why.
Stiglitz is not a lone voice in proposing reforms to the institutions that help shape economic and trade policy in our world. Just after the publication of Globalization and its Discontents, George Monbiot published a more radical approach with The Age of Consent, A Manifesto for a New World Order.
The author was demanding more radical change, contending that “Our task is surely not to overthrow globalisation, but to capture it, and to use it as a vehicle for humanity’s first global democratic revolution”.
To achieve this, he proposed a new global bank and a radically changed General Assembly of the United Nations.
This began a series of works that advocated radical political solutions to, in particular, our climate crisis. The latest of these works is The Invisible Doctrine: The Secret History of Neoliberalism, co-authored with film-maker Peter Hutchison.
Their view of capitalism is clear in writing that it is “an economic system founded on colonial looting”. The state and powerful private interests, in this worldview, use laws “backed by the threat of violence” to turn common resources into private property and the fruits of work into commodities.
This definition does not recognise the role of entrepreneurship, does not legitimise the dignity of wages in return for work that is offered or the reduction in global poverty across recent decades.
The bleak definition of capitalism leads to dark conclusions about the conduct of politics. The authors contend that “governments, left and right, gradually withdrew from governance and left crucial social and economic issues in the hands of an abstraction called ‘the market’”.
This sharp acceleration of capitalism, combined with the reshaping of the state, is commonly referred to as neoliberalism.
The authors describe the thinkers and their ideas that changed the terms of debate about the location of borders between the scope of the state and market. Ludwig von Mises and Friedrich Hayek are central to this story.
They argued that any form of collective endeavour, led by the state, would inevitably lead to centralised planning and totalitarianism. The spread of their ideas was funded by large American businesses through organisations such as the Heritage Foundation and the Cato Institute.
The argument of this work fails to recognise how market economies have evolved. The role of governments has grown, not diminished
Monbiot and Hutchinson are persuasive in arguing that this approach became so influential that it became invisible, an accepted orthodoxy. They are also correct to contend that the weakening of the state and its safety nets can become so severe that it can create the foundations for the rise of extremism in politics.
Unbridled free markets may ultimately hollow out the institutions and traditions that conservatives support, such as a sense of place and identity in smaller towns and cities.
However, the argument of this work fails to recognise how market economies have evolved. The role of governments has grown, not diminished.
Governments now spend more and, in most cases, tax more. The scope of laws and regulations in most democracies has advanced, not retreated. The active use of tariffs by leading industrial economies does not reflect meek submission to almighty flows of trade.
The subsidies of president Biden or the budget of the European Union promote an active, not a withering state. The Covid pandemic led to a reset of expectations of the size of the state. There is little sign of an imminent retreat.
The central question of our era is the sustainability of our current social order in the face of political challenges, from autocrats and populists, and from profound disruptions, such as climate change and artificial intelligence.
All critiques must, therefore, be carefully considered. It is a pity, therefore, that the elegance of the writing in The Invisible Doctrine is not matched by a recognition of the variety of economic models that shape our world.
The vision of unfettered markets and a shrinking state did radically change economic policy, but much has changed since then. A stronger argument would acknowledge this.
Both works offer important critiques of contemporary economies but the precision and credibility of their solutions differ. You do not have to agree fully with both thinkers to recognise their impact. Stiglitz and Monbiot have both made important contributions to public debates on the key issues of our time.
With these works, they continue to do so.
Paschal Donohoe is the Minister for Public Expenditure and President of the Eurogroup
Further reading
Why Liberalism Works by Deirdre Nansen McCloskey (Yale University Press, 2019). A stirring, elegant and unapologetic argument for the wisdom of the individual and a wariness of the wisdom and might of the collective. Beware of coercion, orders and easy pathways to equality.
What We Owe Each Other by Minouche Shafik (The Bodley Head, 2021). A very comprehensive assessment of how the social contract works in different societies and economies. This work offers an agenda for a modern and renewed contract to navigate the seismic changes in technology, demographics and climate.
The Origins of Totalitarianism by Hannah Arendt (Penguin, 1951). A masterpiece, but not an easy read. The defining work in helping to understand why societies fall from democracy to the lure of the strong man. Beware of loneliness, Arendt warns.
