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The world appears determined to teach Prof. Joseph Stiglitz a lesson. After serving in the Clinton administration and heading the World Bank in the mid- and late-nineties, later earning a Nobel Prize in 2001, the Columbia University economist went on to become one of the fiercest critics of both the Democratic Party’s abandonment of the American working class and, crucially, globalization’s inequities and power imbalances vis-à-vis the Global South. Then Donald Trump came along. And, once again, Stiglitz rose to the challenge, deepening and broadening his critique. How is it possible that the system he lambasted for leaving poor Africans and Latin American farmers behind could give birth to a political monstrosity claiming to speak to the “forgotten men” of the United States? Could America be a loser in the global system it helped create and worked hard to impose? Stiglitz, who has updated his seminal work Globalization and its Discontents to account for these new developments, sits down with CTXT at his office in Upper Manhattan to discuss the coming trade war with China, the inadequacy of a geopolitical analysis of globalization that leaves class aside and the urgency of social protection as an antidote against the rise of both reactionaries and neo-protectionists.
The last time we spoke, in the spring of 2016, you had a lot to say about the crisis of inequality in America and the failings of the recovery. What's happened since, of course, is the rise of Trump. I wonder if you think there's an economic explanation to why Trump arose. What is the material strata upon which he took hold?
Anything as complex as Trump can't be explained just by economics, but I do think that there is an underlying economic factor. That is the reality that I talked about then, but things have gotten worse since then, as large fractions of America, and particularly American men, have not done well. So the median income of full-time male workers—and full-time workers are the lucky ones—is lower than it was 42 years ago. Real wage is at the same level as 60 years ago. These are just striking statistics describing a half-century of stagnation for very large fractions of the country when, meanwhile, a few people at the top have done very, very well. It used to be that virtually every young person could expect to live better than their parents. Now, it's just about 50 percent of young people who can expect to be better off than their parents, so the notion of progress for a majority of Americans, or a large fraction, is over.
Health and life expectancy in America are in decline. And among white males who do not have a college education, they're precipitously in decline. Much of it is related to what Anne Case and Angus Deaton call "deaths of despair,” suicide, drug overdose, alcoholism. So these are all what I call extreme symptoms of a social disease and underlying it all is the process of deindustrialization has left large parts of America bereft.
The critical moment in this history may have been the financial crisis, because it marked the point of people really seeing the end of manufacturing. People lost their homes, they lost their jobs, they lost their hope. And at the same time, the U.S. government spent hundreds of billions of dollars bailing out the bankers who had caused the problems and it was inevitable, I think, or at least very likely that the refrain, "the system is rigged," would come up. It came up from the Left, the Occupy movement, Occupy Wall Street. It came on the Right, from Trump.
There's something curious though, about this notion of America being presented as a loser from globalization, and that having political sway. As you point out, the U.S. is still very much a world hegemon, and it has unprecedented global military power and holds a veto for the IMF like no other country does. Is the U.S. really a loser from globalization?
No. That's what Trump claims, but Trump is famously and enormously ignorant and does not understand anything, except he has an intuition about underlying grievances and how to play on people's anxieties. So, saying that trade agreements are unfair is part of blaming others. He forgets that NAFTA was actually negotiated by President Bush of his own party. I’ve watched the process of negotiating the trade agreements and it's very clear. The U.S. basically dictates the terms of those agreements. They are American-crafted agreements.
You also connect the rise of Trump to sort of an overall decline in American influence, measured by everything from soft power to the global balance of economic power. Is Trump a symptom of America's imperial decline?
There is one interpretation that this is what some people call a Thucydides moment, that when Persia was in decline, relative to Greece, there was a lot of thrashing around, a moment of global conflict. And there are certainly symptoms of that which were present under Obama. For instance, TPP, which was trying to contain China, was very ill-conceived. It was not a good trade agreement, even for the United States.
Geoeconomics and geopolitics say that China has gone from a very, very small country to one of purchasing power parity that's actually larger than the United States, but even in normal exchange rate metrics, in 30 years it will be much larger than the United States. And all of a sudden, people realized that, from the collapse of the Berlin Wall until the collapse of Lehman Brothers, we were dominant. And now the American model doesn't have the shine and the dominance that it did over that long period of time.
Much of your analysis prior to this revised edition was about how globalization had so many detrimental effects, especially in the Global South and developing countries. So, in comes Trump and you say he throws in a hand grenade to the global system, global economic system. Some people who've read your work and admire it might say, "So what? Down with the system that created so many injustices." What are they missing?
The arrival of Trump has made people think much more carefully about what is good and bad about globalization. And it's not until you see the threat to the system that you start to appreciate it. 740 million Chinese moved out of poverty, the largest movement of people out of poverty probably in the history of the world in such a short span of time. And globalization played a very big role. The growth of the middle class and Africa, India, China, clearly globalization has played a role. Under some metrics, global inequality has actually come down. And again, globalization has played a role, even if inequality in the United States, Europe, has gone up. But the way I think about it even more strongly is we can't conceive of running our own domestic economy without a rule of law. If we're going to have trade, we have to have rules. And the alternative to a rules-based system is the law of the jungle.
Now, having said that, in our own democracies we are always fighting to make sure we have the right laws. Feudalism was a rule of law, but it wasn't a very good rule of law. It was all the power with a few people, and they had an enormous amount of potential abuse of power. The same thing applies in financial sectors, where you see a rampant abuse of power. We know all the ways in which we can write laws to advantage the few at the expense of the many, but in our democracies we fight to have legal frameworks that protect the weak against the strong and to have a fair rule of law.
Are you saying that this pitting of countries against each other, as the mainstream narratives of globalization go, is short-sighted? Should we have more of a class analysis of globalization?
First, I'm saying, yes, it is more of a class analysis, what you could call class or corporate interest versus workers, and it is very much that. That's really what's been going on at a global level. But I'm also saying that Trump's view that the world is basically zero-sum is fundamentally wrong. That if you run globalization in the right way, it's positive-sum. If China grows it will buy more of our goods and we will take advantage of this by buying more of their goods so that we can both be better off. But what we forget is that even if America as a whole is better off, even if Europe is always better off, there may be large groups, even a majority within the country, that are worse off. European unskilled workers have been made worse off and the countries that I think have more sensitive politics, more democratic politics, they've tried to protect workers.
When critiquing these 40 years of globalization and its many discontents now from a different perspective, you talk about how this hegemonic notion of free-trade that was pushed by the Left and Right across the world is actually a little misleading. You talk about “managed trade” instead. What do you mean? Managed by whom? And to accomplish what?
The way I try to summarize this is: If you really had free trade, very simple, you’d get rid of all your trade barriers, all your non-tariff barriers and all your subsidies, and if you did that it'd be a very short agreement. That was the one point of honesty of Trump. It’s not about free trade; they recognize this is managed trade, for a particular interest.
It's not clear whether even auto workers are going to be better off. It's not clear whether auto companies will be better off because costs are going to go up. Those increases in cost are going to reflect in prices, demand for American cars will go down, they will become less competitive. So, it’s not clear who the winner is. It’s not clear either about the increase in steel tariffs. The users of steel are going to be worse off. And there are many more jobs using steel than producing steel. So, workers collectively are going to be worse off.
So, take those people you say personally felt those damages. Do you think Trump is going to deliver for them?
No. No, not at all. They're going to be worse off and we're already beginning to see that. His tax bill will increase taxes for a majority of people in the second, third, and fourth quintile—in other words, for the vast middle class—when it's finally implemented. Thirteen million more Americans will be without healthcare as a result of this tax bill in a country where life expectancy is already on the decline. The trade deficit is reaching new heights, partly because of the macroeconomics that he's put into place. All of these are part of a story that I don’t think is going to turn out very well.
Now, the positive side of that is it stimulates the economy in the short run. It's not sustainable, but it stimulated the economy, unemployment went down. And maybe, eventually, that will drive up wages a little bit. And you're beginning to see this, but still, it's just remarkable how weak things are in terms of wages. And I think it's partly because and even in terms of the stimulus that it's provided, because who are the big winners of this tax bill? Real estate developers. The big losers? Think education, local government.
But you also say this project to re-industrialize America or even the core country in now the industrialized west, it's kind of anachronistic. You don't think that is going to work or should be the objective, right?
Well, no. Productivity manufacturing has so outpaced demand that global employment in manufacturing is going down. We're the victims of our own success. Just like 75 years ago, 100 years ago, it used to be that 70 percent of the population needed to produce the food we eat, now it's two percent, three percent. Nobody would say, to keep the economy going we have to go back to a world where 70 percent of people are working in farms. You're not going to do it and it would not be the right way to do it. So my view on manufacturing is the same thing. We may get an increase in manufacturing output, but it'll be robots. There are not going to be many jobs. That's the economic reality, and I'd rather us think about how to create a 21st-century economy, not try to move back in history and do something that we can't do.
You mentioned China a couple of times and the effects that increased trade with a rising China might have. China also holds a lot of the U.S. debt, but are we moving towards a trade war with China? Is that the direction the world is going in?
Yes, unfortunately. I was naïve enough to say, like most people, you might say, who think that corporations have run America for a long time, how could they let that happen? That the corporations would be among the losers. So all your theories of politics are also thrown aside and, yeah, Trump seems to relentlessly be moving towards a trade war. And the way he's doing it makes it very likely that it will last a long time. Why I say that is the following: he makes demands of China that they cannot accede to.
Now there are lots of things you can agree with, you can bargain over. Historically, the U.S. has asked China to open up its insurance markets, financial markets. China would agree to that. You negotiate then about the years, the pay, the number of American firms, the terms. There's a lot to negotiate, but you can reach a compromise. But the United States says China has to give up on its 2025 strategy to become a more advanced country. No country would accept that demand.
What would the consequences be if we did have a trade war?
We are both heavily dependent. The reason we buy lots of clothes and lots of other things from China is because it's much cheaper. Now, we'll be able to buy textiles from other countries, we won't be making the textiles in the United States. We may have some robots making textiles, but not a lot. But we'll buy from Bangladesh or Sri Lanka, Vietnam. It won't much help American workers, it's just that our consumers will pay a little bit more than they otherwise would have paid. So we won't gain jobs, it will cost us a little bit, I don't know, 10, 20 percent more.
You said earlier that you didn't predict a trade war like this would happen because the corporations wouldn't want it and they have so much power in America. Trump certainly wasn’t the preferred candidate of Wall Street or Silicon Valley. But still, it’s hard to imagine him governing against the interests of his class or the people who fund his party. Are we witnessing a split within the American ruling class?
Well, there are two interesting aspects of this. American corporations have been much quieter about this trade war than I had anticipated. And there are two hypotheses. One is that they're afraid of Trump. But there's another part, which is that for 20 years they looked at China as a gold mine. They can produce there with low wages, no environmental standards, limited competition. That's changed. Environmental standards are going up, wages are going up, competition inside of China is going up, and so what's happening is that China is no longer the gold mine that they had thought.
But there is a split in the Republican Party and you see it most vociferously in the Koch Brothers. Big Tea Party donors, Tea Party supporters. Big supporters of getting out of Paris, agreements against climate change, acting against climate change. But they're also very strong internationalists.
Do you think he's opening a new path for the future regarding the global system? Are we witnessing something new? A third way of sorts? Or is this a kind of impasse between the last 40 last years of globalization and something that isn’t fully formed yet?
No, I think Trump represents a distinctly American version of what is a global trend and what is inward-looking, nativism, anti-migration, skepticism about globalization. In reality, no one wants to do without their iPhones, no one wants to pay 50 percent more for their clothes. So the reality is that it's hard to see that we would back away from globalization as we have it, but it's also clear that we've gotten most of the gains from global integration and the next steps are not likely to be that much more fruitful and may represent the hardest part.
This neo-protectionist turn, from Trump to Brexit, has components about trade, but it also has a facet that's very hostile to immigration, which it tries to limit by criminalizing immigrants. What are the economic consequences of those policies?
In one way or another, those policies are harking back to what was at one time the heart of the Republican Party, isolationism. America turning in on itself. But that was before World War I and II, before America was the dominant global power that it is today. The United States has played a very important role in trying to coordinate globalization, trying to support a rules-based system, even though, as I say, I don't always agree with the rules they push. And if the U.S. instead becomes isolationist and against international law, it's going to have profound implications for the advance of the global rule of law. From the end of World War II until Trump, we've been at the center of it for better or worse, and now with Trump we seem to be withdrawing from it. And when it comes to all kinds of issues, the International Criminal Court, dealing with genocide, all those things, not having the U.S. at the table is a very bad thing.
From your analysis of corporations benefiting from globalization at the expense of workers and even from things, like you just said, like the Koch Brothers being proponents of internationalism, some might be tempted to come up with a potential option that's sort of a progressive program that includes a certain protectionist element. I gather you're against that progressive solution. Why?
We need to have social protection without protectionism. What I care about is social protection and maintaining a dynamic economy, re-shifting to more dynamic sectors. And that requires active labor market policies, industrial policies, and social protection. You just can't let yourself open up to money that can come in and out overnight. When I said the rules of the game had been designed by corporations, that's a good example. So we have to manage globalization, including managing the downside risks. And that begins by recognizing that not everybody's going to be a winner and we have to try to make sure the way we manage it has large winners.
So how do you defeat not just Trump, but Trumpism? What is to be done?
For me the answer is the progressive social democratic agenda. People are not going to be confident if you say, “don't worry about trade, we'll protect your jobs.” That's not credible anymore. It might have been credible 40 years ago. Not today. Let’s say you have an overall economic framework of what we call the welfare state and we say we want to make sure, whether it's from technology or globalization or financialization, that you have work, but we're going to give you a certain degree of protection. That would make people more receptive. And I think we also need to increase the openness and democratic transparency in our government. Because too many of these agreements were done in secret or without adequate discussion.
The key issue is for people to understand that the government cares about them and that it is committed to making sure that everybody in our country can attain a basically middle class lifestyle as long as they're willing to work and that we will make sure that there will be a job. We will give them the training, we will give them the opportunity. So to me, that social protection then gives people the confidence to be open, not only to globalization, but also to some of the real challenges in technology going forward that we’re going to be facing.
The world appears determined to teach Prof. Joseph Stiglitz a lesson. After serving in the Clinton administration and heading the World Bank in the mid- and late-nineties, later earning a Nobel Prize in 2001, the Columbia University economist went on to become one of the fiercest critics of both the Democratic...
Álvaro Guzmán Bastida / Ignasi Gozalo Salellas / Héctor Muniente Sariñena
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