I think my first ‘wow’ in the book was the realization that Stiglitz might be a constructivist. It felt good. This is probably because my reading of the book is informed by international relations and political science discipline rather than economics. In this light, I could not stop my mind from mapping one coherent argument throughout the book that ‘inequality is caused by uncompetitive market economy sustained by politics through construction of ideas that are embedded within the society’. These ideas are meant to color the presence of 1% super rich population as not only natural but also a prerequisite for economic survival and as an incentive for hard work.
In ten chapters Stiglitz supports his arguments with empirical evidence and economic theories but with a simple language that an ordinary reader can understand. Although the book has the USA as its main focus, one can argue that the USA is only a case in that the knowledge gained from the book can be generalized to understand issues of inequality in Europe, Asia, Latin America, and Africa. This, for me, is because the negative impacts of neoliberalism are felt in every country that embraces its policies. In fact, throughout the chapters, Stiglitz gives examples from different countries around the globe. He also compares some of the policies of EU and those of USA. All in all, he shows how policies around the world have favored the rich financial sector at the cost of the majority of citizens.
As I am in the process of trying to understand and writing a book on why poverty persists amidst high economic growth rates in Tanzania, Stiglitz book has been invaluably insightful to my understanding of the issues of inequality. My Stiglitz’ book copy is full of notes and lines on sentences that may explain the situation in Tanzania. Such is rent seeking problem, in which Stiglitz dedicated many pages. In fact, while reading the book, I kept asking myself, is there any need to write the book anymore while Stiglitz has already given an explanation to the core problem. The answer to this question highlights some gaps in the ‘Price of Inequality’. These include the need to have more contextual analysis of inequality issues in other countries. For example the main problems in the USA are mortgage crisis and unemployment. These might not be the main issues in developing countries that also face what economists call ‘dual economy’ (i.e. inequality). Corruption, which Stiglitz has not (at least explicitly) highlighted as an issue in the USA, may be one of the biggest contributory inequality factors in developing countries.
At some point I felt like Stiglitz does not have much problem with market economy as long as it fairly competitive. In this he criticizes scholars such as Milton Friedman who bluntly support market economy without considering ‘externalities’ or uncompetitive factors such as rents and implicit subsidies to financial sectors and corporations. He thus seems to be fine with an ideal fair market economy. Although I am yet to be convinced on this (since I do not think the market economy will ever be fair), this echoes what Amartya Sen recently said on Adam Smith and also Deborah Boucoyannis ground-breaking article on why Adam Smith thought the market should produce wealth without steep inequality.
In connection to the above point, I, at one time, felt as if Stiglitz contradicted himself when he maintained that ‘for if globalization is not managed better than it has been, there is a real risk of a retreat, into protectionism or forms of begger-thy-neighbor policies’ (p.348) and then in the immediate next pages he is concerned with the imbalance trade (export vs. imports) in the USA. How then will the USA restore balance of payment if not through protectionism? That’s my humble question. The question was (I guess) steered by Ha Joon Chang’s book on Bad Samaritans in which he seems to support protectionism especially in developing economies.
As to any work of great authors, I feel very incapable of reviewing Stiglitz masterpiece. Nevertheless, in reflection to it, it is worthy noting the ethical and moral narrative that Stiglitz, a Nobel Price Economist, is bringing to our understanding of the world. Due to positivistic nature of economics and political science, scholars of those fields have often ignored the role of ideas including ethic values in their analysis. This is mainly due to difficulty in measuring such variables. Thus, it is impressive to see one of the most respected and influential economists tackling such issues and empirically describing their role in sustaining an economic system that enriches only a few (1%) at the cost of many (99%). In this light, Stiglitz is arguable ideological and this is evident from his many counter arguments that would qualify with “The Rights would argue…”
In relations to underlining issues of ethics, Stiglitz boldly highlight the importance of trust. He observed that ‘throughout history the economies that have flourished are those where a man’s word is his honor, where a handshake is a deal…without trust business deals based on an understanding that the complex details will be worked out later are no longer feasible’. (p. 152)
Before starting (or is it continuing?) to mumble, I will stop here and instead urge everyone who is interested in reforming the dominant unfair world economic system to read the ‘Price of Inequality’. It is crucial to understanding the greatest security threat (in the eyes of Copenhagen School’s New Security Agenda) in our current world, which is Inequality.