Unconventional Economic Wisdom
The Globalization of Protest
Joseph E. Stiglitz
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NEW YORK – The protest movement that began in Tunisia in January, subsequently spreading to Egypt, and then to Spain, has now become global, with the protests engulfing Wall Street and cities across America. Globalization and modern technology now enables social movements to transcend borders as rapidly as ideas can. And social protest has found fertile ground everywhere: a sense that the “system” has failed, and the conviction that even in a democracy, the electoral process will not set things right – at least not without strong pressure from the street.
In May, I went to the site of the Tunisian protests; in July, I talked to Spain’s indignados; from there, I went to meet the young Egyptian revolutionaries in Cairo’s Tahrir Square; and, a few weeks ago, I talked with Occupy Wall Street protesters in New York. There is a common theme, expressed by the OWS movement in a simple phrase: “We are the 99%.”
That slogan echoes the title of an article that I recently published, entitled “Of the 1%, for the 1%, and by the 1%,” describing the enormous increase in inequality in the United States: 1% of the population controls more than 40% of the wealth and receives more than 20% of the income. And those in this rarefied stratum often are rewarded so richly not because they have contributed more to society – bonuses and bailouts neatly gutted that justification for inequality – but because they are, to put it bluntly, successful (and sometimes corrupt) rent-seekers.
This is not to deny that some of the 1% have contributed a great deal. Indeed, the social benefits of many real innovations (as opposed to the novel financial “products” that ended up unleashing havoc on the world economy) typically far exceed what their innovators receive.
But, around the world, political influence and anti-competitive practices (often sustained through politics) have been central to the increase in economic inequality. And tax systems in which a billionaire like Warren Buffett pays less tax (as a percentage of his income) than his secretary, or in which speculators, who helped to bring down the global economy, are taxed at lower rates than those who work for their income, have reinforced the trend.
Research in recent years has shown how important and ingrained notions of fairness are. Spain’s protesters, and those in other countries, are right to be indignant: here is a system in which the bankers got bailed out, while those whom they preyed upon have been left to fend for themselves. Worse, the bankers are now back at their desks, earning bonuses that amount to more than most workers hope to earn in a lifetime, while young people who studied hard and played by the rules see no prospects for fulfilling employment.
The rise in inequality is the product of a vicious spiral: the rich rent-seekers use their wealth to shape legislation in order to protect and increase their wealth – and their influence. The US Supreme Court, in its notorious Citizens United decision, has given corporations free rein to use their money to influence the direction of politics. But, while the wealthy can use their money to amplify their views, back on the street, police wouldn’t allow me to address the OWS protesters through a megaphone.
The contrast between overregulated democracy and unregulated bankers did not go unnoticed. But the protesters are ingenious: they echoed what I said through the crowd, so that all could hear. And, to avoid interrupting the “dialogue” by clapping, they used forceful hand signals to express their agreement.
They are right that something is wrong about our “system.” Around the world, we have underutilized resources – people who want to work, machines that lie idle, buildings that are empty – and huge unmet needs: fighting poverty, promoting development, and retrofitting the economy for global warming, to name just a few. In America, after more than seven million home foreclosures in recent years, we have empty homes and homeless people.
The protesters have been criticized for not having an agenda. But this misses the point of protest movements. They are an expression of frustration with the electoral process. They are an alarm.
The anti-globalization protests in Seattle in 1999, at what was supposed to be the inauguration of a new round of trade talks, called attention to the failures of globalization and the international institutions and agreements that govern it. When the press looked into the protesters’ allegations, they found that there was more than a grain of truth in them. The trade negotiations that followed were different – at least in principle, they were supposed to be a development round, to make up for some of the deficiencies highlighted by protesters – and the International Monetary Fund subsequently undertook significant reforms.
So, too, in the US, the civil-rights protesters of the 1960’s called attention to pervasive institutionalized racism in American society. That legacy has not yet been overcome, but the election of President Barack Obama shows how far those protests moved America.
On one level, today’s protesters are asking for little: a chance to use their skills, the right to decent work at decent pay, a fairer economy and society. Their hope is evolutionary, not revolutionary. But, on another level, they are asking for a great deal: a democracy where people, not dollars, matter, and a market economy that delivers on what it is supposed to do.
The two are related: as we have seen, unfettered markets lead to economic and political crises. Markets work the way they should only when they operate within a framework of appropriate government regulations; and that framework can be erected only in a democracy that reflects the general interest – not the interests of the 1%. The best government that money can buy is no longer good enough.
Joseph E. Stiglitz is University Professor at Columbia University, a Nobel laureate in economics, and the author of Freefall: Free Markets and the Sinking of the Global Economy.
Copyright: Project Syndicate, 2011.
www.project-syndicate.org
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Zsolt 10:49 04 Nov 11
Thank you for the very good overview.
You used "system failure" several times, thus the 99% vs 1% is meaningless in the long term as we are all part of the same system. Though the 1% is still obviously on top and is benefiting from the present situation, the system is in self destruct mode, and the growth has already stopped, and very soon even the 1% will see their wealth disappear.
I would say that the changes are revolutionary rather than evolutionary, as we have to jump onto a completely new degree instead of incremental changes.
We have to build a completely new system instead of developing the present one.
The previous/present system was built on expansion, polarization, exploitation, inequality, but the environmental conditions, the world, society, virtual connections as yourself has said have become global.
Global means completely round, closed and interdependent.
The present political and economical structure is obsolete and destructive in this new environment, thus our "internal" system has to resemble the "outer" conditions.
We have no choice in this, we are facing strict natural laws around us, from a system that thrives for balance and harmony, we need to adapt, the question is whether we do it wisely, by examining the conditions and consciously changing ourselves organizing our social and economical life based on mutuality and importance for the whole, or we wait for the suffering to force us to do the same.
DrRajThamotheram 01:20 05 Nov 11
Very helpful take on what's happening.
A colleague who cares deeply about events challenged me when I also said "the system has failed".
He argues it isnt factually correct - the system is doing exactly what its designed to do eg faster increases in GHG.
And this framing is less motivating than we might hope: who wants to save a sick body?
His argument was that the system is giving us all the wake up calls we could possibly want. And if we continue to ignore them, like addicts often do, we are pretty certain to get even bigger and more disruptive "hello's". How could we want for a better system than that?
So the problem isnt "the system" but how we choose to ignore the wake up calls.
I was convinced. And hence my focus on www.preventablesurprises.com
lukelea 04:43 05 Nov 11
Correction: it is the 99.99% not the 99% -- the 10,000 wealthiest families in America (and their counterparts overseas) versus everybody else. No need to multiply the number of our opponents unnecessarily. "Rent-seeking" is jargon for what the man-in-the-street understands as legalized cheating -- the unregulated exercise of monopoly power in the marketplace.
Levantine 09:31 05 Nov 11
Stiglitz throws some sound statements, in the end only to muddle the issue in crucial aspects.
The protest movement that began in Tunisia in January, subsequently spreading to Egypt, and then to Spain, has now become global,...modern technology now enables social movements to transcend borders as rapidly as ideas can.
So the Tunisian protests have spread to Los Angeles, and that was because of youtube and twitter. This alleged global desire to take example from Tahrir square's hundreds of dead and it's replacement of an incompetent autocrat with an even more incompetent military, remains puzzling and deeply enigmatic to this reader. In fact, it doesn’t sound truthful at all.
The protesters have been criticized for not having an agenda. But this misses the point of protest movements. They are an expression of frustration with the electoral process. They are an alarm.
That's eminently sober-minded and mature, until we ask the basic question: Alarm to whom? Or, in what context the notion of “an alarm” makes sense?
It conjures an image of a nation ruled by elderly wise patriarchs who have gone asleep, while ordinary Americans are so hopelessly incapable of self-governance and so inarticulate that it puts them on a level of toddlers. The image is so disingenuous and authoritarian, that it's offensive even to me as a non-American. What happened to the self-reliant and proud American people?
The article ends with a re-descrition of the catch-22. We already knew it, but from this Nobel prize winner we expected some clue how it could be resolved.
Nichol 09:57 05 Nov 11
Interesting to use the word 'rent-seekers' for those people that are also good salesmen of themselves, and can use those two properties to move to the top, and receive top pay. Often without really caring if they do any good. The whole idea that 'incentives' are purely financial, and that those people that need financial incentives should be allowed determine how the rest of us can live. It is time to give some counterpush against those ideas. It is not just morally wrong, but it even corrupts our whole societies if this attitude results us not to value other people sufficiently, that do important work, while never getting any big pay for what they do.
martin 11:48 05 Nov 11
One small correction: the bankers in Spain (just as the bankers in US) did not earn bonuses - they were granted bonuses. Nothing about the financial misdeeds perpetrated over the past decade should be described with the word "earned".
groovologist 12:57 05 Nov 11
That what USSR have tolked about. Now time fo Marxism and Leninism.
Workers of the world, unite!!!
vbierschwale 01:26 05 Nov 11
Great article.
All 4 corners must be balanced equally for democracy to work and the people are demanding a voice.
Government, Media, Business & PEOPLE....
malihaw 02:16 05 Nov 11
Professor Stiglitz,
When I was a child we used to pray "that the poor people in China would have enough to eat". I was the son of depression age parents and we were always told to not waste food as others were starving. 40 years ago as a student in college, I realized that the day was coming when our standard of living would have to drop in order for the standard of living of others to rise. I also realized that when enough voters were receiving entitlement spending, out system would enter a downward spiral of endless deficit spending as elected officials were forced to give greater and greater hand outs to be re elected.
Yes it is true that the top 1% are stealing or skimming the biggest part of the pie. And this will not end until our means of financing political campaigns ends its built in corruption where the oligarchs own the system. But when one adds up all of the money stolen by Wall Street Bankers and divides it by 300 million people, the amount of money that is then distributed does not in reality add that much to the average inviduals net income. Simple math I am afraid. Does not take calculus to figure this out, even when one takes into account the multiplier effect.
But it is also true that economists loose the forest through the trees with their mathmatical computations and social theory biases.
Jobs have moved overseas for the simple reason consumers want cheaper products made in low wage environments. It is as simple as that. If you want more jobs in America, forbid the importation of cheap foreign goods. Prices will go up for all consumers and thus again, the standard of living will drop both for US consumers and for low wage workers in countries such as China and Mexico. Outlaw Walmart, and imported TVs and automobiles. Pay more for products and more American workers will be employed albeit their higher incomes will buy proportionately less.
What economists leave out of the equation is that our wealth had its relative zenith when we were exploiting the rest of the world after WW 2. We were rebuilding the world after WW 2 and our factories were humming. Raw materials from third world countries were cheap and we sold them high priced finished American products. Asians, South Americans, and Africans were kept impoverished so we could remain rich. Neo colonialism at its best.
When gasoline was 28 cents a gallon as it roughly was from 1940 till 1973, life was good. Now that the the developing world is also competing for these limited resources the price is now $4 per gallon. When TVs were American produced back in the 1950s, their price was relatively 10 times the cost ofwhat they are now and the world watched Ameican TVs while American factories were humming producing them.
Where is the surprise then that when the process was reversed that our standard of living is dropping.
Yes, we need to stop the Wall Street folks from skimming what they are skimming. But can we please also stop fooling ourselves and our University Students into believing that this is the real solution to the current problems.
Before we castrate the oligarchs, let us remember, that in 1970, my college tuition was $400 per semester. Now it is roughly $15,000. That is a factor of 30+. In 1969, I earned 85 cents an hour as a lifeguard, now kids earn about $8.50 per hour, a factor of only ten. Much of that 30+ factor increase in tuition costs money goes to pay the salaries of professors who then tell us how broken the system is and how they will fix it when in reality, they too are part of the problem. The truth is, we are all greedy and their lies the crux of the problem.
Gulmar 05:42 05 Nov 11
Gulmar
Cancerous concentration of wealth - from financial speculation and not socially beneficial entrepreneurship, is a symptom of the degeneration of capitalist civilization, but not the main source.
Main reason for the Third Great Depression is Overconsumption of the richest community above: {1} real incomes, {2} real living needs and {3} ecological requirements.
To overcome this degeneracy requires the overhaul of the system - to replace Capitalism by Rationalism
Civilisation will survive if replaces the race in reworking of natural resources into goods - a reasonable reproduction of socio-ecological means of human existence
bluebear 10:43 05 Nov 11
Facts were distorted. Comparisons mixed up apples with oranges.
1% owning 40% of total asset through corruption; and receiving 20% total income by parasitic rent-seeking activities: Neither is true. Fairness is in equal opportunity to strike out and in social protection of fruitful results, not in equal redistribution.
Buffett paying a percentage tax rate lower than his secretary: Apples vs. oranges before risk-adjustments. How much tax percentage lower would the secretary be willing to trade her 100%-guaranteed-paid-if-worked for a less than 50% chance of receiving a paycheck to be at par with the risk level present day’s investors must stomach?
Unfair anecdote when the wealthy can use money to amplify views, but Stiglitz cannot access the megaphone to charge up protesters: There is no safe way to direct the emotion of a frustrated crowd.
Too many things have gone “wrong,” therefore worldwide established sociopolitical systems are untenable: No systems can satisfy everyone all the time. Where unfairness had visibly existed the targets turned much more destructive in a downturn.
The 99% cannot articulate an agenda: If you don’t like the outcomes but don’t know what rules to change then you are the other-end’s 1%, not the 99%. Stay away from your poor-investor professors. Go home ask your mother what to do.
Conclusion, let’s organize more protests: Protesting without an agenda is worse than rent-seeking; it’s disruption-, hence, destruction-seeking.
lukelea 04:00 06 Nov 11
In emphasizing the 99.99% instead of 99% we distinguish between a relatively small number of billonaires and centi-millionaires -- the so-called "donor class" who bankroll both political parties and control the political agenda on the one hand; and the far larger group (close to a million) who are your basic Main Stree petit beourgeousie: successful local merchants, small business owners, the genteel descendants of decayed family fortunes. This latter group will oppose you with every fiber of its being and, based on historical experience, will probably prevail in the end. Meanwhile super-rich will be more than glad to encourage your misguidedness, the bigger guys hiding behind the littler ones as they always have.
Bottom line: know your enemy. Change those signs to "99.99%."
RobertMStahl 04:08 06 Nov 11
Hindsight should be 20/20. The B Obama reference is like Mario Savio being asked to vote for Ronald Reagan. The voting apparatus was just as corrupt during this last election process, electorally maladjusted along the way, as was the Supreme Court's decision to allow the Florida election with chad debacle, etc. to decide how 9/11 should proceed, or having continued according to some very large agenda throughout BO's trail. More Die of Heartbreak by Saul Bellow should not be dismissed, summarily, by this hogwash about democrats and the turnstiles of pure BS. I do not wish anyone would stand with you on such a shallow judgement of political backbone confusing the math having already passed as inconsequential, and merely supporting an old guard. Politicking in such a gay manner is not politics, nor is it historically relavent, or ecologically sound. Where is Indira Singh? What are Lindisfarne Association scientists about? Education is not a return to the Sphinx, but surpassing the insight it left behind before we all become raisins, raison d'être.
RobertMStahl 06:42 06 Nov 11
There are those who:
1. eat to live
2. live to eat
3. eat and live
The world, for wont of being a step in time for educational purposes, necessarily political (i.e. Francisco J. Varela), is overrun by the last category. When I tried to get past the propagandized hierarchy of our unstructured, and so called, civilization, surrounded on all 4 sides by propaganda to make sure they are maintained in category 2, I was naive enough to leave. In exile, for the evolutionary purpose of learning, this lasted for a couple of years, but I fell prey to the stock market crash of 08. I never thought there was such a separation, but there is.
onymous 08:58 08 Nov 11
Conflict is necessary to make progress. You need scrutiny/questioning/pressure in any development process to make progress and find balanced and efficient solutions. I believe that is how we developed our institutions.
The problem with global trade today is we have created a system that essentially allows you to avoid our regulatory process. We basically allow export of pollution, and operations with sub-standard regulatory scrutiny - while still allowing import back of the goods produced in this way.
We would never allow operations in our own back yard according to such standards.
I have started to believe that we may need to find a mechanism to impose charges on imports of products created in absence equal standards.
The current system is based on a philosophy where we trust that it is upto the local population to place pressure at home to regulate their own economies. This will eventually happen as the population becomes more educated and demands better standards. Markets will continue to move production to the cheapest (read least regulated) country. So only when we have polluted and destroyed most of the economies in the world will we start to accelerate the investment in smarter technology to deal with the real problems.
Do we really have to go through these destructive stages to get to what we probably all know would be better - what kind of economic model is this?
Falainothiras 06:34 08 Nov 11
You also seem to be forgetting the protests in Greece that lasted for months (I am not talking about strikes here) and in which people were protesting, among other things, about the fact that the country is turning into a Franco-German protectorate. But this is too hot of an issue to talk about, eh? Just a heads up, we are currently in the process of having a government which the majority did not vote for and which is imposed by foreign interests while in a DEMOCRACY.
FRoxo 07:44 09 Nov 11
The Grapes of Wrath
"And in the south he saw the golden oranges hanging on the trees, the little golden oranges in the dark green trees; and guards with shotguns patrolling the lines so a man might not pick an orange for a thin child, oranges to be dumped if the price was low. (...)
Burn coffee for fuel in the ships. Burn corn to keep warm, it makes a hot fire. Dump potatoes in the rivers and place guards along the banks to keep the hungry people from fishing them out. Slaughter the pigs and bury them, and let the putrescence drip down into the earth"
lukehlee 11:14 11 Nov 11
Prof. Stiglitz,
Nobody will deny that something is wrong about our "system". The question is what that something is.
I hope you have a chance to look at this article: "Breaking Down the Economic Death Spiral – and Saving the World Economy" http://t.co/8pMwQh7
Sincerely,
Luke
Michi 03:44 12 Nov 11
I agree to the problem, as perhaps every one can except the 1%, that Prof. Stiglitz brought up.
We are social beings before we are economic beings. Our society might collapse only because we are, from the viewpoint of economics textbooks, very successful.
I recently happened to read "The Making of Economic Society" by Profs. Heilbroner and Milberg and "The Future of Capitalsm" by Prof. Thurow. I learned, "Thou shalt not live by economics alone." I hope I am not mistaken. Unnan City, Japan
abdussalam 08:11 14 Nov 11
Thank you so much for a very much factual based take on what's happening these days. Nevertheless, I have few queries and concerns related to 99% vs. 1%. Firstly, there are great contributions by most of the 1%, then how would you segregate their valuable contribution and pin point the real problem makers and trouble creatures for the 99.99%? Secondly, Do you think socialism can replace the current economic system and may work as part of the solution? and what else we have to overcome the problem of unemployment and equality?
Michi 02:01 15 Nov 11
I think socialism is used in two senses. In one it refers to welfare states like Norway and Sweeden. This is all right. In the other it was and is used to refer to Soviet Russia and mainland China.
I think the socialism in the second sense is a Cinderella story for adults.
If you break into a house, threatens the family with a knife or probably with a gun in America and robbs, sending them to live homeless on the street, you will be caught and sent to prison.
If a Mr. George Soros pressures the government to change the financial rules so that people on Wall Street can have a free play in their money games, causing millions of people to live on the streets, they are not punished. Why not?
Prof. Stiglits writes about the Thai crisis in "Globilization And Its Discontents." Thailand was targeted by Wall Street people in 1997. What was not mentioned in the book was that a lot of Thai peasants were hit, too, and had to send their daughters in their teens to Bangkok.
pcardiff 08:02 17 Nov 11
Few will want to read what I have to say, so here's the punchline: there is no one solution to the global economic crisis. Of course! This is all smoke and mirror stuff, navel-gazing, words from lofty, vaunted, elitist theoreticians who are not presently out of work. C'mon! Get real! Any reader should be immediately skeptical of the snake oil! The word "global" for example, is a dead giveaway, that an economist is forgetting the basic problem in Economics - the aggregation problem. It is such an abstraction to compare an out-of-work screen writer with an out of work candy manufacturer in the United States let alone in the rest of the world.
kaushalj 07:43 19 Nov 11
YOU ALL KNOW WHAT THE FRIGGIN SOLUTION TO THIS PROBLEM IS................
STOP HIRIING THE IVY LEAGUERS AND STOP ELECTING THE IVY LEAGUERS
siyuann 07:50 23 Nov 11
anti competitive practise sustained through polictics?
real-life examples please?
gabriel_nagy 03:15 03 Dec 11
I believe that the protest movements are an expression of frustration not of the electoral process but of the results of the electoral process. In that case, like in Colombia, people can organize themselves and demand the ending of the elected official’s mandate. As Mr. Stiglitz says the best government that money can buy is not longer good. What the movement could do is use its power to revoke the mandate given to elected officials.
revangelista 12:35 19 Dec 11
I liked very much the concept of "evolutionary hope on people´s democracy".
But the real question is, what should be done about it both at the governments level as on our personal level?
Hope to see your proposal on next articles.
allanda 09:29 04 Nov 11
"Markets work the way they should only when they operate within a framework of appropriate government regulations; and that framework can be erected only in a democracy that reflects the general interest – not the interests of the 1%."
Some would argue that markets and democracy most often are in ugly conflict - the euro-crisis is one example of this. Markets are always regulated - it all comes down to what we really mean by 'appropriate'...and I wonder whether there really is an inherent conflict between liberal markets and democracy?