28 June 2016

Rewriting the Rules of the American Economy

Joseph Stiglitz
2015, WW Norton & Co, 256 pages,
ISBN 9780393353129

Reviewer: Matthew Whittaker, Chief Economist, Resolution Foundation

Inequality is a choice. So asserts Nobel-winning economist Joseph E Stiglitz in Rewriting the Rules of the American Economy. That statement rests on the book’s central premise that excessive inequality is the product not of capitalism itself, but of the rules and institutions that have been developed in the US version of that model. A damning indictment of the path trodden by countless policy makers over recent decades certainly, but also a rare example of optimism from the dismal science: after all, choices can be changed. 

 Refreshing too is the book’s focus on solutions as well as problems, with more than one-third of the book dedicated to over 40 distinct recommendations. In sum these policy prescriptions represent a significant shake-up of the status quo, but gratuitous controversy is avoided. The first recommendation advanced deals with updating intellectual property rights. Important no doubt, but hardly the stuff of Occupy placards: this is serious stuff, designed to be taken seriously.

 Indeed, Rewriting the Rules is much closer to a think tank report – with a detailed problem statement and often forensic recommendations – than a standard economics tome. Which is not surprising because that’s how it started out. That it works as a book is testament to the writing skills of the authors (and there are several, despite the solitary use of Stiglitz’s name on the cover). Critics might argue that the references chosen to back up the various claims are somewhat partial, but at least they appear. The lack of outright assertions is admirable given that this is, ultimately, a manifesto.

 It is of course written primarily for a US audience (and for the next President in particular, whoever she is), but many of the issues will be familiar to UK readers. As someone put it to me, it has the feel of the book Ed Miliband might have written in 2015 had he been given the chance. Certainly it is true that much of the analysis bears repetition in the UK and elsewhere, potentially reflecting the book’s claim that globalisation is leading to the export of the US ‘rules of the game’ around the world. But it would be a mistake to assume that it offers British politicians an off-the-shelf blueprint for election success. Of course there are similarities between the two countries, not least the experience of financial deregulation and rapidly widening inequality in the 1980s. But more recently the pictures on growth and the distribution of its gains appear to have diverged. While living standards were suffering in the UK even before the financial crisis hit, the problem appeared to be one of a generalised slowdown rather than a marked elongating of the income distribution, as in the US.

 Just how much more extreme the US problem appears to be is brought home by the nature of many of the book’s recommendations. Child benefit (no standard payment exists to cover the extra costs associated with parenthood), basic bank accounts (28 per cent of Americans are unbanked or underbanked), paid sick leave (40 per cent of the US workforce has no such access) and paid family leave (prime age female participation in the labour market has been falling over the past 15 years) feel entirely uncontroversial in a British context. Yet here they represent significant new asks.

None of that is a criticism of the book. It is written for a certain time and place, but it is a thoughtful work that asks the reader to consider what more might be done to steer capitalism down a more equitable route: an ambition that is likely to have relevance across the world for many years to come.