The morning after neoliberalism

Economist and Nobel laureate Joseph Stiglitz on the failure of market fundamentalism, his experiences fighting it, the vacuum of what comes next, and the big idea he believes can fill the void

There is nothing more satisfying than saying “I told you so.” And if he wanted to, Joseph Stiglitz has earned the right to trumpet that phrase for the rest of his years.

That, perhaps, is what a less evolved person would do if they had proven as right as Stiglitz has about so many of the fundamental economic and political questions of our time — years before the ideas were popular. But Stiglitz, whom I’ve gotten to know a little in recent years, is too gentlemanly for that, too gracious, to eager to share credit.

So let us say it for him. He was right about the misguided fetish for market fundamentalism — as even an historically moderate Democrat like Joe Biden leads an administration that, at its best moments, is talking about breaking out of the neoliberal consensus that imprisoned both parties in recent decades. Stiglitz was right about the widespread uncritical celebration of “globalization,” a Davos narrative about the flattening of the world that obscured harms and inequities and seething rage and cultural dislocation. He was right about trade not being the automatic, unmitigated good many claimed it was. He was right about China’s effect on America and the world. He was right about how minimizing the importance of “externalities” would help speed along the destruction of the planet itself. And on and on and on.

Now that the neoliberal ideology he has spent decades critiquing — essentially, the notion that unfettering markets and corporations to do whatever they please is the best way to enhance human freedom and well-bring — has been collapsing under the weight of its contradictions and hypocrisies and resentments and lies, Stiglitz has emerged in his 80s with a new book, laying out his vision for what comes next.

It’s called The Road to Freedom. Readers of a certain age or interest will recognize the play on another, oppositely spirited book called The Road to Serfdom, by the right-leaning Chicago economist Friedrich Hayek.

What comes after neoliberalism isn’t clear, as Stiglitz admits. Unfortunately, the loudest contenders to replace it today are the right-wing forces capitalizing on the discontent driven by the failures of neoliberal policy to sell populist and authoritarian “solutions” that, in reality, further concentrate economic and political power and pose an even greater threat to human freedom.

Stiglitz has a better idea — a new, progressive capitalism, centered on the idea of freedom, a concept that has been co-opted by the right and mistakenly conceded to it, a concept Stiglitz is determined to reclaim.

Stiglitz, in addition to his Nobel-winning work as a scholar, served as chief economist of the World Bank and chair of the White House Council of Economic Advisors. We talked to him about where neoliberalism went wrong and why, how market fundamentalism led us into the present crisis of democracy, whether the powerful leaders he worked for were duped by ideology or cynically gave in, how campus protests fit into the picture, and what it will take to build a good society, one that prioritizes democracy and freedom for all.

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In certain circles, the word “neoliberalism” is very well understood, but a lot of people out there have no idea what it means. Could you just start by explaining what neoliberalism is as an idea, but, more importantly, can you explain how people may be living neoliberalism in the day-to-day of their lives without realizing it? The cars they drive, the workplaces they go to, the food they eat, taxes they pay, the help they do or do not get.

The term comes from “neo,” or new, and “liberalism,” or freeing. Liberalism was about freeing the economy — and society. Neoliberalism was intended as an update of 19th century liberalism: ideas that prevailed 150 years ago about making a good economy by just letting the markets rip. Those ideas led to the Panic of 1907, the Great Depression, the suppression of labor throughout the period. 

And that's why people thought, “Well, we need an update.” It all sounded good, except when you looked beneath the surface, what it meant was stripping away regulations, lowering taxes, and letting the market do whatever it wanted to do. The belief was — in spite of the evidence to the contrary — that in the absence of government intervention, markets would by themselves be competitive. And that the force of what you might call “buyer beware” would make sure that firms didn't exploit because if they did, they would lose their customers. 

But this was all based on some ideas that had, really, no economic foundation, particularly after I did my work (which analyzed how economies in which there were imperfections of information functioned), and showed that in that kind of a world you could have exploitation, firms could take advantage of others.

More broadly, in the 21st century we live in, a world where we're urban, we interact, we are reaching our planetary boundaries, and one firm's pollution may have life-threatening effects on other people. And that's really one of the main themes of the book, how unfettered freedom for some has real costs, and in fact reduces the freedom of others — even the most basic freedom, the freedom to live. 

So the freedom of a company to pollute means the loss of freedom to live for somebody with asthma. And the freedom of firms to pollute is causing global warming and climate change, which is reducing freedom for all of us, particularly those in the tropics. To live a normal life, people there have to spend enormous amounts of money to protect themselves against the effects of climate change. These are all basic ideas that ought to be brought to the fore once you start thinking about what freedom means.

What you're saying is so simple and so important at the same time. I'm 42 years old; I've lived entirely within the era that you're describing and critiquing. And I think of simple phrases that I grew up with that were just unconsidered: “Don't divide the pie more, just expand the pie.” “A rising tide lifts all boats.” “You don't have to take away from some for others to have more.” 

And what you're describing is a more old-school idea, which is that often what's going wrong for some people is caused by other people. Anyone in the ancient world would've understood that. Can you talk about how that notion, that basic idea that sometimes people hurt other people, and that sometimes your pain is caused by other people, was cast aside in the neoliberal era?

That's right. There was a slight recognition that this might occur, but it was always assumed that it was relatively unimportant. And when it occurred, we would find ways of dealing with it. These problems, which economists refer to as “externalities,” were usually left to the end of the course of economics, if there was time. So the basic economic model was one that I just described: you strip away regulations, lower taxes, and the size of the pie would grow.

And there was one more idea: that trickle-down economics would work such that everybody would benefit from that larger pie. Well, we've had 40 years of experience with this — as you said, almost your entire life — and that experiment didn't work out as hoped. Growth slowed by some two-thirds. Trickle-down economics didn't work. Those at the bottom were actually absolutely worse off in many cases. So we are at a point where we ought to do a rethink. Those premises were wrong.

The interesting thing is that we often date the beginning of this grand, failed experiment to the 1980s, or just a little earlier: Thatcher in the U.K.; Reagan in the United States. But economic theory that was being done in the late 1960s and 1970s had already shown that there was no intellectual foundation for the idea that letting markets work by themselves, without government regulation, would lead to economic efficiency. 

You have done very serious academic work, but you've also been in the rooms where it happens, so to speak, and you've been an advisor to presidents and international lenders and others. How much of this was that the leaders you were working for were deluded, were captured by this ideology? How much was a cynical capitulation to donors and other realities? Was this a kind of mass elite delusion or were people just not courageous enough to stand up for what they knew to be true?