In 2009, the American government loaned almost half a billion dollars to Elon Musk’s Tesla corporation to hasten the development of electric car technology. What did it think it was playing at? Didn’t it remember what Ronald Reagan said? “The most terrifying words in the English language are: ‘I’m from the government and I’m here to help,’” the late president told a 1986 press conference.
For Reagan and the brains behind his neoliberal puppet, the role of government is to get out of the way and let the unfettered orgy of self-interested neoliberal economic life express itself as nature intended. Taxation is theft and interventionist industrial policy always a mistake, except when it involves bailing out failing banks in reward for tanking the economy.
Nobel-winning economist and former Bill Clinton aide Joseph Stiglitz demurs. He proposes, instead, what he calls progressive capitalism. We need more government, not less. Stiglitz even writes a sentence that may induce any tooled-up Maga enthusiasts to expectorate into their spittoons and pump their shotguns. “We need environmental regulations, traffic regulations, zoning regulation, financial regulations, we need regulations in all the constituents of our economy,” he writes.
We need, what’s more, to problematise Margaret Thatcher’s homey analogy between government finance and a housewife’s balanced weekly budgeting. Stiglitz says most companies grow by incurring debts, but no one would just look at the liability side of a firm’s balance sheet. “If we spend the money on infrastructure, education or technology, then we have a more productive economy,” he writes. “When a firm invests well, the value of the assets increases more than the liabilities, and the firm’s net worth is enhanced. The same for countries.” This is basic economics, though not of the kind that I and many others were taught at university in the early 1980s, when laughable myths about individual economic rationality, perfect competition and how the spirit of free enterprise needed to roam unchecked were presented as undeniable facts.
But can governments be trusted to deliver socially desirable goals such as electric cars? Consider the HS2 high-speed railway debacle or, if you can bear to, Michelle Mone’s impact on public trust in government. Or consider, Stiglitz suggests, the errors that the US government made in drawing up its contract with Tesla. “It made a mistake. It failed to insist on a share of the upside potential … by insisting on receiving shares, for instance. If it had, the government (and American taxpayers) would have more than made up for the losses incurred in other technology and investments.”
To put it another way, governments aren’t very good at business. “Mistakes will be made,” says Stiglitz. “But the discovery of a mistake is no … reason to abandon a policy.” He notes that the US has embraced interventionist industrial policies as never before to provide correctives to badly functioning markets, especially since the 2008 banking disaster – hence the development of Covid vaccines and recognition of excessive dependence on foreign-made microchips. The US government, that is to say, is already doing more governing than neoliberal orthodoxy allows.
The case for minimal government was made by the nemeses of Stiglitz’s book, Friedrich Hayek and Milton Friedman. The former, a Viennese economist whose 1944 book The Road to Serfdom was so prized by Thatcher she handed out copies at cabinet meetings, insisted that tyranny would result from government control of economic planning. The latter economist’s scorn for big government was typified by his remark: “If you put the federal government in charge of the Sahara desert, in five years there’d be a shortage of sand.”
Stiglitz, who has had beef with Friedman ever since the pair clashed at the University of Chicago in the 1960s, thinks Thatcher’s favourite monetarist thinker is responsible for a desertification of human hope thanks to his quasi-religious faith in shareholder capitalism, in which the only goal for managers of companies is to maximise shareholder value. Friedman, Stiglitz insists, unleashed a generation of Gordon Gekkos to slime their way to economic power with their “greed is good” philosophy. Worse, the pursuit of shareholder greed encouraged company managers to ignore what economists call externalities – such as water organisations filling British rivers with excrement, drug companies killing Americans by addicting them to opioids or the rape of the Earth for private gain.
Much heavy lifting for Stiglitz’s case is done by the American political philosopher John Rawls, whose 1971 book A Theory of Justice proposed a still resonant thought experiment. Imagine that each of us is temporarily behind a veil of ignorance knowing nothing of our talents, income and wealth, or indeed core values. In this “original position”, what principles of justice would we devise to ensure the society we lived in was a good one? Not, suggests Stiglitz, those that prevail today in countries such as the US and UK. Instead, he thinks it would yield the principles of progressive capitalism he spends the book defending – involving more government intervention and reforming neoliberalism’s excesses captured in the bracing truth of Isaiah Berlin’s remark “Freedom for the wolves has often meant death to the sheep.”
I’m not so sure. His vision of progressive capitalism seems too little, too late – too little to create egalitarian societies after decades of neoliberalism; too late to stave off climate disaster. I wish Stiglitz had drawn – as the British philosopher Daniel Chandler did last year in a book similarly aimed at loosening neoliberalism’s chokehold – on another element of Rawls’s thinking. His principle asserts that any inequality in society can be justified only to the extent that it benefits the worst off. But that, I suspect, smacks too much of socialism for the Nobel laureate. Stiglitz’s conviction – ardently expressed, mostly unconvincing – is that capitalism got us into this mess and can get us out of it too.
• The Road to Freedom: Economics and the Good Society by Joseph E Stiglitz is published by Allen Lane (£25). To support the Guardian and Observer order your copy at guardianbookshop.com. Delivery charges may apply
