Inside Story

The rising tide that lifts some yachts

Books | Why are we angered by stories of Greek hairdressers retiring at fifty on public pensions, asks Jane Goodall, yet unmoved at the thought of bailed-out German bankers being chauffeured around town?

Jane Goodall 13 July 2015 3183 words

Information, analysis and rhetorical verve: economist Joseph Stiglitz. Abhisit Vejjajiva/Flickr

The Great Divide
By Joseph Stiglitz | Allen Lane | $49.99

Governomics: Can We Afford Small Government?
By Ian McAuley and Miriam Lyons | Melbourne University Publishing | $32.99

In October 2000, a few weeks before the US presidential election, I heard Ralph Nader speak at the Harvard Law School. At that stage of the campaign, he appeared to be riding high, drawing crowds of over 12,000 to rallies in Seattle, Minneapolis and Boston and being interviewed daily in the national media. The auditorium was packed and Nader seemed to have the audience in the palm of his hand. They cheered on his entry, laughed at every wry quip, applauded every rhetorical turn and listened intently during the more developed passages of argument.

As an alumnus of the Harvard Law School, Nader was one of their own, and the commonality was evident in a certain shared degree of acuity. Yet this concentration of America’s young elite included future Democrat and Republican senators, corporate leaders, speechwriters, policy-makers and think-tank aficionados. What they were applauding was a fiery condemnation of a state of affairs many of them would subsequently work to perpetuate.

“A rising tide lifts all yachts,” Nader declared at one point, to audible appreciation. He wasn’t talking about climate change: his theme was the great wealth divide in American society, and he was countering the neoliberal catchcry that a rising tide in the national economy lifts all boats. He spoke of the need to address a democracy gap, inveighed against government control by corporate extremists, and warned of a rising tide of poverty as a result of the political failure to establish a minimum wage.

With a rhetorical flair he may well have learned at Harvard, he invoked a spirit of nationalism to counter that of the American right, and called for a return of the courageous reforming spirit that led to women’s suffrage, unions, the abolition of slavery, civil rights. “You think they settled for the least worst? Somehow we live in a period of American history where we settle for too little.” The peroration echoed his landmark Minneapolis campaign speech. “The greatest asset that the concentrators of power in our country have is that they’ve been able to rely on our own feeling that we can’t fight them,” he said on that occasion. “We can’t build democracy, we can’t establish systems that will fulfil life’s possibilities for ourselves and our children and grandchildren.”

Evidently, he was right about that. It was stirring stuff, but in the event it stirred less than 3 per cent of the American electorate. Fifteen years later, Bernie Sanders is campaigning on much the same ground and so far his rallies have peaked at 10,000, exactly on a par with Nader’s. Since Nader’s run a decade and a half ago, the wealth gap has widened and the right has strengthened its hold on Congress. The systems of welfare, worker protection and financial regulation are in disarray. Few people seriously expect to witness President Bernie Sanders delivering the State of the Union Address.

But why not? Why, in the United States, Britain, Australia and other major democracies is so insignificant a portion of the electorate concerned by the shift in power to corporate interests and the consequent extreme wealth gap? Asked recently what he’d do to change the conversation on the US economy, Sanders said he would bring Joseph Stiglitz to the table. Stiglitz, Nobel prize-winner and former chief economist of the World Bank, has become the doyen of left-wing economists. His most recent book, The Great Divide, is a collection of articles originally written for the New York Times and Vanity Fair, most of which are concerned with the causes and consequences of the global financial crisis. It also includes some semi-autobiographical reflections on earlier periods: the postwar “dirty industrial America” in which he grew up, and the 1960s, when he was strongly influenced by the civil rights movement and was present at Martin Luther King’s “I Have a Dream” speech in August 1963. Stiglitz’s PhD research at MIT was devoted to understanding the economic causes of inequality, and the essays here track those causes through changing cultural and political frameworks. It seems things are getting worse, and dramatically so.

Stiglitz directs his first salvo at the Bush administration. “Though conservatives rail against deficits,” he says, “they seem to have a particular knack of creating them.” Clinton turned Reagan’s deficit into a surplus, but Bush reversed this by paying for two wars on the national credit card and mounting a program of corporate welfare, with tax cuts for the rich. This was offset by welfare cutbacks for the poor, a fall in the median income level, increased job insecurity, reduced healthcare access and soaring levels of credit card debt.

The global financial crisis of 2008 happened on his watch. As Stiglitz sums it up, the GFC showed how “a combination of powerful wrong ideas can combine to produce calamitous results.” Post-GFC, the wealth distribution indicator has gone into the red zone. According to an Oxfam presentation at Davos in 2014, nearly half of the world’s wealth is now in the hands of just 1 per cent of the population. To put the picture another way, while those at the top of the rich list would fit into an eighty-five-seat bus, it would take some three billion people from the bottom end of the economic spectrum to equal their wealth. The six heirs to the Walmart empire have an aggregate worth of some US$90 billion, which is roughly the sum of the wealth owned by the poorest 30 per cent of Americans.

Stiglitz offers a good balance of information, analysis and rhetorical verve, but questions remain about where this kind of critique is actually getting us. He claims that there is a growing sense in America that the current disparity in income and prosperity is unfair, and makes a persuasive case that neoliberal economics has done everything to promote the disparity. So how do we explain the fact that the American people voted the Republicans back into a majority in Congress during Obama’s presidency? Do they really not know who their enemies are?

Like Nader, Stiglitz argues that ultimately the great divide is about more than economics, it’s about democracy. But if only around 3 per cent of the electorate are sufficiently convinced of that to cast their vote accordingly, we have hit a serious impasse. In the minds of the general public, not much has changed in fifteen years, even with the impact of the GFC. This is not just about economics and not just about democracy. It is about public understanding.

Norman Mailer once said that Karl Rove goes to bed every night and prays, “Please God, keep 51 per cent of the American people stupid.” Certainly large sections of the media are committed to making them so, but collective stupidity, however assiduously fed by misinformation and rabid slogans, is not a satisfactory explanation. There are real issues about what is evident to the average citizen in daily life, and what is not.

The bankable worth of the six Walmart heirs does not mean much to workers filling the shelves and swabbing the aisles in the stores. When peasants rose up against aristocrats in pre-industrial society, they were venting their hatred at people they saw riding through the village in fine clothes while they were in rags, or who horse-whipped them when they did not respond to commands. The super-rich of today are simply not visible to ordinary people. Their penthouses, helicopters, limousines, yachts, art collections and Hermès bags belong in a zone of unreality too remote to provoke resentment. The average supermarket worker is far more likely to flare up about the guy working the next aisle who keeps taking a smoko when the supervisor isn’t around. Ordinary people respond most angrily to other ordinary people who are getting something they are not entitled to, and the right’s propaganda is typically focused on providing targets for popular resentment: fellow citizens on welfare, refugees on boats, artists on grants.

Perhaps the strangest anomaly in all this is the growth of popular prejudice against government spending. Governomics, a new Australian study edited by Miriam Lyons of the Centre for Policy Development and public policy specialist Ian McAuley. They have their own take on yachts and rising tides. The book opens with a discussion of the Sydney–Hobart Yacht Race, which they present as a case of government services quite literally coming to the rescue. Corporate financiers fund the yachts (well, most of them), but government-funded agencies, including the Bureau of Meteorology and the Rescue Coordination Centre in Canberra, provide critical monitoring of the race conditions. In 1998, when a major storm developed on the second day of the race, fifty-five people were saved in acutely dangerous search and rescue operations, also funded by government. “We are inclined to forget about the public sector,” say McAuley and Lyons, “until we find we need it.”

But a great deal of political rhetoric is directed towards ensuring that the public sector and its costs are constantly on people’s minds. A few years ago I was approached outside a Toowoomba polling station by an LNP supporter who was running a line about government wastage. “Name me one thing,” he said, “that the government’s ever done that actually did any good.” “Schools?” I suggested. “Hospitals?” Without missing a beat, he launched into an invective about the state of both. If only I had had Noel Pearson’s gift for oratory at that moment:

What did these Romans ever do for us? Apart from Medibank and the Trade Practices Act. Cutting tariff protections and no fault divorce and the family law act. The Australia Council. The Federal Court. The Order of Australia. Federal Legal Aid. The Racial Discrimination Act. Needs based schools funding.

Pearson was speaking at Gough Whitlam’s funeral, and that was only the half of it. Much of Whitlam’s legacy of public policy and infrastructure is already under threat.

Concerned as they are about this, McAuley and Lyons don’t have Pearson’s gift either, and theirs is at times a somewhat pedestrian account of the benefits of government-funded programs. For those with an economy-first mindset, they argue, it is just good economic sense. An OECD report issued in May this year corroborates their case. Major infrastructure projects produce employment and enhance the environment for small business and tourism. A strong public education system prepares citizens for employment in higher-end jobs in a continually evolving job market. Good healthcare helps to keep us off the sick list and maximises the number of people fit for work.

Stiglitz makes similar arguments. Essentially, the more money circulating in the real economies of everyday life, the better. The 1 per cent problem means that disproportionate amounts of capital are circulating up in the stratosphere of the financial markets, or are attached to assets in land and property whose value increases without contributing anything to the dynamic economy. There are signs that increasing property values in Sydney have a directly adverse effect on local economies. House prices in the suburb of Leichhardt have been at a premium because the inner-city hub of Norton Street was a lure to buyers who love the cafes and cinemas and local shops. On my most recent visit, Norton Street was a sad shadow of its former self. With all those sky-high mortgages, it seems, the disposable income has dried up. No amount of inventive free-marketeering can revive an economy in which no one has anything left to spend.

The authors of Governomics believe there is “a pent-up desire for a return to a more pragmatic and inclusive approach to economic policy.” At the same time, though, they are concerned with an equal and opposite tendency to be persuaded by the convictions of small government ideologues, with their talk of nanny states and bloated welfare systems. In Australia, this debate reached a crescendo with Joe Hockey’s proclamation of a national budget emergency and the suite of radical cuts to government-funded services in his 2014 annual budget. Hockey’s approach threatened to widen the equality gap that had been reduced during the Rudd government’s term of office after the stimulus package helped increase the income of the poorest 10 per cent of households by 2 per cent.

McAuley and Lyons are persuasive about the necessity of “paying for civilisation” and offer a forceful conclusion about the urgency of “reclaiming the public good.” This means getting beyond dogma, and they quote French economist Thomas Picketty’s view that the “democratisation of economic knowledge” is of the essence in breaking down the culture of the great divide.

But when it comes to forming opinions, a little knowledge goes a long way for the average citizen. The comment lines following any major article on economic policy are riddled with furious convictions. Few of us are immune to the delusion that our opinions are “informed,” and a good hard look at where they actually came from may reveal nothing more than a legacy of assumed knowledge from assorted media commentators whose accounts offer a shallow and biased grasp of so-called “facts.”

A few weeks ago, shortly after Governomics came out, Miriam Lyons was asked by an audience member on the ABC’s Q&A which “socialist paradise” she wanted us to copy. “Singapore has shown the world how undeveloped nations can climb out of poverty by having small, honest and efficient government,” said the questioner. Lyons responded that she was not advocating any extreme model of government control, but rather contesting “an equally extreme and dangerous idea” that we can solve every problem by putting it into the domain of private corporations and free markets. She didn’t get time to say much more than that before the question was thrown to another panel member. Q&A aims to provide a high-quality forum for public debate on major issues, but its treatment is necessarily summary, brief and oppositional (“putting both sides” being a survival imperative for the national broadcaster). This may do much to stir up public opinion, but it rarely contributes to any kind of substantive public understanding.

Views on the health or otherwise of Singapore’s economy, and the government’s role in this, differ widely. At one end of the spectrum, Richard Rahn of the Cato Institute (a foundation funded by the Koch brothers, joint sixth on the Forbes world ranking of billionaires) launches a polemic against big-spending governments, and cites economic growth in Singapore as a triumph for small government. “The next time politicians tell you they are going to spend more of your tax dollars to create jobs and increase your income,” he concludes, “ask them whether they are ignorant of the facts or they think you are.” Rahn’s “facts” are some broadbrush figures in a short article: enough to appeal to a reader who wants to feel informed and immune to being taken for a ride by opposing arguments. At the other end of the ideological spectrum, Stiglitz credits Singapore with “having prioritised social and economic equity” through quite high levels of government intervention, including a compulsory savings scheme for young workers, welfare programs that are “universal but progressive,” strong environmental controls, housing programs for the aged, and heavy investments in science and education.

Attempts to extrapolate a one-line message from Singapore’s experience do nothing to clarify Australian perspectives on small government, but if one-line messages are dominating the market in public opinion, how can those who write books expect to have any effective influence? Nader, for all his warning cries about how democracy was on the line, could not lock in even 3 per cent of the vote. Bernie Sanders has an estimated 3 per cent of support in the ranks of Democrats. During the current controversy over the Greek debt crisis, Stiglitz and his European counterpart Thomas Picketty are also running the democracy-at-stake line. Both are mounting cogent attacks on the narrative of Greek profligacy, identifying pathologies of EU financial management as the appropriate target for moral outrage. Their commentaries are going viral, some generating comment lines with over 8000 entries (many of them hostile), but in electoral terms this, too, may be quite insignificant.

If the future of democracy depends on the majority of voters actually wanting to contest the great divide, an entirely different approach to public communication and public persuasion is called for. The strangest paradox in the blogosphere’s responses to the Greek bailout is the readiness to condemn the crimes of big government and national profligacy, set against a lack of apparent concern for analogous behaviour among the banks and financial institutions requiring the same level of bailout.

The parallels between the charges laid against Greece and those levelled against the German banks are striking: mismanagement, corruption, cronyism, fraudulently concealing their real financial status, and dangerously overextending their commitments. In a New York Times article published in August 2013, Jack Ewing speculated about why there was so little appetite in Germany for changing the banking system. The German bank bailout following the GFC was one of the biggest in Europe, amounting to over €640 billion, and five years on it remained “a dead weight on the eurozone economy.” Ewing quotes Jörg Rocholl, president of the European School of Management and Technology in Berlin, who finds debate on this problem “alarmingly non-intense.”

Why is it that the average citizen is so readily angered by stories of Greek hairdressers retiring at fifty on public pensions, while there is barely a shrug of the shoulders at the thought of German bankers being chauffeur-driven around town when they have yet to repay massive loans from the public purse? Why are Greeks who have defaulted on their taxes so much more infuriating than financiers who have always avoided them? Ordinary people who have been plunged into the direst financial states are regarded as deserving of whatever further privations are coming (and they are surely coming), while most corporate defaulters are not suffering at all.

Before we can get any traction for the logic of a democratic economy, we have to address the bizarre asymmetries in public opinion. As the Greek debt crisis rolls on, it seems increasingly clear that the European Union would rather see a nation broken than a sophisticated banking system forced to reassess its modes of operation. Austerity by public demand is a phenomenon of our times. Perhaps those who are its advocates fail to see how easily they, too, could come under its reign. •