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College Quarterly
Spring 2012 - Volume 15 Number 2
The Price of Inequality: How Today’s Divided Society Endangers Our Future
Joseph E. Stiglitz
New York: W. W. Norton, 2012
Reviewed by Howard A. Doughty

Imagine waking up one morning to learn that you had won some gargantuan lottery and that, say, fifty million or even one hundred million dollars or more had been deposited in your bank account. Would that make you rich? Would you then be in the ruling class?

The fact is that these are two fundamentally different questions. Having a substantial amount of money certainly separates you from the vast majority of people—the so-called 99%; but, it probably doesn’t get you close to the “superrich,” perhaps the .001%. Today, millionaires are, so to speak, a dime a dozen, especially if you define them by the net worth of their assets and not their annual income. But, yes, with fifty or a hundred million or more dollars, you could buy a nice house and a nice car. You wouldn’t have to worry about your kids’ college tuition and you could probably invest some of the money to ensure a very comfortable retirement. You might even be able to buy your way into a fancy county club, and maybe—just maybe—parlay that prestige into influence with some local political officials. You would not, however, automatically join the real upper class, the power elite, and the political and economic rulers of the land. And, if you lacked good taste in clothes, fussy table manners and ease in conversation, you might be shunned as an interloper, a beer-guzzling guest at an up-scale wine tasting party.

Wealth and income are indicators of your position in what liberal sociologists conveniently call the social “stratification” system. It permits people to think about social class in strictly statistical, not structural, terms. It is the convenient way of talking about inequality, without getting into knotty questions about ownership and control of economic, political institutions and ideological institutions such as the mass media and formal education. It can even finesse questions of inequity. Social stratification analysis has the added advantage of being relatively easy to measure—dollars in and dollars out—and, on the basis of that data, to assign people to various positions on the ladder of material success. In our haste, we usually classify these rungs as “upper class” or “upper middle class” or “working class” or “lower working class” with any number of gradations on the way up and down. But we don’t really mean “class,” with all its potential for “class consciousness,” “class conflict” or even “class warfare.” All we are really discussing is the content of income tax returns.

What’s the difference? Class has less to do with measurable wealth (anyone can win a lottery) than with structural relationship to political economy. Talented athletes, for example, can sign eight-figure contracts to play children’s games for the entertainment of pizza-eating couch potatoes, but that doesn’t mean that they thereby acquire influence over government policies or get to fiddle with interest rates. They probably can’t even spell LIBOR. In most cases, it doesn’t even guarantee that they’ll make their team’s starting line-up if they go into a slump, sustain an injury or fail enough “doping” tests.

The formula for connecting wealth and power is pretty simple. People who gain wealth by making others worth for them (industrial and commercial capitalists), who acquire it through financial trading of some sort (financial and venture capitalists) or who become indispensable courtiers (lawyers and policy advisors) are far more likely to exercise power than those who obtain it by chance (lottery winners), accidents of birth (inheritance) or marketable talent (athletes and rock stars). In the alternative, class counts when it distinguishes between those who own and control the means of production and distribution of the goods and services that constitute that elusive little noun called “the economy.” Money or access to money is a necessary but not a sufficient prerequisite for entering the ruling class. Major business owners, corporate CEOs, senior elected officials (with the assistance of skilled attorneys, accountants and high level bureaucrats) exercise real power over production, distribution and public policy; the others are better defined as “superconsumers.”

The phrase “ruling class” is, of course, tendentious, for it conjures up images of tight-knit little cabals or corporate conspirators plotting to fix prices, exploit workers, swindle consumers and make fools of government regulators concerned with environmental protection, workplace health and safety and market fairness. It’s not, of course, that these little cabals don’t exist, but rather that making note of the fact and even learning a little about their nefarious schemes doesn’t tell us the whole story. And the story is bigger than the ethical lapses committed by sundry financiers, corporations or government agencies.

What’s at stake when a ruling class exceeds its natural appetite for wealth and power and commits the functional equivalent of the mortal sin of gluttony is that it puts itself and the whole of society in jeopardy. It also doesn’t help if some of the members of the ruling class and their chief executives are also fools. (I would call people who seek to maximize short-term gains at the expense of long-term losses either fools.)

We see obvious cases of social jeopardy all around the world, but particularly and distressingly in what we persist in calling “developed” societies. Developed societies, we should recall, were countries that had either won or definitively lost World War II, embraced technological advancement, maintained or established formal democracies, chose an economic mixture of private and public enterprise, ensured both a measure of equity and growing prosperity and were collectively known as the “free world.” They were indisputably led by the United States, included the United Kingdom and the commonwealth dominions, Western Europe and strategic assets (and former enemies) Japan and Germany. From about 1950 to about 1980, they exercised military, economic and political domination of much of the world and claimed moral superiority over the rest. While engaged in an ongoing tussle with the “communist menace” in Russia and China, the developed nations were understood (at least by the developed nations) to be the standard against which all others should judge their progress. Africa, Latin America and much of Asia was said to be “underdeveloped,” but their path to modernity, prosperity and civility was plain: emulate the West.

Since the rise of “neoliberalism” under the likes of Ronald Reagan and Margaret Thatcher in the 1980s, things have become much more complicated, and not just by the collapse of the Soviet Union and the rise of an exceptionally crude form of authoritarian capitalism in both of the former “communist” centres.

Since then, the world’s economic and political leaders have bounced from economic crisis to economic crisis and buried themselves in military adventurism with the cumulative result that the rich have gotten incredibly and unconscionably richer, the middling classes have stagnated or fallen and, by any conceivable measure, the present is worrisome and future is uncertain (and that’s the optimistic outlook). Various bubbles have been blown up and popper. The deregulated financial sector has privatized gain and socialized loss (remember the Savings and Loans scandals). Recovery from the financial debacle of 2008 is now expected, even by conservative estimates, to take at least a decade. And there is worse to come.

Enter Joseph A. Stiglitz—Nobel laureate in economics, active and influential public intellectual, and one of the few people with formal credentials and intimate knowledge of the ways of business and industry who actually seems to understand what’s going on and what current events betoken for the future. His assessment of the people who are nominally and practically in charge is simplicity itself: “They just don’t get it!”

Or, if they do (“they” being the ruling class), then their actions (and inactions) lack even the most minimal moral foundation; they’d probably flunk “Business Ethics 101” or, more likely, they’d take it on-line and have some flunky fill in the correct bubbles on the multiple-choice test—if, that is, they would ever indulge in such a silly exercise as anything other than a practical joke.

What don’t they get? According to Stiglitz, the prevailing myth that inequality promotes economic growth is false. Much noise is made in support of the view that the wealthy (the “job creators”) must be set free from cumbersome regulatory constraints and allowed to invest where profits are to be found. The notion is that they will thus be “incentivized” to invest, employment will be enhanced, goods will be produced, and prosperity will increase both for the investors and for those who win the resulting jobs.

The fact is, however, that the financial industry accounts for approximately half the wealth in the United States, which means that everything else including agriculture, manufacturing, natural resource extraction, retail trade and the service sector (insurance agents, garbage collectors, ice-skate sharpeners, opticians, teachers, nurses, yoga instructors and personal trainers), collectively known as the “real” economy lag far behind. Wealth now is found in paper and pixels, a chimerical simulacrum of what an economy ought to be.

To confront the claims of the phony economy, Stiglitz advances some fairly straightforward and refreshingly honest observations. He notes, for instance, that countries with less inequality fare better than those with more. By any measure of well-being from health and educational standards to economic prosperity, the largely social democratic nations in Scandinavia can be guaranteed to stand in any survey’s top-ten list. The United States, in the alternative, has the largest and the largest growing rich-poor gap, and is sinking according to most OECD and UN criteria.

To the claim that a measure of inequality is the price to be paid for economic growth, Stiglitz is able to rely on two compelling sets of facts.

First, over the past half-century, the period of highest economic growth in the USA was during the two decades following World War II, especially in the fabulous 1950s, to which North American “conservatives” refer with immense nostalgia. What they fail to recall, was that this was the period in which there was also the greatest level of equality, increased productivity and general prosperity. What we now consider to be the middle class was literally constructed in this era, thanks largely to the influence of the trade union movement. Moreover, while the US Congress continues to fret over a proposed increase in the income tax rate from about 35% to about 38% for people with annual earnings over $200,000, the top marginal tax rate during the Republican-dominated 1950s was over 90%!

Unleashing the innovative power of the superrich and entrepreneurs eager to build their personal fortunes while simultaneously creating jobs for all is a deception. According to Stiglitz inequality apparently brings not growth but stagnation, not opportunity but dormancy. He notes that it is no accident that the previous peak in inequality came in the 1920s, immediately before the Great Depression. Inequality, he says, destroys growth and stifles innovation. Though this comes as a shock to any American still able to deal with evidence over ideology, the United States now offers the least equality of opportunity among the rich nations.

Second, real rises in prosperity and equal opportunity are not squashed by government participation in the economy; on the contrary, they depend upon it. People working in colleges today should reflect on the fact that, prior to World War II, education in the United States was limited mainly to the wealthiest of families. It was elitist in form and content. While it is true that the USA had the advantage of a fairly comprehensive system of land-grant colleges that elevated it above most other countries in terms of mass postsecondary education, it was the post-World War II era that saw the explosion of higher education. It was stimulated by everything from the “GI Bill” which subsidized an enormous number of military veterans seeking higher education to the panic occasioned by the apparent Soviet lead in the “space race,” to the pressure from the emerging middle class that brought about the foundations of higher education as we have known it in the closing decades of the twentieth-century.

Now, the vast majority of college teachers are employed by institutions that did not exist in 1950 or, if they did, have been massively expanded and transformed. Of course, every effort is being made to transform education once again into a largely elitist venture. The increase in tuition and private sector funding to replace the withdrawal of public money, the ideological shift from academics to entrepreneurship and the evaporation of scholarly interests in favour of corporate priorities is everywhere apparent. Still, the delusion persists that privatizing education will restore it. And, in a related area, the delusion continues that Americans, who pay about twice as much for health care, cannot afford universal, single-payer health insurance that would lower their costs by as much as 50% prevails. As Stiglitz maintains, the corporations seem able to sell anything, including the falsehood that unfettered private enterprise is the key to America’s past successes and future prospects.

Joseph Stiglitz identifies inequality as the most important economic issue today. So, while he is quick to acknowledge the positive elements of capitalism such as its capacity for innovation in times of growth, he recognizes that the profit motive, which is the essence of capitalist economics, is essentially amoral. The public good, environmental sustainability, human rights and other values simply do not factor into the “bottom line.” From the conscious sales of carcinogens to the corrosion of essential infrastructure and from the exploitation of child labour to predatory lending practices, Stiglitz meticulously lays out the ways in which contemporary capitalism participates in a crisis-ridden system that threatens ecological, economic and ethical collapse.

The prospect of collapse is far more important than the legitimate moral outrage felt at the elimination of gains by the middle class as a consequence of financial swindles while the wealth of the top tier has tripled since 1980. It is one thing to allow injustice in a stable system and another to permit the structure to collapse. Moreover, Stiglitz is not an absolute pessimist. The Price of Inequality does not insist that the worst will inevitably come. He retains an upstanding faith in the standard tenets of liberal democracy and confidence that the mass of citizens may one day understand that they have been misled, that “trickle-down” economics is a ruse, and that the result will be a demand for substantial change. He also displays a touching belief that the ruling class may come to understand that it is in its enlightened self-interest to attend to the needs of less advantaged people. Even Henry Ford appreciated that workers who were underpaid could not afford to buy his cares.

Stiglitz even supplies examples of where and how the amelioration of poverty is leading to economic success, without abolishing the wealth of the superrich. Brazil, for instance, is a large country which has tremendous economic potential, but in which the self-interest of the ruling class was anything but enlightened. It “seemed to be over the precipice.” Yet, through the fashioning of democratic institutions and the ouster of authoritarian dictatorship, it has made a massive infusion of funds to build education, health care and nutrition programs. The result has been less inequality, less potential for instability and more prosperity.

Even the United States, following the financially induced calamity of the Great Depression, built an admittedly haphazard but reasonably effective “New Deal” and, again, in the 1950s not only provided better education, but also built a vast Interstate Highway system (albeit for military purposes in case of a Soviet invasion) which transformed American business and leisure—think middle-class family vacations, rising automobile sales, drive-through fast food outlets and motel chains from sea to shining sea.

In retrospect, some of this might have produced more harm than good as gas-guzzlers and grease-gobblers did damage to environmental and personal health. Nonetheless, it at least showed that directed public investment could produce positive social change. Whether it led to a comprehensive mass education system or the sale of billions of bilious burgers, its capacity to effect and enable change was clear.

Stiglitz is not, however, relentlessly upbeat. He holds out an alarming vision of what is in store if we do not come to our senses. If his cautionary vision is allowed to materialize, the results will be calamitous. American (and Western conceit generally) is reminiscent of the arrogance of past triumphalism. Gibbon’s Decline and Fall of the Roman Empire, Shelley’s “Ozymandias,”and such contemporary accounts and warnings as Jared Diamond’s popular book, Collapse, which explained why whole civilizations, empires and societies fail—the Mayans, the Easter Islanders and so on—should be read, understood, and explained to our students. In each one there are common themes. The absence of environmental sustainability is one. The presence of increased division between rich and poor is another. Stiglitz is not an ecologist, but an economist. He tells at least half the story. We can pretty much guess the rest.

Stiglitz also feels empathy with the “Occupy Movement,” and with local democratic oases in the desert of corporate domination—whether of political parties or the mainstream media. So far, nothing much has come of such inchoate displays of activism though, in a recent interview, Stiglitz credits some of the young activists who originally supported the current occupant of the White House with at least “getting President Obama to talk a little more forthrightly about the problems of inequality in our society.” Changing the conversation, of course, matters little if words are not followed with actions, and there is no immediate expectation that useful action will come in the United States, the United Kingdom, Canada, Germany, etc., without some form of organized public dissent. After all, an almost metaphysical change of mind by the authorities or an actual crisis so enormous that it cannot be navigated with a “strategic bailout” or a “national energy policy” will be needed if decision makers are going to do more than deny or avoid the problems. My guess, though not my preference, is that it will take an enormous crisis to awaken us from our intellectual and political slumbers, but that is yet to be determined.

And this, I suppose, is where college educators come in. One of the prices of inequality is the apathy born of frustration with circumstances and hopelessness about change. Contrary to those who defer to what is, whose idea of education includes inculcating mere survival strategies in an increasingly perilous economy and a faltering ecology, and who either implicitly or explicitly accept corporate controlled market mechanisms as the inescapable “reality,” it is our obligation to draw attention not just to what’s wrong, but with how to make it right—or at least to improve its worst features.

College education ought not to be a course in resignation. Especially for Americans but, more broadly, for all of us influenced by corporate control and the hegemonic ideology of neoliberalism (which means all of us), Joseph Stiglitz’s excellent book is a good place to start. For those of us who have travelled some distance down that road, it is a helpful contribution to the growing popular literature explaining the problems we face and, perhaps, giving some hints about how, in part, to solve them.

Howard A. Doughty teaches political economy at Seneca College in Toronto. He can be reached at