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Inspiring Interview 26 June Jun 2017 1204 26 June 2017

Stiglitz: “Unemployment is not a fate"

A conversation with the winner of the Nobel Prize in Economics: “We have to rewrite market rules. Today, the system guarantees the accumulation of financial wealth, and discourages investment in the real economy”

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Can we cut into growing inequalities, while limiting their expansion and reducing their social impact, by acting upon the employment lever? For the 2001 Nobelist in Economics Joseph Stiglitz, the answer is yes. But a yes not out of convenience, but of necessity. “Inequalities have grown exponentially,” explains Stiglitz. There are those like Thomas Piketty, director of École des Hautes Etudes, who believe that inequality is an endemic phenomenon that can be blamed on capitalism as a whole, and those who, like Stiglitz, believe that inequalities are a consequence of political and macroeconomic choices, and not a “natural” outlet of this system. This is why work becomes the place where, instead of fostering stagnation that maximizes the profit of the few (very few, actually), it is necessary to trigger a generative and participatory process that has a deep and positive impact on income, career possibilities, and social mobility. Italy, professor Stiglitz says, is “one of the countries with the highest levels of inequalities in the world.” For once, the United States is not so distant from us: “a middle class picked clean, an impoverished population base, and 1% of the population enjoying extra profits. And the children of this 1%, who will be rich by mere “descent,” will inherit a competitive edge that will only lengthen the chain of inequalities. Something is not right, something is not fair. Maybe nothing is. From the theoretical standpoint, a model has exploded, Stiglitz explains: that of the “trickle-down theory,” or the idea that inequalities– of well-being, health, income, and social opportunities – might in some way be mitigated by the fact that the benefits received by the wealthier population trickle down onto the lower classes in terms of employment and so on. To the contrary, continues the Nobelist, whom we met at Fondazione Feltrinelli in Milan on the sidelines of a conference promoted by Adecco, “growth in recent decades has been soaring, and has been entirely pocketed while sharing nothing. A worker’s minimum wage is lower than 40 years ago,” in the United States and Italy alike.

In your recent study, you spoke of the urgency of rewriting the rules of economics in order to get out of the spiral of inequality into which the European countries are precipitating. From the standpoint of work, what does this involve?
When we speak of work, we speak of employment, but that’s not enough. Beyond the objective of full employment, which I suggested considering a priority starting from the reform of monetary policy, we have to restore the worker’s central importance in decision-making and management processes. In order to reduce inequalities and recalibrate compensation and income levels more fairly, we have to give workers a voice in the matter and a capacity for real influence over the working processes. For a company’s success, the contribution of the workers is essential. This is why they’re saying their piece, and it is just as right that they get their fair share, through a salary consistent with the value they help generate.

Other interventions that might rewrite the rules of economics starting from work?
First of all, breaking down the legal barriers to access to work that still exist, particularly for women. Then, minimum wages must be raised, and a legal framework in line with the new places and conditions of work – which must not be brought downward – must be guaranteed.

Italy and the United States look alike: a middle class picked clean, and 1% of the population enjoying extra profits

And then?
Reform the justice system to reduce detention rates, reform immigration laws to foster access to citizenship, approve regulations on family leave, increase family allowances, and promote services for childhood and top-flight higher education for all.

On a number of occasions, you have declared yourself optimistic about the possibility of changing course. Are you still?
Since we are beings capable of choice and we understand things are going wrong, I’m an optimist: we know how to choose, we have to choose, but we must also understand in what direction to direct this choice. Inequalities are not inevitable and unemployment is not a fate. Work must, however, be the place where these inequalities fade, and a guarantee for social mobility. If it becomes a place of inequality and discrimination, we are in a new era of feudalism.

So where should our choice be directed?
We have to fight inequality in every way. To do this, we have to rewrite the rules of the market, guaranteeing a better distribution of income, strengthening the bargaining power of workers, and reducing the gap between management compensation and the workers’ average salaries. Today, the system guarantees the accumulation of financial wealth and in fact discourage investment in the real economy, in infrastructure, and in support of small and medium-sized enterprises. We have to go in another direction, in terms of both rules and of corporate governance.

How can the third sector contribute to this reconfiguration of the economy?
By doing what it knows how to do, and doing it better. Let’s take the case of the United States: if you observe American institutions – if you look at them well, I mean – what do you notice? You notice that the most successful ones are nonprofits. And among these institutions, universities are particularly successful. If you look at universities like Harvard, foundations, and associations that truly have a positive economic and social impact, they’re all nonprofits. When people speak of the market economy, I say we’re not a true market economy. We aren’t one in the United States, where the entire education sector, from Stanford University on down, is governed by a non-profit system. And you aren’t one in Italy where – and I don’t have to tell you this – the third sector has a pre-eminent role. It would be a disaster were it to explode.

I’m talking about politics. Inequality is a consequence of a choice by the political system. Since Germany has an imposing weight, it throws it around. It is necessary to reform the rules of the Eurozone, by sharing debt, erasing the fiscal compact, and going back to favouring public investment

Let’s get back to Italy and labour policies...
The problem is the Eurozone, for how it was configured. Intervening in terms of flexibility will not lead to much, also because in the countries inside the Eurozone that tried to increase flexibility, the only result has been to weaken the economy’s domestic capacity even further.

If we’re saying “Eurozone,” we’re basically saying “Germany”...
Within the euro, for young Italians it’s very difficult to be fully employed; it would be easy for Germany to change its policies, for Europe to change, and when I say “easy” I’m not referring to economic policies. I’m talking about politics. Inequality is a consequence of a choice made by the political system. Since Germany has an imposing weight, it throws it around. It is necessary to reform the rules of the Eurozone, by sharing debt, erasing the fiscal compact, and going back to favouring public investment. Without proceeding in this direction, there’s no getting out of the mass unemployment problem which, according to the ECB, in the euro area, stands at 18.5%.

A consequence of this policy, and of this iron cage of the Eurozone, is that, in Italy, 7.6% of the population today lives in conditions of absolutely poverty.
Not only. While the countries most virtuous in terms of income, struggle against inequality, and social mobility are Norway (which is outside the Eurozone) and Sweden, Italy is in first place in the world in terms of rate of inequality, income gap, and social immobility. In Italy, as in the United States, you have a high income if you are born in a high-income family. Just like the United States. This is why if the Eurozone is a trap, the United States is by no means the model to follow.

We run the risk, also in employment issues, of being like Baron Münchhausen, who wanted to pull himself out of the swamp by his own hair
So much in fact that, in Italy, there is underinvestment, including cultural underinvestment, in research policies. Researchers are not finding work, and are fleeing abroad. Those that could be giving this country so much are forced into conditions of permanent precariousness and suffer inequalities bordering on humiliation. So we’re right back where we started. Instead of invoking austerity or following recipes imported from who knows where, it would be no small thing to seek to redraw the boundaries of the economy by giving impetus to the third sector, to its capacity to act upon the social bond. If we don’t restart from this engine, it will be difficult. If we wish to rewrite the rules and redefine the shape of the economy, we have to start from work and remember we have alternatives to crisis, to austerity, to growing inequality. One of these alternatives is to learn from nonprofits how real social change is made.