Inequality leads to economic slump: Nobel laureate

Nobel prize winner for Economics Joseph Stiglitz on Tuesday said bridging inequality would not only help in fostering growth but also usher in political stability.

At a lecture on ‘Globalisation, development and inequality’ organised by Azim Premji University and the Institute for New Economic Thinking in Bangalore, Stiglitz tore to shreds the right-wing justification that inequality keeps the economy moving.
Stiglitz, who won the Nobel Prize for Economics in 2001, blamed inequality for the 2008 financial crisis in the United States.

“In the US, one per cent of the population takes 20 per cent to 25 per cent of the nation’s income. Today, they are getting more than what they got two decades back; but the middle class in the US are economically worse than they were in the 1960s,” Stiglitz said and noted that unless policy-makers focus on reducing inequality, the economic downslide would continue.

Among the various causes for growing inequality were skewed laws, he said. “Corporate giants can apply for bankruptcy and government comes to bail them out. But loans availed by students cannot be discharged even in bankruptcy,” Stiglitz pointed out.
Stiglitz, a former chief economist of the World Bank, said growing inequality would also result in shrinking opportunity.

“Whenever we diminish equality of opportunity, it means that we are not using our human resources in the most productive way possible,” he said.

The nexus between economics and politics was one of the reasons for the inequality issue to have remained unaddressed.

“In the US, each of the presidential candidates is expected to spend a billion dollars during campaign. This money comes from the top and they are not actually giving it away in charity. Therefore, it is not a surprise that you do not hear a lot of discussion about inequality,” the Nobel laureate said.

Ravi Kanbur, professor of Economics at Cornell University, narrated case studies on how South Korea, Taiwan, China, South Africa and Ghana addressed inequality during the last few decades to register good economic growth rate.

Robert Wade, professor of political economics at the London School of Economics, called for policy measures to prevent concentration of wealth at the top.