Joseph Stiglitz: Oxfam report reveals that eight men have as much wealth as half the world; this is a moral issue
He says corporations must fix this: pay taxes; lift workers with better wages; invest in companies, not just shareholder gains
Editor’s Note: Joseph E. Stiglitz, Nobel Prize laureate in economics, is an economist and professor at Columbia University. The opinions expressed in this commentary are solely those of the author.
In recent years, business leaders at Davos, the World Economic Forum’s annual meeting, have ranked inequality as one of the greatest risks to the global economy. They have recognized that it is not just a moral issue but also an economic issue.
Of course, if ordinary citizens don’t have incomes with which to buy the products made by the world’s corporations, how can those corporations prosper? That’s consistent with the findings of the International Monetary Fund: that countries with less inequality perform better.
If a majority of citizens feel that they are not getting what they view as a fair share of the economic gains, they may turn against our economic and political system, or at least those parts of it that they blame. If a majority believes that globalization is hurting them, they may turn against globalization.
The outcomes of the election in the US and the result of the referendum on Britain’s membership in the European Union suggest that a rebellion may already be brewing. And this is understandable: in the US, the average income of the bottom 90% has stagnated for nearly a quarter of a century. According to the National Center for Health Statistics, average life expectancy declined last year for the first time in more than two decades.
In recent years, Oxfam has been keeping tabs on the growth in global inequality. In 2014, the anti-poverty organization painted a vivid image of a bus with the world’s 85 richest people – many of whom are in attendance at Davos, as it happens – who had as much wealth as the bottom half of the world’s population. Each year since, that bus has been shrinking. This year, Oxfam revealed that such a large form of transport was no longer needed: a minivan with just eight men (and they are all men) would do. They have as much wealth as the bottom 3.6 billion people.
Not surprisingly, the message has not been lost on these top executives meeting in Davos. For some, it is a moral issue; for all, it is an economic and political one. At stake is the future of the market economy as we know it. At session after session at Davos, executives have been grappling with the question: Is there anything that the world’s corporations can do about this scourge that threatens the political, social, and economic sustainability of our democratic market economies? The answer is yes.
It begins with a simple idea: pay your taxes. This is the first element of corporate responsibility. Don’t resort to shifting taxes to lower tax jurisdictions. Apple may feel that it has been unfairly singled out on this score; it only did a slightly better job at tax avoidance than others.
Don’t make use of the secrecy and tax havens, onshore or offshore, whether it’s Panama or the Cayman Islands in the Western hemisphere or Ireland or Luxembourg in Europe. Don’t encourage the countries in which you operate to engage in tax competition, a vicious race to the bottom where the real losers are the poor people and ordinary citizens around the world.
It’s shameful when the president-elect of a country appears to boast that he hasn’t paid certain taxes for nearly two decades – suggesting that smart people don’t – or when a company pays .005% of its profits in taxes, as Apple did. It’s not smart: it’s immoral.
Africa alone loses $14 billion in tax revenues due to the super-rich using tax havens, Oxfam has calculated, noting this would be enough to pay for health care that could save the lives of 4 million children and to employ enough teachers to get every African child into school.
A second idea is equally simple: Treat your workers decently. A full-time worker shouldn’t be living in poverty. In Scotland, 31% of households where one adult works full time are still in poverty.
Top executives in large US corporations now take home around 300 times what the same corporation’s median worker receives. That’s far more than in other countries or at other times – and the disparity can’t be explained simply by productivity differentials. In many cases, corporate CEOs take home so much simply because they can – doing so at the expense not only of their workers but of the long-term growth of the company. Henry Ford understood the idea about good pay, but his wisdom seems to have been lost on some of today’s corporate executives.
A third idea is equally simple but seems increasingly radical: Invest in the future of the company, in your employees, in your technology and in capital. Without such investment, there won’t be jobs in the future and inequality will only grow. Yet today, rather than investing profits back into the company, an ever-greater proportion is siphoned off to shareholders. In the UK, for example, 10% of profits were returned to shareholders in 1970; this figure is now 70%.
Historically, banks (and the financial sector) performed the important function of raising money from the household sector, to be used by the corporate sector to build factories and create jobs. In the US, corporate borrowing now primarily funds dividend payouts. Last year, the British retail magnate Philip Green was grilled before a committee of parliamentarians for under-investing in his company. He extracted great wealth for himself but led the company into bankruptcy and left a pension deficit of hundreds of millions of pounds, for which he apologized.
Though knighted, praised and paraded by successive governments as a beacon of British business, the description a committee of parliamentarians chose for him may be more apt: the “unacceptable face of capitalism.”
Corporations realize that how well they are doing is not just a product of the laws of economics. It is the result of the laws written in the capital of each country. That’s why corporations spend so much money lobbying. In the US, the banking sector lobbied for deregulation: they got what they wanted, and taxpayers had to pick up the tab for the consequences.
Over the past quarter of a century, in many countries, the rules of the market economy have been rewritten in ways that have enhanced market power and increased inequality. Many corporations have done far better in “rent seeking”— getting a larger share of the national wealth through the exertion of monopoly power or extracting favors from government — than in anything else. But when profits come from such rent seeking, the wealth of the nation is diminished.
Around the world, there are many corporations, led by enlightened leaders, who have long understood these maxims. They have understood that it is in their enlightened self-interest for there to be shared prosperity.
Rather than lobbying for policies that increase rent seeking – with their corporate gains coming at the expense of others – they have realized that the only sustainable prosperity is shared prosperity, and that in those countries afflicted with ever growing inequality, the rules will have to be rewritten to encourage long-term investment, faster growth and shared prosperity.