The Door of Opportunity–For Whom Does It Open? Nobel Laureate Joseph E. Stiglitz on the Price of Inequality

Source: umagazine

“It was the best of times. It was the worst of times.”

Free trade and globalisation help to promote economic growth and create wealth, but at the same time they have contributed to the widening gap between the rich and the poor and have bred inequalities that permeate every aspect of our society. In his talk at the University of Macau (UM) in March 2014, Prof. Joseph E. Stiglitz, Nobel laureate in economics, discussed the numerous inequalities lurking beneath the surface of a prosperous society, especially inequalities in opportunity. In an age where we are encouraged to seize every opportunity to make our dreams come true, Prof. Stiglitz’s talk left us with a thought-provoking question—the door of opportunity, for whom does it open?

Prof. Stiglitz is no stranger to UM. He gave a lecture at UM in 2002, which was his first public talk in Asia after receiving the Nobel Prize in Economic Sciences. His second lecture at UM was just as popular as the first one. In the talk, entitled “The Price of Inequality”, Prof. Stiglitz laid bare the numerous inequalities that exist in today’s globalised world and discussed the prices we are paying for them.

Prof. Stiglitz opened his talk with an observation of the dramatic changes in the Pearl River Delta region in the last 25 years since his first visit to Macao in the 1990s. “What has happened in the Pearl River Delta region in the last 25 years has been really impressive,” Prof. Stiglitz said. “Very dramatic changes in a very short period of time. In much of the world, there are other dramatic changes that have gone on, and one of the dramatic changes is the increase in inequality in many countries around the world.”

 

Rich Richer, Poor Poorer

How exactly has inequality increased? Prof. Stiglitz cited his home country—the United States—as an example. “In the United States, 95 per cent of the increase in income since the so-called end of the recession went to the upper 1 per cent,” Prof. Stiglitz said. “That meant the bottom 99 per cent have not seen a recovery.” Equally dramatic are data on what is happening to income and wealth in the middle. “Median wealth fell by 40 per cent. Poverty is up. For full-time male workers, it’s much worse; the median income of males today in America is lower than it was 40 years ago,” Prof. Stiglitz said.

Free market advocates believe that providing tax breaks and other incentives to businesses and wealthy people will benefit poorer members of society by improving the economy as a whole. But Prof. Stiglitz pointed out that this so-called “trickle-down economics” will only serve to widen the gap between the rich and the poor and make those at the bottom suffer various inequalities, from income and wealth to health care, exposure to environmental hazards and access to justice. “Things have gotten a lot worse in the last few years, particularly in the aftermath of the global financial crisis of 2008,” said Prof. Stiglitz. “This is particularly true in the developed countries. Those at the bottom have been hurt in different ways.”

And the problems are not unique to developed countries. According to Prof. Stiglitz, China is not immune to these trends. “What China has done in the last 35 years is not only to grow more than almost any other country, but it’s also been able to grow its inequality more,” Prof. Stiglitz said. “But China is not the emerging market with the highest level of inequality. There are other countries in the developing world that have worse inequality. But some of them, like Brazil, invested a lot in education, health care, food, and nutrition for young people, and in a relatively short time, Brazil has succeed in reducing the degree of inequality.”

As tempting as it is to blame inequality on economic forces, economic forces are not the only culprit. “The economic forces that are at play are the same on both sides of the Atlantic, underlying economic forces basically are global in nature,” Prof. Stiglitz explained. “The outcomes, though, differ very markedly from country to country, and that tells us that it’s not just economics that’s driving what is going on in inequality; it’s really about policies, and policies themselves are determined by politics. So when we come to talk about and try to understand inequality, we can’t ignore the central role of policies and politics.”

 

Inequality of Opportunity

Another inequality, which perhaps merits more concern than inequality in income and wealth, is inequality of opportunity. It is very difficult, noted Prof. Stiglitz, for people at the bottom to make it to the top, and that is a good example of inequality of opportunity. Prof. Stiglitz said that statistics show that the income and education of a young American and the income and education of his parents are closely linked. In other words, whether a child in the United States can succeed depends to a large extent on whether he or she has successful parents. “So sometimes I say jokingly, there is one critical decision that each young child should make, and that is choosing the right parents,” said Prof. Stiglitz. “If you make that decision wrong, you might as well give up.”

Prof. Stiglitz observed that some students in the United States, whose parents are not very well-off, pay for college expenses with student loans, and even after graduation these students sometimes cannot afford to work unpaid internships, and end up working as waiters.

These all affect the young people’s opportunity to move upward, and have caused many to become disillusioned with the “American Dream”. “Research over the last few years shows that equality of outcomes and equality of opportunities seem to be very highly correlated,” said Prof. Stiglitz. “Societies with a very high level of inequality of outcomes in income and wealth have very high inequalities of opportunity.”

 

Inequality in Higher Education

There are many factors that contribute to inequality of opportunity, and one of them is inequality in education. Prof. Stiglitz believes that education has a profound effect on people’s lives, and children with better-off parents tend to have a better opportunity to go to college. “One of the major sources of inequality are differences in access to higher education,” Prof. Stiglitz said.

While the internet has been very important in making knowledge accesssible, Prof. Stiglitz pointed out that many poor people around the world, including those in remote rural areas of China, do not have access to the internet.

So what can we do to provide relatively equal opportunities? Prof. Stiglitz suggested that universities should provide scholarships, and governments should make public education available, to ensure that disadvantaged groups also have equal access to quality education.

Macao seems to do a relatively good job of providing scholarships and public education. The Macao SAR government provides free education until the end of high school as well as subsidies for students. Local universities including UM also provide various kinds of scholarships to make sure that young people have equal opportunities to receive education. “Having access to good education is really a privilege,” said Prof. Stiglitz. “It’s a gift that society and the government invested in young people’s future. Hopefully the students will return that investment.”

“Too often, there is a focus on just increasing their own sense of well-being,” said Prof Stiglitz. “But it’s important for them to contribute to the community, to realise that not everybody has had that same opportunity, and to make sure that those who have been disadvantaged can get a helping hand.”

About Joseph E. Stiglitz
Prof. Joseph E. Stiglitz is a Nobel laureate in economics and one of the most influential economists of our time. He is the former senior vice president and chief economist of the World Bank. Prof. Stiglitz has taught at several renowned universities including Princeton University, Stanford University, and the Massachusetts Institute of Technology. He is now University Professor at Columbia University. He has made major contributions to numerous areas of economics, including macroeconomics and economics of the public sector. He is known for his critical view of the management of globalisation and free-market economists.