Joseph Stiglitz on how to ‘build back better’

 

In the third and final 2021 Green Templeton Lecture on ‘Navigating the COVID challenge’ the college welcomed Joseph E. Stiglitz, an American economist and professor at Columbia University to discuss the new foundational notions of policy development that are necessary to ‘build back better’ after COVID-19.

Steph Barker, a master’s student from South Africa studying Environmental Governance at Green Templeton reports:

How might governments around the world measure progress towards a better future in the wake of the pandemic? In this third, and final lecture of the Green Templeton 2021 Lecture series, renowned economist Joseph Stiglitz discussed what ‘build back better’ means, and on what foundations this building might occur.

‘COVID has not been an equal opportunity virus’

Stiglitz began his presentation by outlining the numerous societal fissures that COVID-19 has highlighted: wealth inequity, inadequate healthcare and social security, the limits of neoliberal approaches to governance, and the lack of resilience in the private sector.

COVID has not been an ‘equal opportunity virus’, Stiglitz emphasized. It has exposed and exacerbated pre-existing inequalities — effecting those of lower socio-economic standing most dramatically.

Stiglitz emphasized that not only are there large inequalities in income, but there are drastic inequities in access to healthcare, too. COVID has highlighted major gaps in healthcare systems around the world. He cited the US healthcare system as a particular example – noting that the virus has demonstrated just how gaping disparities in healthcare access are.

In addition, Stiglitz argued that COVID has also exposed the lack of resilience in the private sector. The emphasis on short-term gains has underpinned decision-making processes across many sectors. The 2008 financial crisis revealed the risks associated with over-emphasizing short-term gains. In 2020, COVID-19 did the same. Short-termism has undergirded much of the global economic system, Stiglitz claimed, and it continues to threaten the long-term resilience of social and economic system globally.

However, this is not the only logic that has jeopardized social stability. Stiglitz claimed that the effects of private sector short-termism have been exacerbated by the public sector’s inadequate response.

Over the past 40 years, neoliberalism has emphasized the need for ‘small government’ – limited regulatory oversight, privatization, austerity, and a market-based governance mechanism. After the Trump presidency in particular, important institutions like the US Centers for Disease Control and Prevention (CDC) were left underfunded and inadequately resourced.  This whittling down of government over time has meant that countries were not able to respond adequately when the pandemic hit.

Stiglitz claimed that the public sector’s inadequate response was not an accident, but rather the outcome of a gradual diminishment of government since the times of Margaret Thatcher and Ronald Reagan. It is this idea that the markets, left to their own devices, will deliver the greatest social benefits for society at large that Stiglitz sought to interrogate.

‘What we measure affects what we do’

Throughout the lecture, Stiglitz critiqued the use of Gross Domestic Product (GDP) as a measure of social well-being. He emphasized the need to develop new ways to evaluate progress towards a goal as broad and complex as building back better.

What the pandemic has demonstrated clearly is that greater wealth and per capita income does not necessarily translate into better individual or societal well-being. For example, the United States, which has the highest income per capita in the world, has been ravaged by the pandemic. Without any kind of national health service, individuals experienced dramatic inequities in their access to healthcare.

Life expectancy in the United States is lower than that of many other countries of comparable standing in terms of GDP. In fact, life expectancy in the US has been declining in recent years.

Stiglitz has been part of a commission that has been given the task of constructing new approaches to measure economic performance and social progress. ‘It is clear that GDP is not an adequate summary statistic of how well we are doing’, he said.

Critiquing and replacing this metric is important, because the factors that are measured effect what policy makers pay attention to. If metrics only account for increases in material well-being, other factors that contribute to a healthy and prosperous society will be left out.

What we measure affects what we do, Stiglitz emphasized. ‘If we measure the wrong thing, we will do the wrong thing’, he said. Developing better metrics is particularly important now, because to ‘build back better’, governments need to able to assess whether or not they are making progress on addressing the many fissures the pandemic exposed.

‘How do we assess whether we are building back better?’

Given the inadequacy of current measurement systems, Stiglitz turned to a discussion of alternative approaches to tracking social, political and economic progress. He argued that single summary statistics are never going to be able to encapsulate the complexity of social progress.

While it might be tempting to assign one number as a proxy for well-being, doing so is a dubious practice. This emphasis on a single metric is one of the main reasons GDP has been such a poor indicator. Instead of searching for one number, Stiglitz advocated for what he called a ‘dashboard’ approach to measurement.

Such a dashboard would report on ‘the metrics that matter’ — potentially health, education, equality, security and trust — to present a comprehensive picture of social well-being. ‘A democratic dialogue on what should be included in such a dashboard could actually be very constructive in helping to form a consensus on where we as a society should be going’, Stiglitz said.

In the future, factors like emission reduction, and environmental targets will be particularly important to include in any dashboard. If global temperatures are going to remain below 1.5 degrees of warming, net Greenhouse Gas (GHG) emissions will need to be zero by mid-century. Including this goal as part of an overall dashboard analysis is imperative.

In addition to progress towards environmental targets, which can be numerically captured, Stiglitz also spoke of the need to include health statistics, objective and subjective measures of inequality, individual social and financial security, and some indication of levels of trust in public institutions. Some of these measures are not easily quantifiable. How does one measure how much the public trusts its local government? What kind of metric could one use to track changes in mental well-being?

While the difficulties of measuring these components of individual and collective health are immense, Stiglitz insisted that policy-makers should not shy away from this complexity. It needs to be accounted for — as difficult and messy as the task may be. Simply measuring the things that are easy to quantify will be insufficient to assess whether societies are, in fact, building back better.

‘If you have the wrong metrics, you will do the wrong thing’

After emphasizing the importance of defining the metrics that matter, Stiglitz turned to look at some of the actions that have already been taken toward building back better in the United States.

The Biden administration has successfully passed a $1.9 trillion Recovery Bill, which, in addition to previous COVID response spending amounts to close to 25% of US GDP. Forecasts now anticipate that the US economy may grow by 6 to 7% this year, perhaps even 8% — putting the country on track to reach pre-pandemic levels of economic performance.

As part of this recovery spending, the Biden administration has been focused on moving towards a greener and more inclusive society. Stiglitz noted that the recent recovery bill included funding for specific programs designed to reduce childhood poverty. Economists at Columbia University anticipate that this spending has the capacity to reduce child poverty by 20% within a year.

While this kind of spending might increase government debt in the short-term, over the long run, Stiglitz argued that having a smaller portion of the population growing up in poverty will contribute to future prosperity and economic growth.

Some commentators have critiqued the US approach, and expressed concerns about ‘overheating the economy’. Stiglitz sought to quell these worries, insisting that governments have the tools they need to manage debt and inflation — including raising tax rates, and nominal interest rates.

While there are certainly challenges ahead, Stiglitz presented an optimistic vision of a post-COVID world — one in which governments and policy-makers pay greater attention to the many different components that constitute social, political and economic well-being. Stiglitz demonstrated just how important having the metrics right will be in this process. To ‘build back better’ requires defining what ‘better’ really means, and ensuring that that definition moves beyond narrow conceptions of progress.

Developing more holistic metrics helps one to think about the multiple dimensions of policies that will be necessary to create a more equal and sustainable society. Recognizing the inequalities that COVID has exposed, Stiglitz encouraged the audience to see that reforming foundational ideas about progress will be essential to a better recovery and future.

About the Green Templeton Lectures 2021

The Green Templeton Lecture Series is an annual series of lectures in which speakers are invited to explore a given contemporary theme. These are designed to appeal to the broad college community, and to engage with interested parties from outside college. The 2021 lectures on ‘Navigating the COVID challenge’ were held in partnership with Franklin Templeton, as an extension of their academic partnership scheme in which the college is a current partner. Under this overall theme, the lectures focused on different aspects, ranging from framing the coronavirus challenge to key lessons for recovery strategies to measuring the actual progress towards a better future these strategies deliver.