Stiglitz on inequality, rent-seeking and new measures of progress


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Poverty is indisputably central to the World Bank as we sharpen our mission, but inequality matters too, and we underplay or ignore it at our peril. When this message comes from eminent economist and Nobel laureate Joe Stiglitz, Bank staff and the general public tend to sit up and take notice. 

This was indeed the case during the Development Economics Lecture on Monday April 15 moderated by senior DEC vice president and chief economist Kaushik Basu where Joe, as he is fondly and widely known, discussed ‘The Causes and Consequences of Growing Inequality’. 

In his introductory remarks Kaushik described the remarkable career and outstandingly creative contributions of Joe Stiglitz that has shaped so much of the discourse of modern economics. He also observed that "as the Chief Economist of the World Bank in the late 1990s Joe's biggest achievement was that he changed the IMF."

He also referred to Isaiah Berlin’s philosophical essay referencing a fragment from the Greek poet Archilochus, “The fox knows many things, but the hedge hog knows one big thing," observing that, given his agile mind and prowess in economics as well as his passion for grappling with the biggest conundrums of globalization, Joe combines the best of both animals.

Inequality has many dimensions – whether in terms of income, wealth, health, or exposure to environmental hazards. It is fostered through discrimination, powerful monopolies, bankruptcy laws and taxation loopholes that favor the rich, all of which pave the way for ‘rent seeking.’ As many Bank staff with an economics background will know, rent-seeking involves buying influence, which can range from lobbying to corruption. The concepts of rents and rent-seeking are central to any discussion of the processes of economic development. 

Joe's view is that lately rent seeking has been especially corrosive and he drew a stark picture of how the phenomenon is hurting the United States, which in his view is in an inequality trap, one in which the very fact of the high inequality sets up forces that perpetuate it. Hence, it won’t be easy to pull out of. It’s a sad state of affairs, considering that America has prided itself as being the land of opportunity, where people from humble beginnings can become ‘self-made’ successes. 

Joe made the case for focusing more on promoting opportunities, on identifying the right kinds of public investments needed to reduce inequality (including more rational tax systems), and on gauging success not in terms of GDP per capita alone, but in terms of sustainable development. 

During his talk, he said the Bank has a major role to play in helping countries understand the risks that come with inequality traps and that we in turn need to advise them on how to avoid such traps. 

When I sat down with him for a video interview Joe explained how he sees the Bank’s evolving role and he agreed that the newly proposed target to reduce extreme poverty to 3 percent and raising the incomes of the poorest 40 percent of the population in each country is a very worthy initiative. 




Merrell Tuck-Primdahl

Communications Director, Brookings Institution’s Global Economy and Development Program

April 16, 2013

It is crucial to remember that a very large percentage of the poorest and most excluded from political engagement are women.

Merrell J. Tuck-Primdahl
April 19, 2013

Thank you for the important reminder that women make up a big share of the extreme poor. The Bank in its WDR 2012 focused on gender and development and the institution is pushing hard to ensure that the programs and projects its supports consider girls and women as integral to tackling development challenges. This is true in terms of raising agricultural poverty, deciding on where to build wells or roads, as well as many other decisions that affect people’s lives and prospects.

Jack Michalowski
April 21, 2013

Rent-seeking is indeed corrosive. It is a feature of every society with shrinking growth and diminishing prospects. The same applies to inequality - its growth and decline of the middle class are linked with decline cycles of once-innovative societies.

Are we in a decline cycle? I like to think so. And I also believe that the root of decline - as before - is stagnating broad innovation. Over the last few decades - the decades of slowing growth - innovation and technology came to be equated with IT only. Unfortunately, we cannot eat IT or put it in our gas tanks, and it even does not seem to significantly increase productivity in the services sector. The root of inequality, rent-seeking and other social ills is stagnating growth and stagnating innovation. My recent book 'Baroque Tomorrow' explores this topic in depth.

May 03, 2013

The women are homemaker and their contribution in this regard is not measured in economic terms. Another reason is lack of interest in educating the women.