An economic and political system that does not deliver for most citizens is one that is not sustainable in the long run. Eventually, faith in democracy and the market economy will erode, and the legitimacy of existing institutions and arrangements will be called into question.
The good news is that the gap between the emerging and advanced countries has narrowed greatly in the last three decades. Nonetheless, hundreds of millions of people remain in poverty and there has been only a little progress in reducing the gap between the least developed countries and the rest.
Here, unfair trade agreements — including the persistence of unjustifiable agricultural subsidies, which depress the prices upon which the income of many of the poorest depend — have played a role. The developed countries have not lived up to their promise in Doha in November 2001 to create a pro-development trade regime, or to their pledge at the G8 summit in Gleneagles in 2005 to provide significantly more assistance to the poorest countries.
The market will not, on its own, solve any of these problems. Global warming is a quintessential “public goods” problem. To make the structural transitions that the world needs, we need governments to take a more active role — at a time when demands for cutbacks are increasing in Europe and the US.
As we struggle with today’s crises, we should be asking whether we are responding in ways that exacerbate our long-term problems. The path marked out by the deficit hawks and austerity advocates both weakens the economy today and undermines future prospects. The irony is that, with insufficient aggregate demand being the major source of global weakness today, there is an alternative: Invest in our future, in ways that help us to address simultaneously the problems of global warming, global inequality and poverty, and the necessity of structural change.
Joseph Stiglitz, a Nobel laureate in economics, is university professor at Columbia University.
Copyright: Project Syndicate