The Nobel laureate and former Chief Economist at the World Bank on the economics of the climate emergency
In 1960, Gary, Indiana, was home to 178,000 people. The town’s lifeblood was the steel industry – Gary was even named after the first chairman of the United States Steel Corporation, Elbert Gary – and at its height the steelworks directly employed over 30,000 people. In the early 20th century, waves of migrants flowed into the city seeking work on the southern coast of Lake Michigan in factories well-placed to feed the assembly lines of Chicago and Detroit as the US became the world’s dominant industrial powerhouse following the First World War. But in the second half of the 1900s, the city went into decline. Like many Rust Belt towns, its over-reliance on a single industry left it vulnerable to the ebbs and flows of world trade, globalisation and technological advance.
Today, the town’s population is barely over a third of its peak. The exodus began as US steel became exposed to lower-cost imports. The industry now employs just a sixth of the workers it once did, and Gary is more likely to be mentioned for its 13,000 abandoned, decaying buildings than for its impressive output of quality steel.
“There must have been something in the air of Gary that led one into economics,” writes Joseph E Stiglitz, the Nobel prize-winning economist, former chief economist at the World Bank, former chair of Bill Clinton’s Council of Economic Advisers, and university professor at Columbia University. “Certainly, the poverty, the discrimination, the episodic unemployment could not but strike an inquiring youngster: why did these exist, and what could we do about them?”
Far from echoing the paeans to economic liberalisation that have often been the hallmark of mainstream economists for the past four decades, Stiglitz has been a consistent critic of untrammelled globalisation and laissez-faire, free-market orthodoxies. Speaking over the phone from his office in New York, he tells Spotlight “the world faces a huge inequality crisis. Anybody looking at the data of the last 40 or 50 years has been astounded… in my own academic lifetime I have seen numbers moving in ways that are hard to believe.”
Born in 1943, the neo-Keynesian came of age in a period of healthy post-war growth; robust, interventionist states; and a heavily unionised labour force. He was a fervent opponent of the extreme fiscal conservatism embraced by governments in response to the 2008 financial crisis. During the Occupy movement he wrote that inequality and austerity dampened productivity, harmed growth and threatened the future of our democratic politics (as well as hampering our ability to deal with long-term threats such as climate change). “What is disturbing to me,” he says, “is that when people are not content, if they don’t understand the underlying sources… They can fall prey to a demagogue.”
In the 1990s, Stiglitz sat on the Intergovernmental Panel on Climate Change (IPCC), the UN body established to monitor and study human-induced global warming and its effects. At that time, he says, “it was already clear that it was real, significant, and was going to have a big impact”. But since then, the potentially devastating shockwaves have only become more apparent.
The latest IPCC report, released in February of this year, warned that the impacts of climate change were making themselves felt beyond the upper limit of previous estimates. Secondary effects are accelerating warming in ways that were previously unforeseen. “Several of the issues that have come to prominence over the last 30 years just weren’t part of our awareness,” Stiglitz says. “The melting of the Arctic ice cap, which leaves the Earth unable to absorb as much heat; the methane gas release in the tundra, which is again an explosive kind of event; the breaking off of the Antarctic ice caps and glaciers – we were aware of the presence and possibilities of these non-linear systems and feedbacks of that kind but we weren’t really aware of the magnitude of it. We just didn’t really know.”
In spite of the increasingly dire warnings of climate scientists, the Nobel laureate remains “basically fairly optimistic” that the world can limit warming, adapt and mitigate its effects. But it will take new approaches to public investment, a rethinking of the relationship between markets and the state, and dynamic ways of mobilising financial resources that break with the past four decades of omnipotent market fundamentalism.