Broad-based Growth Can Counter Inequality, Instability—Stiglitz

  • Gross domestic product fails to reflect overall well-being
  • Growth with inequality can lead to political instability
  • Advanced economies should help low-income countries pursue growth
  • The conference, held on the sidelines of the 2011 IMF-World Bank Annual Meetings, discussed the consequences of commodity price volatility on low-income countries. The topic of inclusive growth as a policy to tackle the increasing levels of inequality was also debated at length.

    In an interview with IMF Survey online, Nobel laureate Stiglitz explained that while a country’s GDP might be increasing, it does not necessarily mean that life is getting better for all its citizens.

    IMF Survey online: What does the gross domestic product measure?

    Stiglitz: GDP is a measure of the level of economic activity, the market activity in particular. It is the subtotal of all the things that people buy and sell, including services and goods. It was a measure that was developed after the Great Depression when people wanted to get a thermometer of what was happening in the economy. Unfortunately, in the period since it was first developed 67 years ago, it has come to be used as a measure of well-being.

    There are many dimensions to success, and GDP does not measure most of the relevant dimensions. It measures one dimension, but only one. So, for instance, you want to know about sustainability. Can growth continue? Is a country selling its natural resources, stripping its trees, and not reinvesting? What you want is a measure of sustainability.

    You want to know a measure of inequality. All the wealth, all the income of a country could go to a few, and that would mean a country could have a high GDP, high GDP growth, but most citizens would actually be getting worse off. What you want to know is a measure of inequality.

    IMF Survey online: So why does inequality matter in an economic sense?

    Stiglitz: Inequality in itself may give rise to instability. And the links between inequality and growth are debated and complex, but let me give you a couple examples.

    What happened in the United States before the crisis? The middle class was not doing very well. Because they were not doing very well, consumption—demand for goods—was limited. The central bank worried that because of the limited consumption the economy would be weak, lowered interest rates, and threw out regulations. The economy had a bubble. Housing prices soared. But as housing prices soared, the banks could lend...

    To continue reading

    Request your trial

    VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT