Stiglitz's Liberating "Freedom".

Stiglitz emphasized that if poverty still haunts us and jobs are difficult to find, we are not truly "free".

KRISTIANUS PRAMUDITO ISYUNANDA

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The name Joseph Stiglitz is certainly familiar to economists. His fame even crossed disciplinary boundaries and captivated a segment of non-economists. This cannot be separated from his great concern for the realization of a just and prosperous social order. The recipient of the Nobel prize in the field of economics who is still actively teaching at Columbia University, USA, has launched another enlightening book.

The title The Road to Freedom clearly describes the opposition to Friedrich Hayek, who was vocal about individualism and rejected all forms of state interference in the market economy, in his book The Road to Serfdom (1944). Stiglitz combined Hayek with Milton Friedman as two "right" (conservative) economists.

Market liberalism is said to bring prosperity to "right" adherents. Stiglitz thinks differently. He found no coherence behind the logic of the "free market".

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When I first opened this book, it reminded me of the Pancasila and Citizenship Education (PPKn) which teaches that freedom is not absolute as it can disrupt the freedom of others. Stiglitz acknowledges this, even making it a fundamental theme that is specifically reviewed in the third chapter of this book which consists of 14 chapters. In Indonesia, the principle of non-absolute freedom is the root of attitudes of tolerance and empathy, even underlying the legitimacy of the law. This book also discusses solidarity and social tolerance in a prosperous market economy.

Wolf and sheep

Stiglitz has pointed out a fundamental mistake in understanding "freedom". The absolute interpretation of freedom championed by the "right" often associates state control with authoritarianism or totalitarianism. Whatever its form, state intervention disrupts "freedom". On the contrary, market mechanisms are the best and most efficient way to achieve complete "freedom" that benefits society. Stiglitz explains that this narrative is illogical and narrows the meaning of "freedom".

At first glance, the "authoritarian" label for certain restrictions on the movement of "freedom" is indeed attractive, especially for liberals. However, advocating "freedom" with this argument actually erodes economic and political democracy, and shackles the wider community in pursuing economic opportunities (opportunity set). In the foreword, Stiglitz quotes Isaiah Berlin, a philosopher from Oxford University: “freedom for the wolf often means death for the sheep.”

KOMPAS/TOTOK WIJAYANTO (TOK)

Residents are carrying out their activities in front of their house located in a densely populated semi-permanent housing area in Pademangan, North Jakarta, on Thursday, July 17th, 2023.

It's not Adam Smith's fault

Individualism and individual freedom may indeed be the ideals of Western nations. Undoubtedly, a civilization based on intellectual development is centered around the progress of science, philosophy, and economy, especially in England and Europe. We know of Thomas Hobbes, Jeremy Bentham, John Stuart Mill, and Adam Smith. However, in its development, there seems to be a misunderstanding underlying the growth of market ideology that threatens the welfare of the people.

I found surprising novelty in the interpretation of free market doctrine in this book. Stiglitz does not blame Adam Smith as the originator of the invisible hand in the formation of a free market economy. He shows that Smith identified the importance of trust and the tendency for non-competitive behavior in a market economy. Libertarian philosophers before Smith also actually laid out a framework for achieving an ideal, prosperous society, if studied in depth.

Neoliberalism and absolute "freedom".

Stiglitz bluntly blames "right-wing" economists of classical and neo-classical schools of thought that emerged a century after Smith. They advocate neoliberalism by using Smith's doctrine of "free markets" as a facade, but neglect many important aspects. He even suspects that Smith would be very concerned if he saw his ideas being misinterpreted.

Stiglitz has strongly criticized neoliberalism and stated that their perspective reduces welfare. The main mistake lies in ignoring the fact that one person's freedom harms the freedom of others. Then, neoliberals see market imperfections and state interventions as exceptions.

Stiglitz provokes readers to carefully interpret the meaning of "freedom".

The "right-wing" group believes in "freedom" as a dogma. Stiglitz sees neoliberalism as antithesis to the sustainability of social democracy, and instead directs society towards populism that is prone to forming authoritarianism. Stiglitz builds his argument by dissecting the meaning of "freedom" through the lens of economics, which cannot be separated from political nuances.

Ideological and technical standards

The structure of this book shows that Stiglitz separates the standards of "freedom" ideologically and technically. The middle part of the book examines market failure and critiques pure capitalism. For readers who are familiar with modern capitalism literature, such as Saving Capitalism: For the Many, Not the Few by Robert Reich (2015) and regulatory economic theory, Stiglitz's explanation is relatively similar.

The economy centers on externalities and market imperfections. A person's behavior affects others, both positively and negatively. Climate change is discussed as the most important negative externality that threatens human existence. Stiglitz also denies the idea of an efficient market. In some parts, he explains the failures of markets due to deregulation that led to the global financial crisis in 2008. Unfortunately, even the "left" (progressive) movement was once attracted to financial system liberalization.

Prosperous order

The "right" group often pits the terminology of freedom (freedom) with coercion (coercion). This method gives rise to acute misconceptions about real "freedom". There is no need to conflict between the two.

Stiglitz believes that a little coercion through appropriate regulations can provide more beneficial freedom. Private contractual transactions actually contain an element of coercion. The parties in the contract voluntarily sacrifice "freedom" in order to achieve the goals of the transaction. Regulations and state intervention need to be seen as a manifestation of the social contract in society.

KOMPAS/AGUS SUSANTO

Job seekers fill out documents at a job fair in a shopping center in Bekasi, West Java, on Wednesday (26/7/2023). The Central Statistics Agency recorded an unemployment rate of 5.45 percent and a half-unemployment rate of 9.59 percent, resulting in a total of 15.04 percent.

He gave the example of traffic lights. Road users are forced to stop for smooth traffic flow. This constraint clearly hinders the users' freedom of choice to continue driving. However, this restriction brings collective benefits. Road users become more "free".

This book presents Stiglitz's consistent search for an economic, political, and social system that brings prosperity. Stiglitz promotes a "progressive capitalism" system that maintains the central role of private economic actors in production and innovation, with significant contributions from the state through comprehensive social policy packages, including regulation, legal administration, and public investment that support equality.

The correct interpretation of "freedom"

Stiglitz provokes readers to carefully interpret the meaning of "freedom." "Freedom" in the context of economics and politics, if interpreted too deeply, can actually be misleading and reduce the meaning of "freedom." Some may exploit it by gaining market power and taking away the freedom of most members of society.

Stiglitz believes that through the optics of economic sacrifice (trade-offs), coercive laws create a more liberating order. After understanding the trade-offs calculations, society must determine which freedoms are worth sacrificing to achieve macro prosperity. Restrictions on “freedom” are not always bad, and more “freedom” does not always have a positive impact.

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For me, the core message of this book is that "freedom" should expand the things people can do and choose. The author emphasizes that if poverty still haunts us and jobs are difficult to find, we are not truly "free". He also said that totalitarianism which destroys "freedom" does not arise because the government intervenes too much, but because the government does not strive for social welfare. Neoliberalists misread this. The book The Road to Freedom offers a way to interpret "freedom" correctly: "freedom" that liberates, for the sake of broad prosperity. Happy tasting!

Kristianus Pramudito Isyunanda,Executor of the Law Doctoral Study Program, Bank Indonesia at University College London

Book Data

Title: The Road to Freedom: Economics and the Good Society

Author: Joseph E. Stiglitz

Publisher: Allen Lane

Year of publication: Print I, 2024

Bold: xxii + 356

ISBN: 978-0-241-68788-8