Joseph Stiglitz On a Post-COVID-19 Economy

Season 2 Episode 3
Joseph Stiglitz on a Post-COVID-19 Economy

S2E3 / May 21, 2020

Guest Headshot-1200_1.png

The impact of COVID-19 on the global economy was swift and substantial. Unemployment numbers are reaching depression-era levels and nations are clamouring to unveil stability packages intended to lessen the economic impact. Will these measures work to restore the economic status quo, or is this an opportunity to rethink our economic structures?  

In this episode of Big Tech, co-hosts David Skok and Taylor Owen speak with Joseph Stiglitz, a Nobel laureate economist and a professor at Columbia University, about lessons from past economic crises, and how those lessons apply to the economic fallout of COVID-19.

This time around, tech companies command much of the market, and many of them are experiencing stability, if not growth. Zoom and Netflix, for example, have seen surges in their share price. Unfortunately, the tech industry introduces new labour-market issues: digital platforms often require fewer employees to operate than other industries like manufacturing or air travel. With comparatively small staff numbers, tax breaks and growing monopolies, technology companies have an outsize effect on society. Stiglitz argues that taxing these companies in “an adequate way” could have a positive social impact. “The fact is: we lowered the corporate taxes rather than trying to capture back for the public some of the enormous profits that are accruing to the tech giants,” he explains. These companies could emerge from the pandemic more dominant than ever.


This transcript was completed with the aid of computer voice recognition software. If you notice an error in this transcript, please let us know by contacting us here.


David Skok: Welcome to big tech. I'm David Skok.

Taylor Owen: And I'm Taylor Owen.

David Skok: I'm the Editor-in-Chief of The Logic, a publication focused on the innovation economy.

Taylor Owen: And I'm a senior fellow at the Centre for International Governance Innovation, and a professor of public policy at McGill.

David Skok: And this is a podcast that explores a world reliant on tech, those creating it, and those trying to govern it.


Chuck Todd: US lost more than 20 million jobs just in the month of April.

SOURCE: MSNBC YouTube Channel

“U.S. Logs Record High Unemployment Numbers - What Comes Next?”

May 9, 2020


Jo Ling Kent: JC Penney filing for chapter 11 bankruptcy becoming the largest retail to fall victim to the Corona virus.

SOURCE: NBC News YouTube Channel

“JCPenney Files For Bankruptcy, Other Stores Ending ‘Hero Pay’”

May 16, 2020

David Skok: So last week, Goldman Sachs predicted unemployment in the United States will hit a shocking 25% by the end of the year. That's what it was at the height of the Great Depression. Even right now at this moment, American unemployment numbers are nearly as high as the entire population of Canada, over 36.5 million jobless claims in the past two months alone.

Taylor Owen: In other words, things are looking pretty bleak for a lot of people that is, unless you happen to work in big tech.



Jay Jacobs: You've seen phenomenal growth in Google's cloud. You're seeing growth in users on Facebook, which is something that's been slowing down for many quarters in a row.

SOURCE: Bloomberg Technology YouTube Channel

“Tech Companies Report Strong Earning During Pandemic”

May 4, 2020


Scott Peterson: Shopify is now worth $121.2 billion.

SOURCE: CBC News YouTube Channel

“Shopify overtakes Royal Bank, becomes most valuable Canadian company”

May 7, 2020


Andrew Ross Sorkin: Zoom had a massive run-up. As you might imagine, ahead of those earnings and uptake in new customers.

SOURCE: CNBC Television YouTube Channel

“Why Zoom shares dropped despite earnings beat”

March 5, 2020


Taylor Owen: Around the world companies are being decimated by emergency orders related to the coronavirus, including many in the tech sector, but some of the industry's biggest players are actually benefiting. We're shopping on Amazon we're meeting via video conference and kids are using social platforms more than ever.

David Skok: While small businesses struggled to stay afloat, big tech's market cap is only getting bigger. Together Apple, Amazon, Microsoft, Alphabet, and Facebook now account for a fifth of the S&P 500.

Taylor Owen: To help us make sense with this means not only for our economies, but for our societies. We're sitting down with someone who has made a career out of critiquing this kind of wealth disparity.

David Skok: Joseph Stiglitz is a Nobel laureate economist, a professor at Columbia University and the former chief economist of the World Bank. Professor Stiglitz welcome to Big Tech.

Jospeh Stiglitz: Nice to be here.

Taylor Owen: One of the economic effects we're seeing is that small businesses are getting crippled when large corporations are sort of securing some of their market concentration. How do you see that playing out in the technology sector specifically?

Jospeh Stiglitz: The general point that you make is something that's been a great of worry to me that there are, as I say, hundreds of billions of dollars going out say in the United States with no vision of what kind of economy do we want to see after the pandemic and no sensitivity to how what we're doing now will impact the post pandemic world. Because the big enterprises are getting a disproportionate part of the money and the smaller are not. Obviously it's going to make the concentration almost surely larger in the post pandemic world, although we're too soon into the pandemic to be sure exactly the magnitude of these effects.

Taylor Owen: And in addition to the disproportionate amount of the policy money going to these companies, you're also just seeing organic market growth of them, right? So, there's just a tremendous market concentration happening in certain companies in the tech sector, right?

Jospeh Stiglitz: That's right. I mean, in some ways this has been a good crisis for the tech sector because you can do things remote. So the firms that were at the edge, or you might say that that had the services ready to go have done very well.

David Skok: If you look at Netflix and Amazon, they're both up 30% and Zoom has doubled in value and as a result of this, the big five tech companies now account for a fifth of the market cap of the S&P 500. So what happens when economic power is concentrated like this? If I was in your first year economics class, walk me through the downstream effects of that kind of concentration.

Jospeh Stiglitz: What we teach in our elementary economics as a model of a competitive market. And I would say it was probably, we never had a competitive market, but it's now it's so 19th century as we go into the 21st century, it's so different from the modern economy where such a large fraction of economic activity is concentrated in a relatively few firms. The stock market valuation that you quoted is an example, but actually if you looked at the increase in the stock market value over the last five, 10 years, it's even more concentrated. The tech companies have gotten, for instance, all the advertising and devastated the old publishing companies, the newspapers the various forms of media that used to be where the advertising dollars went. More broadly, when you have that kind of concentration of economic power, it has a whole set of ramifications. They have the power to raise price well above the cost of production. It results in more inequality. Those who will own the shares of those companies, the original founders do very, very well at the expense of the rest of society. One of my major concerns is the impact on distribution of political power, particularly in a country like the United States where money matters so much in politics. So the point is our society, there's a kind of accountability except for these big tech companies and why? Because they've used their political power to free them from that accountability and of course that means more profits for them.

Taylor Owen: Stepping back a bit, did this same kind of both economic and political concentration of power happen in previous big crashes. Did it happen in 2008, I guess, to a certain degree, but maybe more accurately in the Great Depression?

Jospeh Stiglitz: Well, actually, the reason we passed our antitrust laws trying to break up power was because of the concentration of economic and political power at the end of the 19th century, that ushered in the progressive era. And that's why the subtitle of my book, I talk about progressive capitalism as an echo back to this progressive era where we passed legislation that successfully limited this kind of market power and brought in a rash of social legislation, including countervailing powers on the part of unions. But what is so devastating about the imbalances of power today is that we have this growth of market power, corporate power, particularly technology corporate power at the same time, as a weakening of all the other countervailing powers like unions.

Taylor Owen: In terms of labor protection. These companies just employ a lot less people too. Then the big industrialists of the 20th century did, is that a big difference too? Netflix only employs 5,000 people?

Jospeh Stiglitz: That's right. I mean, that, that is one of the factors contributing to the weaknesses in the labor market. It wouldn't be if we taxed these companies in an adequate way and recycled the money and use that money to hire teachers and nurses. And the fact is: we lowered the corporate taxes rather than trying to capture back for the public. Some of the enormous profits that are accruing to the tech giants.

David Skok: The tech community has mostly been a supporter of universal basic income, which I'm curious as a policy lever, how you feel about that and what unintended consequences you may see through that sort of a policy plank.

Jospeh Stiglitz: Well, in my book, I discuss that I come out against the universal basic income, except if nothing else fails, the first responsibility of the government should be to ensure that everybody who is able and wants to have a job can get a job. In our society, jobs are associated with dignity and meaning in life. And to me, there are so many things that have to be done. We need to make green investments. We need enormous investments in our infrastructure. We've been under investing in science, which we've seen in the response to COVID-19 by the United States. We're going to need care for the aging. So to me, I look around and I see huge needs and people who want to work. And so the failure is our economic and political system to create the jobs that people want and on our society needs. So the first obligation, as I say, is to create employment opportunities. Now, right now in the middle of the COVID-19, we are basically creating a temporary universal basic income, because nobody wants to go to work and nobody... There's no demand and be up to people don't want to go to the restaurants. And so we have done that, but it's a temporary measure. The longterm should be creating the jobs that our society needs.

Taylor Owen: Turning back to the tech sector a little bit, six months ago, there was an open debate about whether some of these companies were monopolies and what kind of monopolies they might be. In some cases like Amazon, it's probably more and more difficult to make that argument now, given just how much of the commercial activity they're encompassing. If they come out of this so big, we might have backed into that conversation they had been trying to avoid.

Jospeh Stiglitz: I don't think that conversation ever stopped, at least in the United States. I've been very involved in that conversation. And I think the evidence is overwhelming that these firms do have market power and that they have abused that market power systematically. The remedies are a little bit more difficult. In the case of Facebook is quite clear that they should never have been allowed to acquire Instagram and we could just require it to divest itself of Instagram. So there is some scope for breaking up these firms, the focus, I think, will be however, mostly on stopping anti-competitive practices, stopping them from going into areas where there are, what you might call conflicts of interest where they are both a platform and competing with other firms on the platform.

Taylor Owen: So Amazon basics is a good example of that, right?

Jospeh Stiglitz: Yeah, exactly. So I think those of us who believe in markets believe one aspect of markets is competition. Monopoly markets don't have the virtues of competitive markets. And so we have to restore competition.

Taylor Owen: I guess one of the challenges with at least American antitrust policy has been having to show consumer harm and that being pretty difficult around data collection and data monopolies. I sort of wonder if with Google and Apple in particular, heading into contact tracing, arguably even increasing their data monopolies, whether we're really going to have to back into that conversation around data being an aspect of competition.

Jospeh Stiglitz: Oh, very much so, the United States and the Federal Trade Commission always had a mandate, both about competition, but also consumer protection. It was put together for a deliberate reason, the two are related. I think that one of the dangers is that when these firms have so much data in combination of artificial intelligence, it gives them an almost insurmountable, competitive advantage, very hard for competitors to enter into that market. And it gives them the ability to engage in a whole variety of discriminatory practices. And in that way, they're actually undermining the market economy. If you recall back to your basic economics course, one of the reasons why competitive markets are efficient is that everybody faces the same price, so everybody faces the same marginal benefit in the marginal costs that requires everybody facing the same price. But if you have a different price for every individual, that's not true. And so they're actually undermining the principle of efficiency of markets.

David Skok: In a recent New York Times article, you were quoted as saying, "We built an economy with no shock absorbers. We made a system that looked like it was maximizing profits, but had higher risk and lower resiliency." Now that could apply to a lot of different sectors of the economy. But it also sounds like you're describing Silicon Valley to a T given some of the things that are happening in our world today. How did we end up here?

Jospeh Stiglitz: Oh, I think it's actually a continuation of the same critique of capitalism that we saw in 2008. Short-termism. The financial markets in 2008 years in which they had an enormous appetite for risk. They looked at the short term benefits, but didn't think about the long-run cost, and society wound up picking up the pieces. Then, as it is now, there are many, many cases of firms that got huge tax benefits in 2017 and went ahead and distributed what they got in the form of share buybacks and dividends. The United States in 2018 at almost a trillion dollars of share buybacks alone. If they had kept that money, it would have been a buffer – they wouldn't have needed as much help from the federal government to survive this crisis. So just getting rid of those capital buffers and living on the edge is another example of short-termism.

David Skok: So now when we look at more corporate bailouts that may come, what are some of the conditions or parameters you would want to see on that to reframe it as a longterm approach?

Jospeh Stiglitz: Well, some of the things that I would have liked to see is reforms in corporate governance to encourage longterm thinking. For instance, my colleague at Columbia, Patrick Bolton has been pushing this idea called loyalty shares, those who hold onto firms for a longer time should get larger voice in the governance of the company. The taxation should encourage longterm holdings. One of the longterm aspects is climate change, let's be real about the existential threat that we face. And that should have been among the conditions imposed on those getting money. One of the short sighted aspects of a lot of corporations is the way they treat their workers. They treat them like disposable commodities. I mean, can you believe in this pandemic, many firms refused to provide their workers with mask and protective gear, even when they were confronting the public and could have spread the disease. Can you believe that we pass legislation in Congress saying that everybody should have paid sick leave if they came down with COVID-19. Because we didn't want people to go to work if they're sick and spread the disease, it's quite obvious. But then our big companies came in and said, "No, no, no, we're too selfish for that." And they succeeded in lobbying. So, that companies with more than 500 workers representing almost half of the labor force were exempted. And that means a large fraction of those who, particularly at the bottom, who are frontline workers, providing services to our society, have no paid sick leave, don't get protective gear. So to me, those are the minimal kinds of things that we should have imposed as a condition for getting money. But we didn't.

Taylor Owen: So resiliency is a word we're hearing a lot about to describe economies right now, what's at stake. If we continue down the path we're going at, if we don't find a way of making our economies more resilient in this moment?

Jospeh Stiglitz: Well, I think what we're going to find ourselves in is another prolonged deep economic downturn. You know, the Great Depression is usually dated from the collapse of the stock market in 1929. We didn't emerge from that Great Depression until World War II. And we've seen in other parts of the world deep downturns can last a long time. There's the lost decade in Latin America, the lost quarter century in Africa. So those of us who study economic history have seen how economic mismanagement can lead to dire consequences for societies that last a long, long time.

David Skok: One of those repercussions of the Great Depression was economic nationalism during the 1930s, which ultimately led to the rise of Hitler and World War Two. I don't want to get too depressing here, but do you see parallels at this moment between 1930 and 2020?

Jospeh Stiglitz: Well, clearly one of the strands going on is a growth in populism and authoritarianism. I've seen calculations that that show that now more than half the people in the world live under regimes, that can be considered authoritarian. So this is not a good moment in world history to begin with. I want to be a little optimistic though, because as we look around the world among the countries that are doing the best in fighting COVID-19 are strong democracies, South Korea, New Zealand, Argentina. So it shows that when you have leaders that try to bring people together, that communicate, that based their policy on science, actually, things can be brought under control. So to me, I think the real of this is the virtue of good democracies. And I think that lesson won't be lost either.

David Skok: Yeah. The idea of moral leadership is something that I've been thinking a lot about. Professor Stiglitz, thank you very much for your time today.

Jospeh Stiglitz: Thank you.

Taylor Owen: Big tech is presented by the Centre for International Governance Innovation and The Logic and produced by ANTICA Productions.

David Skok: Make sure you subscribe to Big Tech on Apple podcasts, Spotify, or wherever you get your podcasts. We release new episodes on Thursdays every other week.

For media inquiries, usage rights or other questions please contact CIGI.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.