Inequality caused by the stifling of true capitalism is not inevitable, according to Stiglitz. He argues that the current divided and unequal society, with its distorted key policy debates, can and should be cured through:

• Investments in higher-quality, equal education for all.
• Government-led investments in productive capital (technology, training, infrastructure).
• Better, more effective social safety nets in the form of access to food, shelter, and health care to ensure that human potential is not suppressed by the distractions of hunger, inadequate shelter, or sickness.
• Ensuring more freely competitive, less exploitive markets and tempering their excesses with interventions when necessary.
• Reducing rent-seeking through stronger enforcement of competition laws; improving corporate governance; reforming recent changes in bankruptcy laws, which are too debtor friendly and are creating “partially indentured servants;” reducing corporate give-aways; and legal reform to democratize  access to justice while reducing costs.
• Reforming the tax system to make it simpler and more progressive.
• Tempering globalization when it leads to a race to the bottom.

Stiglitz argues that the average wage of workers in the U.S. is not enough to maintain social stability because it results in deprivation of adequate food, shelter, and education. it is a product of the race to the bottom caused by globalization that Stiglitz believes is damaging the economy and society of Western countries. He argues that government and industry in the West must find ways to make people more productive and to pay them more instead of forever seeking to pay them less, thereby fostering a more stable society of healthier, happier citizens and consumers and an economy that achieves its full potential.

REDUCING INEQUALITY, IMPROVING UPWARD MOBILITY

Stiglitz’s arguments for reducing inequality are reinforced by the conclusions drawn by leading academics Daron Acemoglu, a professor of economics at MIT, and James A. Robinson, a professor of government at Harvard University. In Why Nations Fail, they argue that, for nations to prosper, their people must believe that if they work hard they can achieve prosperity. The authors’ theory is that a nation’s economic success is predominantly determined by its political institutions. They point out that, historically, countries such as the U.S. and the U.K. became rich because their citizens overthrew the elites who controlled power and, as a result, created societies with political rights more broadly distributed and governments accountable and responsive to citizens. In such countries, the great mass of people can take advantage of economic opportunities to work, invest, and prosper, knowing that if they work hard, they can make money and keep it, thanks to sound institutions that allow virtuous circles of innovation, expansion, and peace.

“Stiglitz argues that the average wage of workers in the U.S. is not enough to maintain social stability because it results in deprivation of adequate food, shelter, and education.”

The authors claim that the importance of politics is far greater than that of geography, resources, or culture, and that freedom begets prosperity. While they view the U.S. as an example of a country that has succeeded historically, it is clear that the alienation felt by many Americans today is a sign that democracy is not working as well as it once did. Elites in the U.S. have taken more power over the past 30 years and exercised it to serve their own interests in the name of free enterprise. To ignore this problem and carry on without acting to address it is a recipe for creating even more serious difficulties later on.

Robert Kuttner, co-founder and co-editor of The American Prospect magazine and a Senior Fellow of the think tank Demos, also addresses the pernicious economic effects of inequality in his book, The Squandering of America: How the Failure of our Politics Undermines our Prosperity. He notes that, as keynesianism has been surpassed by a resurgent free market ideology, policies, institutions, and regulations have become business-friendly to an extreme, enriching the already wealthy at the expense of America’s lower and middle classes, exacerbating inequality and systematically weakening the economy. Kuttner advocates a form of soft capitalism in which the vicissitudes of the market and the risk that it exposes ordinary Americans to are tempered by government intervention to ensure public regulation of the market’s self-cannibalizing tendencies. Kuttner compares the causes of the Great Depression and other economic crises to behaviour patterns evident in the market system today, with unfavourable conclusions.

Together, the voices in these books reflect a growing belief that today’s political agendas in Western developed countries are doomed to failure because governments do not appreciate the magnitude of the problems that inequalities have created. The slogan of the “Occupy” protest movements against social and economic inequality, “We are the 99%,” may hold much greater significance than the leaders of the establishment (the “1%”) have accorded them, even though the last of Occupy’s high-profile camps in Washington D.C. and London were cleared away earlier this year. Looking beyond the extremist and often ill-informed rhetoric of the protestors, it is clear that a grass-roots demand for a more participatory form of democracy is being made because the representative democratic system has failed the majority of citizens. This majority has seen its economic well-being greatly eroded as a result of the tighter control of the economic system by a powerful, wealthy minority. To criticize the 99%, as some prominent politicians and business leaders have done, either for not putting forward a unified, cogent, practical alternative plan to resolve the failures of the system or for the misguidedness of some of their specific policy suggestions, is to miss the point. it is incumbent on an elite who would lead an economy and society either to do something beyond perpetuating policies that have failed to serve citizens adequately and fairly or else to relinquish their claims on the right to lead.

Income and wealth differences continue to grow. Europe has re-entered economic recession, and growth remains sub-par in the U.S. Among those who will soon become the mainstream of the workforce, the youth of societies (16–25-year-olds), unemployment is 18% in the U.S. (15% in Canada) and 22% in Europe (close to 50% in Spain and Greece). It is clear that the issue of inequality will not go away unless and until it is addressed more directly. It is also becoming increasingly clear that the current Great Recession in the West is not likely to end unless and until it is.