No one would deny neither the importance nor the breadth of scope of Chinese societal transformations initiated by the country’s industrial reform. However, relationships between Chinse private enterprises and the state are far from being balanced. One can argue that these relationships are equally far from promoting environmental sustainability. Neither does a diminishing role of government in China helps to advance the cause of social equality in the country. There is ample evidence suggesting that the economic growth of China coincided with a widening of the gap of social inequality (Xie, Thornton, Wang, & Lai, 2012). Unfortunately, the case of China is only one of numerous examples of skewed relationships between governments and markets.
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This paper aims to discuss Joseph Stiglitz’s book The Great Divide: Unequal Societies and What We Can Do About Them. The paper will focus on a state-market balance in China, a transformation of Medellin, and Australia’s economic model.
The State-Market Balance
Despite the claim of many economists that free market-based economic relationships positively influence the welfare of a nation, after vigorous inquiry, it is clear that market developments in countries like China leave much to be desired (Shaanan, 2017). Transition economies often suffer from what Stiglitz (2015) calls “too much market and too little government” (p. 347). For example, unequal institutional development of China has allowed some companies to abuse minority shareholders’ rights (Li & Qian, 2013). These negative effects of a free market can be mitigated by a proper level of governmental control.
In his book, Stiglitz (2015) argues that by devising effective regulatory regimes, Chinese leaders can reduce inequality and ensure that markets are driven by corporate social responsibility (CSR). The scholar’s assertion is confirmed by the findings of a study on the effects of minimum wages on employment in the country. Wang and Gunderson (2012) argue that the increase in minimum wages in China has not led to a substantial adverse employment effect as had been projected by some economists. In light of this information, one cannot help but question the intentions of those who oppose minimum wage increases.
Stiglitz (2015) also maintains that it is necessary to increase the role of government in the regulation of carbon emissions. In light of the recent discourse on climate change, it is hard to disagree with the economist. China is the largest contributor to the world’s greenhouse gasses (GHG) emissions. The country’s share of CO2 emissions equals 5.5 tons per person, which amounts to 19.1 percent of global emissions (Lo, 2013). It follows that the Chinese government is presented with an opportunity to exercise its powers for the greater good. One can argue that the government should change the national agenda to shift the economic activities towards CSR. By doing so, the country will achieve positive environmental outcomes. These outcomes will help the Chinese to reap the economic benefits associated with the reduction of pollution.
Transformation of Medellin
An extraordinary change of Medellin represents the power of societal commitment to the principles of equality and participatory governance, which are the main prerequisites for improving social wellbeing. In the 1980s, the city almost approached destruction because it was overwhelmed by the harmful presence of drug cartels (Stiglitz, 2015). Fortunately, the election of Sergio Fajardo as the city’s mayor helped to break the vicious cycle of corruption and poverty. Medellin’s slums gave way to “well-kept houses, murals, soccer fields,” and “avant-garde public buildings” (Stiglitz, 2015, p. 351).
The story of Medellin suggests that major societal problems can be eradicated with the help of government investment. Economic segregation in the US provides an example of inequitable housing development that has resulted in the creation of income disparities. A study conducted by Li, Campbell, and Fernandez (2013) reveals that a special mismatch between racial groups in the US has caused the proliferation of poverty. It is clear that poorly planned residential policies negatively impact the country’s economic growth. Also, the government’s unwillingness to invest in the development of distressed metropolitan areas leads to the spread of social ills.
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There is ample evidence suggesting that current residential policies stimulate labor market polarization. Li et al. (2013) state that physical barriers created by American city planners reduce employment opportunities for Black metropolitan populations. It means that to close the wage gap between Blacks and Whites in the US, it is necessary to adopt the mayor’s approach to sustainable urban development. However, a high level of public participation would be needed to overcome the race-based segregation. Metropolitan residents unwilling to participate in the oppression of the lower ends of the country’s social spectrum have to convince their local politicians of the necessity of change.
Australia’s Economic Model
Many government officials around the world espouse the notion that cutbacks in public spending can lead to economic growth. Tony Abbott, Prime Minister of Australia, has voiced his desire to follow an economic model of the U.S (Stiglitz, 2015). In an attempt to achieve long-term growth, Abbott has proposed to reduce the public debt of his country. Stiglitz (2015) argues that it would be unreasonable to fall into a trap of conservative policies and pursue the reduction of Australian national debt. The scholar supports his argument by stating that “its debt-to-GDP ratio is only a fraction of that of the U.S., and one of the lowest among the OECD countries (Stiglitz, 2015, p. 355).
It is hard to justify the writer’s attempt to compare the economies of the two countries. Many factors can influence economic models espoused by nations: culture, society, religion, resources, and security among others. Nonetheless, Stiglitz is right in claiming that the increase in public spending can produce a high level of equality of opportunity. An institutional feature that distinguishes a country with exceptional educational outcomes from those with poor ones is a level of public expenditure (West & Nikolai, 2013). The Australian government forgives participants of an education-loan program some of their debts, thereby stimulating academic pursuits (Stiglitz, 2015).
It can be argued that Abbott’s intention to copy American economic policies will result in negative outcomes for the country. Both education and health care have a pivotal role in the creation of a nation’s wealth. Therefore, when determining a nation’s course about public spending, it is necessary to realize that it is not a zero-sum game. By increasing a level of taxation, it is possible to benefit a country as a whole, instead of benefiting small groups of rich people.
The paper has discussed some of the themes of Stiglitz’s book The Great Divide: Unequal Societies and What We Can Do About Them. It has been argued that the private-public relationship can be markedly improved by taking a socially responsible direction.
Li, H., Campbell, H., & Fernandez, S. (2013). Residential segregation, spatial mismatch and economic growth across US metropolitan areas. Urban Studies, 50(13), 1-19.
Li, J., & Qian, C. (2013). Principal-principal conflicts under weak institutions: A study of corporate takeovers in China. Strategic Management Journal, 34(1), 498-508.
Lo, A. (2013). Carbon trading in a socialist market economy: Can China make a difference? Ecological Economics, 87(1), 72-74.
Shaanan, J. (2017). America’s free market myths: Debunking market fundamentalism. New York, NY: Springer.
Stiglitz, J. E. (2015). The great divide: Unequal societies and what we can do about them. New York, NY: W.W. Norton & Company.
Wang, J., & Gunderson, M. (2012). Minimum wage effects on employment and wages: Dif-in-dif estimates from eastern China. International Journal of Manpower, 33(8), 860-876.
West, A., & Nikolai, R. (2013). Welfare regimes and education regimes: Equality of opportunity and expenditure in the EU (and US). Journal of Social Policy, 42(3), 469-493.
Xie, Y., Thornton, A., Wang, G., & Lai, Q. (2012). Societal projection: Beliefs concerning the relationship between development and inequality in China. Social Science Research, 41(5), 1069-1084.