The realities of deregulation

Below is a quote from my current reading, Banking Systems in the Crisis – The faces of liberal capitalism, a book which explores the different impacts of and responses to the crisis of 2008 across the so-called liberal market economies, including the US and UK, as well as Canada, Australia, New Zealand and Ireland. The quote itself considers the realities of deregulation as part of economic liberalization, noting that it is more complex and nuanced than simply restoring ‘freedoms’ to economic actors and the economy more generally. Since markets are helpfully seen as a human construct, deregulation is necessarily political. Its champions probably understand this as much as its critics, but will often use the rhetoric of an apolitical free market economics to justify and obscure reality.

“In many ways, what is commonly known as deregulation can be seen as both a prerequisite for, and a companion process of, a programme of economic liberalization. The lifting of market restrictions is often considered to be an essential precondition to creating ‘freedom’ for market actors. However, since markets are inevitably human political constructs, freedom is a relative concept. The increased freedom of one party within a contract, for example, necessarily impinges on the freedom of the counterparties to that contract. As a result, ‘reregulation’ is perhaps a more accurate description of the loosening of market constraints.

Demands for market deregulation often create markets whose rules work more in favour of particular capitalist interests than those of others – notably, for example, suppliers or customer firms, workers, the state, other members of society and the environment. This is because the rules of the free market do not, as theorized, favour all actors equally. There are differences in pre-market access to resources (finance, in particular), networks and markets, which give particular capitalist interests in-market advantages; and there are likely to be expectations of state intervention in the event of crisis (particularly financial crisis) which prioritize the interests of some over others. Moreover, state intervention does not necessarily serve the agenda or longer-term interests of the state or society, particularly when the costs incurred are effectively socialized, whilst the benefits remain private. In response to recurring international financial crises since the 1970s, for example, governments have acted decisively – usually at not inconsiderable costs – to contain the fall-out by providing the lender of last resort facilities to financial institutions, countries or markets experiencing a sudden withdrawal of funds. This tradition was continued during the crisis of 2008, the costs of which continue to mount as the problems requiring resolving have proven to be protracted.”

Suzanne J. Konzelmann, Marc Fovargue-Davies and Frank Wilkinson (2013), ‘The return of ‘financialized’ liberal capitalism’ in Suzanne J. Konzelmann and Marc Fovargue-Davies, Banking Systems in the Crisis, Routledge, p.48-9.

Biden’s progressive crusade – how might workers benefit?

Joe Biden has been styled as the most pro-union US President for decades. But how might workers and the economy benefit from progressive labour market policies, if they are to reduce inequality and poverty for a sustained period?

Columnist Rana Foroohar has an interesting piece in Monday’s Financial Times in which she discusses President Biden’s ‘competition crusade’: his efforts to reduce market concentration and corporate monopoly power alongside another aspect of his political agenda, ‘elevating the position of workers’. Should Biden succeed, this will represent a fundamental shift in the balance of power in the American economy. His latest tirade has been against the supposed impact of monopoly power as a contributor to today’s higher inflation.

Steve Keen on Marx on capitalism: flawed but exciting

It has been some time since I posted a quote from the economics literature that both informs and inspires me. Here is Professor Steve Keen from the conclusion to his new book on the exciting vision of capitalism offered by Marx, in contrast to that of Say, which continues in some way in today’s neoclassical vision.

“Looking back on the fifty years since I first became aware of its flaws, the word that summarizes my feelings about Neoclassical economics today is that it is, as Marx once described the proto-Neoclassical Jean-Baptiste Say, ‘dull’. Its vision of capitalism at its best is a system manifesting the harmony of equilibrium, where everyone is paid their just return (their ‘marginal product’), growth is occurring smoothly at a rate that maximizes social utility through time, and everyone is motivated by consumption – rather than accumulation and power – because, to quote Say, ‘the producers, though they have all of them the air of demanding money for their goods, do in reality demand merchandise for their merchandise’.

What a bland picture of the complex, changing world in which we live!

For all it flaws, capitalism was and remains an exciting social system. For all his flaws, Marx put this best, in his own Manifesto. Though it called for the overthrow of capitalism, The Communist Manifesto was also a paean to the creative and transformative nature of capitalism and its distinctive class, whom Marx called ‘the bourgeoisie’, and we might today call ‘entrepreneurs’. For them, the guiding principle is not ‘merchandise for their merchandise’, said Marx, but ‘Accumulate, accumulate! That is Moses and the prophets!’ In contrast to the staid conservatism of the dominant classes of previous social systems, Marx declared that ‘the bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the relations of production, and with them the whole relations of society’:

Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real condition of life and his relations with his kind. (Marx and Engels, 1848, emphasis added).

How did Marx’s exciting portrayal of capitalism lose out to Say’s vapid vision?”

Steve Keen (2021), The New Economics – A Manifesto, Polity Press, p.139-140.

Managing inflation today

Inflation is determined in the interaction of demand and supply for the economy as a whole. Today’s inflation may call for intervention by governments if it is deemed to be “excessive”. While there are a range of policy responses which can help, there are limits to what states under capitalism are able to achieve.

Looking back, looking forward: blogging in 2022

I have resisted posting my top ten most viewed posts over the last twelve months; nevertheless this post takes a longer view back in time to assess the content and direction of this blog, and looks forward to the year ahead in the worlds of economics and political economy. The Political Economy of Development is perhaps a bit of a mouthful and not very catchy as a blog title, but it was in fact the name of my masters degree course at SOAS in London which, although my studies there finished 20 years ago, continues to inspire my thinking and writing. This blog is an outlet for both. The economics department at SOAS is well known for its focus on development, and on political economy and heterodox or non-mainstream approaches to it in particular.

Despite the blog’s title, I do not focus exclusively or even mostly on development, developing countries or emerging markets. As something of a get-out, I take the view that the process of economic and social development is ongoing and does not stop if or when countries ‘graduate’ to ‘advanced’ status and relatively high levels of income and wealth. Successful development is also more than a simple rise in GDP or national income. It is a process of socioeconomic transformation, encompassing technological progress, rising productivity and living standards, creative destruction a la Schumpeter (as old industries decline and new ones expand), and social and political change. If such processes are to be successful, we now realise that they need to be sustainable, economically, socially and environmentally, or they will undermine the very basis of human progress.

The high wage economy: marrying social justice with economic success – Part 2

This post is part 2 of a discussion of the potential of the high wage economy to overcome conflicts between the progressive goals of achieving social justice and economic efficiency, or what could be called a widely-shared prosperity. It is inspired by Morris Altman’s book Economic Growth and the High Wage Economy. In part 1, I described his idea that even with perfect competition in product markets, firms can find themselves producing at a low-wage-low productivity equilibrium with little incentive to change this situation. Similarly, other firms may be producing at a high wage-high productivity equilibrium, with the two types of firms able to produce at the same output price, but with the second type operating at a greater level of X-efficiency. This is due to the incentives provided by higher labour costs for workers, managers and owners to combine their efforts in the organisation of the workplace in order to work “smarter”. Increased worker effort is incentivised by labour market institutions which prevent cost-cutting, or more accurately labour cost-cutting, as a path to competitiveness. This is a supply-side theory of economic change.

Altman spends much of his book applying his theory to a variety of economic situations. Here is a brief account of some of them.

The high wage economy: marrying social justice with economic success – Part 1

A persistent goal of many progressive economists and policymakers is to enable a widely-shared prosperity, thus bringing together social justice and economic efficiency, while sustaining individual freedoms. Some economists argue that low labour costs in the form of wages and, more broadly, minimal labour market regulations and taxes which fund the welfare state, are necessary to achieve “competitiveness” among firms so that the price of output can be kept low in order to encourage sales, while sustaining profits. This is especially so for developing countries with relatively low levels of productivity, which simply can’t compete with higher wage, higher productivity countries in the rich world.

Ten reasons why we live in interesting (economic) times

For those wedded to economics or political economy as ways to help explain the world, we live in interesting times. By this I certainly do not mean that things are going well. There is plenty that is not. But humanity’s problems of necessity call forth potential solutions, even if they prove at times to be the wrong ones. Sometimes we can get it right, and that is cause for hope.

This post takes the form of a list of the current issues that call for economics to address them. The ten reasons are ones that I feel are particularly pressing. I hope you agree.

Steve Keen’s manifesto for a new economics

A brief review of prominent heterodox economist Steve Keen’s latest book, in which he lays out his vision for the future of economics, arguing that the neoclassical approach has been highly damaging to humanity, and needs to be replaced.

Steve Keen has a new book out, entitled The New Economics – A Manifesto. It is the latest chapter in the author’s tireless efforts to replace neoclassical economics and its damaging dominance of mainstream thinking with what he argues is a more scientific and explanatorily powerful body of thought drawing on post-Keynesian and, more recently, Biophysical economics.

Keen, who has been a heterodox or non-mainstream economist since his student days, has been critiquing neoclassical economics for many years. Post-Keynesianism takes its main inspiration from arguably the twentieth century’s greatest and most influential economist, John Maynard Keynes. It draws on the work of Keynes’ followers at Cambridge University, and those who studied under or have been influenced by them, though post-Keynesians remain a radical minority in the grand scheme of things.

Keen was one of the few economists to correctly predict a major financial and economic crisis in the years leading up to 2008. Not one of these iconoclastic souls was a neoclassical. In the 2011 edition of his book Debunking Economics, he painstakingly deconstructed much of neoclassical theory, and began the task of laying out the monetary economics he felt should replace it.

Michael Pettis on Evergrande and China’s debt problem

Another video of an interesting discussion with Peking University Finance Professor Michael Pettis where he explores the issue of China’s property sector and its current dynamics, but also the bigger picture of the Chinese economy’s debt problem. He outlines five possible options for the future evolution of the economy and foresees a significant slowdown in growth akin to Japan in the 1990s, which ushered in many years of stagnation amid its economic rebalancing. This rebalancing is essential for China but also the rest of the world, and will ultimately be good for the latter, albeit with the costs and benefits unevenly distributed between different countries and sectors.