I recently attended the Rethinking Economics Weekend at the beautiful University of Greenwich in London. It was attended by a mixture of students (of economics and other subjects), academics, journalists and the general public, with the aim of contributing towards reform of the subject in the way it is taught and making it more accessible and pluralistic. The conference consisted of some keynote speeches intended for the entire group in attendance, and talks from academics and others on various topics in economics, which we could choose from during the day. Most of them were interesting and they varied in their intended audience. Some were more suitable for those with a grounding in economics; others were intended for non-specialists.
For me one of the most interesting and inspiring talks was given by Professor Mushtaq Khan and Deborah Johnston of SOAS, where I studied my MSc. Mushtaq was my course convener and dissertation supervisor and although I did not know him that well, I have always found his research output fascinating.
In sum, Professor Khan’s work tries to bring political issues into the determinants of policy outcomes in achieving the social transformation that is evident in all processes of economic development. In his view, interesting ideas are more likely to be generated by addressing practical problems of development beginning with ‘stylized facts’, rather than an economic model. He favours a largely inductive approach to theorizing, while acknowledging that all economic analysis necessarily involves both inductive and deductive elements. This is because social reality is not as amenable as physical laws to mathematical models and their manipulation.
The original development economics, which evolved in the post-war period, focussed on the structural causes of market failure. Ideas such as externalities, economies of scale and imperfect information have since been absorbed into mainstream economics. Some of the policies inspired by these ideas were a success but many failed, leading to the neo-classical counter-revolution in the 1970s. Arguably though, this paradigm has not been very successful in explaining the success of interventionist policies in countries such as Japan, South Korea and Taiwan, and to a lesser extent, Thailand, Malaysia and Indonesia. So neither traditional development economics nor neo-classical development economics offer satisfactory explanations in the variety of particular contexts which we encounter.
This is where Khan’s work comes in. He argues that by bringing in ‘politics’, including power structures, and what he calls the political settlement (the balance of power in society), which determine the costs of implementing particular policies and creating institutions for development, we can obtain a better understanding of the conflict-ridden processes of social transformation which characterize development. These sorts of processes occur in rich countries as well, so economics in general can learn from a more political development economics.
In developing economies, one of the key characteristics of the transition from a pre-capitalist to a capitalist economy is the rapid change in property rights. This is likely to be an unfair process, as the ownership of capital and finance becomes concentrated in relatively few hands, enabling production and productivity growth to take off. Real development, in Khan’s view, is also about building broad-based organisational capabilities. These changes can create problems, as the established social order can be threatened, and economic rents can be captured by vested interests which can prevent necessary change. Rents and rent-seeking can be found in all societies but in developing countries they tend to be informal, mirroring much of the economy while in rich countries rent-seeking is usually more formal, in the form of political lobbying and the like. Khan mentioned the importance of the informal economy, particularly in developing economies but also in richer countries such as Greece and Italy. This tends to mean that economic activity occupies a larger space than documented in the statistics for these countries. So the economics used for understanding change in advanced countries also needs a similar understanding of the power structures involved in social transformation, which enables growth to take place.
To conclude from the above ideas then, economics needs to understand how power is structured in societies, so we can design institutions and implement policies which are more likely to be successful. We also need to study the conflictual processes involved in changing property rights and the institutions required for social transformation. The important thing is to design policies that are feasible in particular country contexts, which can vary enormously, reflecting the different political settlements or balance of power in different societies.
Finally for heterodox economists who, as Khan emphasised, can’t even agree among themselves, let alone with the mainstream, a meta-theory is needed, to generate inclusive ideas as well as challenging current political interests and privilege. Those in power need ideas which will benefit the poor, and Khan stated that the problem is a lack of good ideas. This goes along with Keynes’s famous quote that it is ‘ideas, not vested interests’ which hold back social progress for good or ill. Personally I tend to a more balanced view, in that material conditions influence consciousness or the force which expresses ideas, as Marx believed, but also that consciousness or ideas influence material conditions. The two aspects are thus mutually constitutive. Academics often live in a world of ideas, so it is possible that they would emphasise these, rather than material conditions. But in society as a whole, the balance of power resulting from material forces can determine which ideas are selected for application. Thus political activism is also important.
To reiterate, I find all these ideas both enlightening and inspirational, and they help to inform my own approach to economics or political economy, which is the theme of this blog. I will write more on the Rethinking Economics conference in later posts.