Plus ça change…in the midst of multiple crises, the following quote on the role of the market in a modern economy seems as relevant as ever. But it is taken from an article in the Financial Times in 1989, penned by the late John Smith, then Shadow Chancellor of the British Labour Party. As he says, markets ‘can be good servants but bad masters’. When the market is left to itself, it will not:
“…produce adequate investment in education and training, in science and technology, in new products and new capacity. The market will not reverse the short-term bias to favour productive strength in the long-term. It will not secure equal rights for disadvantaged groups, regional balance or a safe and healthy environment. It is the misplaced belief that the market can do things for which it is not suited which has handicapped our economic performance for so long – and particularly under the present Government…If we are to compete in a world where the new currencies are information, knowledge and skill, we must fully mobilise the talents and skills of all our citizens in a way that the market alone cannot do.”
The quote itself, although originally from the FT, was lifted from the following chapter:
Philip Arestis (1991), Supply-side socialism in the UK: a post-Keynesian perspective, in Jonathan Michie (ed), The Economics of Restructuring and Intervention, Aldershot, UK: Edward Elgar, p.199.
“To argue that markets do not operate as envisaged in much of economic theory and in ways which are not socially desirable is not to argue in favour of central planning. Indeed, part of the general argument is that neither ‘pure’ markets nor ‘pure’ central planning are possible or desirable. [Geoffrey] Hodgson has postulated ‘the impurity principle’, which argues that ‘co-existing structures are in fact necessary for the system to operate and reproduce itself through time’. Casual observation indicates that in all economies, elements of market trading and government planning co-exist, albeit in different proportions and forms. One form is generally dominant, so that we can describe an economy as being a market economy or a centrally planned one. But the counterposing of markets and planning has caused much difficulty in debates over the appropriate use of markets. Within so-called market economies, there are many non-market private arrangements which could be described as extra-market, which help to coordinate economic activity. A full appreciation of these extra-market arrangements and of the limits of the use of the market mechanism are required so that a helpful analysis of economic coordination can be developed, and for economic policies towards markets and planning to have stronger foundations than hitherto.”
Malcolm Sawyer (1991), Analysing the Operation of Market Economies in the Spirit of Kaldor and Kalecki, in Jonathan Michie (ed.), The Economics of Restructuring and Intervention, Aldershot, UK: Edward Elgar Publishing, Chapter 6, p.112-3.
The modern development of Russia and the former Soviet Union seems to have deep historical roots. The institutional structure and traditions of the state, which are pivotal to the emergence of capitalism, have in some ways changed little since the days of the Tsarist autocracy. This has shaped the evolution of the country’s political economy down to today.
“History doesn’t repeat itself, but it often rhymes”. Mark Twain’s oft-used quote can be applied to today’s Russian state, which in some ways has retained many distinctive elements despite the long march of an often turbulent history.
In a quest to improve my understanding of today’s war in Ukraine, and perhaps some of its deeper motivations, as well as the modern development of Russia and the USSR, I have dived into a number of volumes which have until recently been gathering dust on my bookshelves. I have found plenty to get stuck into with regard to development, industrial policy and the role of the state.
In this post, I want to share some arguments on the industrialisation of Russia under the Tsarist autocracy, which can be found in Linda Weiss and John Hobson’s 1995 book States and Economic Development. The relevance of this historical episode to subsequent events, even down to today, will become apparent. In sum, I found it to be a fascinating exploration, and one which rang many bells, so to speak! Continue reading →
This is the latest post in my series on the ‘many middle ways’ that are possible for our political economic system, which lie somewhere between market fundamentalism and state socialism, both of which I reject as unworkable if we wish to achieve widely-shared and sustainable prosperity alongside the promotion of human rights and liberty, broadly conceived.
Mark Carney is a former governor of the Bank of England, and before that of the Bank of Canada. He is now UN Special Envoy for Climate Action and Finance, alongside a number of other advisory roles. Before he began his career in public service, he worked at investment bank Goldman Sachs. His book Value(s), subtitled Building a Better World For All, was published earlier this year. It is quite a tome, coming in at over 500 pages. It has been praised by a variety of influential individuals, ranging from Christine Lagarde, President of the European Central Bank, to popstar Bono. Continue reading →
Former UK Business Secretary and Liberal Democrat Vince Cable has a new book out: Money and Power – The World Leaders Who Changed Economics. In it he focuses on sixteen individual politicians who enacted significant economic policies and changed the economic trajectories of their respective countries, for good, ill, or somewhere in between.
Cable worked as an economist before going into politics, and became a government minister under the 2010 coalition, so he is well placed to write such a book. The leaders he covers presided over a range of national ‘economic models’ at different stages in the relevant countries’ development. From infant industry protectionism and industrialisation in Alexander Hamilton’s US and Park Chung-hee’s South Korea to economies in transition from communism to capitalism under Deng Xiaoping (China) and Leszek Balcerowicz (Poland). He covers post-war recovery in Germany under Ludwing Erhard, the welfare state mixed economy in Sweden under Tage Erlander, and ends bang up to date with Japan’s Shinzo Abe and ‘Abenomics’ alongside, perhaps controversially, Donald Trump’s US. Continue reading →
I always enjoy former Labour Secretary and progressive thinker Robert Reich’s short, nicely produced and informative videos. Here he is on the need for much increased public investment in the US. His argument could equally apply to other major economies such as the UK and Germany. Public investment has often born the brunt of cuts in the name of austerity, which generally proves to be a false economy and needlessly short-termist. He makes the case for funding the spending partly with borrowing, and partly with higher taxes on the wealthy and corporations.
Here is another clear and inspiring quote from the newly published book African Economic Development (p.244-5). It rejects what the authors, who combine long experience in research, in the field and in policymaking, call ‘impossibilism’ in the realm of development policy, whether it comes from the mainstream or heterodox camps:
“Some development economists have relatively recently come to acknowledge what before were dismissed as unsound arguments: that the development of capitalism has always owed a particular debt to the role of manufacturing; and that industrialization has always and everywhere depended on state intervention that has ‘got prices wrong’. But the typical refrain of common sense is still: ‘well, it may have worked before – in Taiwan, in Vietnam, or somewhere, but please please don’t try this yourself!’ The argument is that the risks of failure are so high (and the historical record certainly does show many failures), and capacities in Africa so low, that it would be unwise to try to emulate the ‘lessons’ of economic history. For example, Paul Krugman came to recognize that theoretically, there was a very good case for ignoring the principle of comparative advantage, but, he argued, officials should actually stick to the principle and to producing unsophisticated goods because otherwise politics will get in the way and ruin things. Rather, prudent African policy officials should bide their time, getting the elements of good governance aligned, gradually building capacities, and confining themselves to the modest work of the facilitating state. African states, this plausible version of impossibilist common sense has it, should intervene up to and not beyond their current level of capacity.
Meanwhile, the other strand of impossibilist common sense rolls out a series of warnings suggesting that almost all policies or accumulation strategies simply have no chance of succeeding because the dominant material and ideological forces of global capitalism are stacked against low-income peripheral countries. Global value chains are controlled tightly by powerful systems integrators that brook no significant technological upgrading by developing country producers, who remain constrained to producing relatively simple goods on a lowly rung of the ladder. The world market prices for all the goods produced in poor countries are so volatile that the imports required for dynamic growth and political stability cannot reliably be acquired. The World Trade Organization (WTO) imposes rules so binding on developing countries that they are now unable to avail themselves of the kinds of policies in the trade and financial sectors used successfully by earlier ‘catching-up’ countries.
We acknowledge that it is easier to fail than to succeed with development policy – often more for domestic political reasons than reasons of measurable technocratic ‘capacity’. For example, in Ghana and Kenya political pressures were able – at some times more than others – to overwhelm sophisticated economic technocrats. We also acknowledge that the external financial and economic environment confronting developing country economies and governments is prone to wild fluctuations, often hostile, and poses risks to improving welfare. But there is still significant, proven scope for governments to intervene in support of an accelerated dynamic of accumulation, structural change, and not insignificant welfare improvement. And there is scope for governments to intervene beyond their current capacity levels, to experiment.”
This is the last in the recent series of excerpts taken from Ha-Joon Chang’s Economics: The User’s Guide. Chang is an economist at Cambridge University (his personal non-academic website can be found here) and specialises in development economics. He has also written a number of popular books, some of which aim to debunk many of the myths of mainstream economic discourse.
The User’s Guide is one such, aimed at the lay reader rather than academics, and engages in a pluralist introductory approach to economics. I have therefore chosen a number of quotes over the past few months which stood out for me and which I felt were worth sharing. Here is Chang on p.453-5:
“Johann Wolfgang von Goethe, the German writer (Faust) and scientist (Theory of Colours), once said that ‘everything factual is already a theory’. This is something to bear in mind when looking at economic ‘facts’.
Many would assume that numbers are straightforward and objective, but each of them is constructed on the basis of a theory. I might not go as far as Benjamin Disraeli, the former British Prime Minister, who quipped that ‘there are lies, damned lies, and statistics’, but numbers in economics are invariably the results of attempts to measure concepts whose definitions are often extremely contentious or at least debatable.
This is not just an academic quibble. The way we construct economic indicators has huge consequences for how we organize our economy, what kind of policies we implement and ultimately how we live our lives.
This applies to even the most basic figures that we take for granted, like GDP or the rate of unemployment. The exclusion of household work and unpaid care work from GDP has inevitably led to the undervaluation of those types of work. GDP’s inability to take into account positional goods has directed consumption in the wrong direction and made it an unreliable measure of living standards for rich countries, where those goods are more important. The standard definition of unemployment underestimates the true extent of it by excluding discouraged workers in the rich countries and the under-employed in the developing countries. Naturally, these types of joblessness have been rather neglected by policymakers.
All of this is not to say that numbers in economics are all useless or even necessarily misleading. We need numbers to be able to get the sense of the magnitude of our economic world and monitor how it changes; we just shouldn’t accept them unthinkingly.”
Peering into our technological future may seem a little inappropriate amidst the current global pandemic, but before Covid-19 had emerged, one of the major themes tackled by many scientists, economists and social theorists of both left and right had been the advance of technology, Artificial Intelligence (AI) in particular, and its potential impact on the worlds of business, the economy, politics and society.
The prospects of humankind given the inexorable march of technology typically range between a variety of utopias and dystopias. What will AI mean for productivity and living standards? Will it lead to a society of abundance with more leisure time than ever before for the majority? How about the distribution of income and wealth, the implications for democracy, and so on?
Four compelling books from 2019, written by, respectively, a computer scientist, two journalists and a maverick scientist and futurist, address some of these issues, from different perspectives, but with some overlap, particularly in terms of the necessary human response to the advance of AI. Continue reading →
Cambridge economist Ha-Joon Chang frequently makes the case for the priority which should be given to a pluralist social science of political economy rather than a ‘pure’ (neoclassical) economics and its pretensions to be more like a natural science.
Political economy, a branch of the study of man in society, an interdisciplinary social science, incorporating the economic, social, political, ethical and even philosophical, can often provide us with richer insights than are on offer from modern mainstream economics alone.
That is not to say that we should ignore the arguments of neoclassical thinking. Economics, the ‘science of rational choice’, as it is sometimes defined these days, does tell us that individuals respond to incentives: change the incentives and our behaviour may change. But it tends to neglect much that I have just mentioned in its quest to be scientific, and therefore somehow apolitical and asocial. It also tends to lack an awareness of its own methodology and how this has evolved in ways shaped by economic and social history.
Along this vein is another insightful quote from Chang’s Economics: The User’s Guide, (p. 393-6), which takes to task economics’ pretension to be apolitical: Continue reading →