Lance Taylor: do economists understand the economy?

Heterodox economist Lance Taylor sadly passed away last week. He was a professor at the New School for Social Research in New York, which was founded to provide a home for progressive thinkers. His work focussed on structuralist macroeconomics and development, drawing on the radical Keynesian tradition, and the role of institutions and different sectors in the economy, particularly in the study of growth and distribution.

This interview from 2015 with the Institute for New Economic Thinking briefly covers some of his research topics.

Institutions, Economic Development, and China’s Development Policy for Escaping Poverty – Developing Economics

This interesting post by Professor Ting Xu from the Developing Economics blog reflects on the realities of development as a process of Schumpeterian creative destruction, and the institutions which can promote this process, with an emphasis on the relationship between the market and the developmental state. Historically, successful developmental institutions have tended to be different to those considered in mainstream economics discussions. The post also discusses how these ideas apply to the experience of China and its policy aim of escaping poverty.

Quote of the week: sociologists on capitalism

This week’s quote is taken from the book What Capitalism Needs, discussed in my previous post. One important point that I take from the book and indeed the extract below is the different view that sociology can take of capitalism, as compared with mainstream economics. In fact, the latter really takes capitalism as a given, rather than as a particular historical form which has not always been with us.  In contrast, sociology can be more critical and go deeper in its analysis of society and the economic system. This approach and the different questions it asks are more readily found in some non-mainstream, heterodox and radical economics, and political economy. I get the impression that there is a sense of despondence among some heterodox academic economists that their field can ever have much of an influence on the mainstream of the subject, and that they are better off working with social scientists outside of economics departments.

“Sociologists see capitalism as a much more complex system of social relations than do most economists. Economic activity is based not only on people pursuing their economic interests but also on trust, historical tradition, and personal identity. Sociologists also recognize that capitalism is embedded in a wide variety of institutions – political and cultural, as well as economic. And sociologists understand that the way in which capitalism operates varies significantly across countries and over time. But what is perhaps most noticeable about sociology is its fundamental criticism of capitalism. The greatest sociologists on the subject spoke of the alienation, anomie, and disenchantment associated with capitalism. There is nothing inherently wrong with this view, given the exploitation of workers in many capitalist societies both past and present, and we really speak warmly in this book only about the Golden Age of capitalism – that is, the first few decades following the Second World War – when, by contemporary standards, the interests of the many carried greater weight relative to those of the few. To be sure, those economists whose thought we admire had their own reservations about capitalism. But they differ from the sociologists in two ways: First, they were aware of and appreciated the dynamism and prosperity that capitalism can produce; second, they provided useful sociological insights about the mechanisms of capitalism and the institutions needed to make it work – and whose absence brings chaos.”

John L. Campbell and John A. Hall (2021), What Capitalism Needs: Forgotten Lessons of Great Economists, Cambridge University Press, p.2.

The long shadow of history: notes on industrialisation under the Russian Tsarist autocracy

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

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

innovative-manufacturing-headerThis 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. Continue reading

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

Production_LineA 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. Continue reading

Many Middle Ways: stakeholder capitalism – recasting Keynesian political economy

Will Hutton is a political economist, author and journalist of the left, whose book from the mid 90s, The State We’re In, was a surprise bestseller in Britain. It was highly critical of the direction the economy, society and politics under conservative rule were taking at the time, and made a powerful case for an institutional revolution which he argued was essential to fundamentally improve the country’s economic performance alongside its social cohesion, in order to achieve ‘the good society’.

Tony Blair’s ‘New Labour’ came to power in 1997 and, while Blair himself had initially been drawn to Hutton’s ideas in the form of ‘stakeholder capitalism’, his new government was in the end politically to the right of this programme. Hutton is no socialist, but he has been arguing passionately for years for a comprehensive recasting of Keynesian economics and social democracy. In the spirit of my series of posts on the many middle ways possible under capitalism, Hutton’s progressive and leftist ideas are worth exploring. Continue reading

Many Middle Ways – the essence and importance of the mixed economy

img_0372All economies are mixed economies, whether they are capitalist, and even if they are socialist. This understanding makes for a relatively nuanced analysis in political economy. Marx was something of a purist in his own analysis of economic systems. He argued that each system would inevitably evolve to the next, from feudalism to capitalism to socialism to communism, that it would do so from within and that it contained the seeds of each subsequent stage of development. So for example, capitalism might contain some state owned companies, which would show the way towards state socialism, with markets and private property largely abolished. For Marx this evolutionary process, whether it was carried out through reform or revolution, was inevitable. But things have not quite turned out the way he hoped and predicted. Communist states have been transformed into capitalist ones, however imperfectly, and Marxists have continued, ad infinitum, to describe our situation as ‘late capitalism’, implying that it will soon be overturned, perhaps in hope more than anything else. Continue reading

Conflict, state-building and development – some thoughts in the wake of the Afghanistan debacle

DSC00236This is not a post about Afghanistan per se, as I don’t know enough about its history, economy and politics, but the ideas discussed below are relevant to countries emerging from the experience of conflict, whether it be civil war or that between nation states. The Afghanistan situation prompted me to do some basic research into the political economy of civil war, post-conflict reconstruction and the conditions which are needed in a country in order to establish a more permanent peace, where possible.

Conflict as stupid?

To start with, the emergence of capitalism, as part of the pathway towards economic and social development, has historically been associated with violence. Christopher Cramer’s Civil War is not a Stupid Thing argues that capitalism has historically been founded on violent conflict. What Marx called primitive accumulation is the often brutal and ugly redistribution of assets which gives rise to emerging and changing classes and class relations in a country, and potentially lays the foundations for capitalist development and sustained economic growth. It inevitably creates winners and losers and is thus potentially associated with violent conflict, struggle and suffering. Continue reading

Distinguishing political economy from economics

402px-AdamSmith“We may define political economy as the study of the mechanisms used or usable by society to operate the social economy, understanding the social economy to be comprised of the tools, institutions and human energies that produce goods and services. Social choices in production and distribution are constrained by governance structures and a cultural economy of attitudes, norms and values embedded in the historically specific institutions of a society. Oscar Lange defines political economy more formally as ‘the study of the social laws governing the production and distribution of the material means of satisfying human needs’. Political economy is a return to oikos, the Greek from which we derive ecumenical (all in this together), economics (material providing), and ecology (interdependence of all the creation). The core differences between economics and political economy from such a perspective are that economics presumes the isolated individual as its key construct, sees the core problematic as allocation of given and known resources, and allows for a mechanical model of minimization and maximization as its determinants. Political economy begins with the social individual facing contingent choices and bounded rationality, and considers institutions and governance mechanisms that constrain and guide individual and group activity. Political economy is an effort to study as endogenous variables the parameters usually held constant by economists – technology, property rights, the state. Changes in political-economic organization assumed away by neoclassical economics are the basis of theorizing sources of structural change in political economy. It also has a normative side, understanding normative political economy as the study of how societies can best change their institutions and why they would want to make the rules that constrain individual choice different to how they are. ‘The driving idea behind normative political economy,’ Ben Ward writes, ‘is the belief that societies can change their economic institutions – not without premeditation and discussion, of course, but certainly in response to persuasive objections to the prevailing mechanisms and compelling mechanisms and compelling arguments for different ones’. The more interesting economists to most readers of the history of ideas are those who, from Adam Smith to John Maynard Keynes, offer such an avowedly normative perspective within a larger political economy framework, using tools of conventional analysis modified to meet their purposes. It is just such a project that, when successful in becoming sufficiently influential, becomes important to canon formation in the discipline.”

William K. Tabb (1999), Reconstructing Political Economy: The great divide in economic thought, Routledge, p.15-16.