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.
It was very frustrating to read Noam Scheiber’s profile of Jaz Brisack, the person who led the first successful union organizing drive at a Starbucks. Brisack does sound like a very impressive person and it is good to see her getting the attention her efforts warrant. However, Scheiber ruins the story by […]
A short thought-provoking video from the progressive Institute for New Economic Thinking featuring its founder George Soros, who has long championed the idea of ‘reflexivity’ in economics. Here he makes his own case for why and how economics as a discipline has gone wrong and what kinds of ideas it should adopt instead. He distinguishes the social from the natural sciences by pointing to the role of human agency (although he doesn’t call it that) in the former and the way thinking human beings interact with their social and economic environment, both affecting and being affected by it in a two way dynamic process.
Dean Baker is Co-Director of the Center for Economic and Policy Research (CEPR) in Washington, D.C. and a progressive pro-market, pro-capitalist economist. Much of his research in recent years is summarised in the excellent 2016 book Rigged, which can be downloaded for free here, and which explores the many ways in which US government policy is structured to generate high levels of inequality in income and wealth. With appropriate changes to macroeconomic policy and market regulation, he argues that inequality could be much lower, benefiting the vast majority of citizens, and would act as a form of “predistribution”: that is, it would impact the distribution of market incomes prior to taxation and public spending, and would obviate the need for much redistribution, with beneficial effects on market efficiency.
Baker favours “market-friendly” policies where possible, enacted in ways which change the “rules of the game” in a progressive direction. He admits that his policy proposals, while feasible, would face stiff opposition from many beneficiaries of the status quo. Thus the political economy of many of his policies remains difficult. 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 →
All 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 →
This post is inspired by Tomas Sedlacek’s excellent book Economics of Good and Evil. I have already posted several, for me at least, thought-provoking extracts from the book, and there are more to come. Here I want to discuss some of the issues which arise from considering how economics is impossible to separate from ethics, though many of its modern practitioners would think otherwise. Even if they do acknowledge this truth, the ethics of modern economics are generally unspoken or presupposed. They exist, but are not often considered open to debate, except by those inclined to more heterodox perspectives.
What is counted as good in modern economics? To start with, most policymakers prioritise GDP growth, or perhaps growth in productivity, given their role in driving material prosperity and creating jobs. Increasing quantities of goods and services produced by a growing economy are part of the result. But it is surely rather short-sighted to assign ‘good’ only to the material aspects of production. Some ecological economists argue that the priority given to continuous growth in economic output are so damaging to planetary ecosystems and resources that we should aim for something like zero growth, or even ‘degrowth’. From their perspective, continued increases in GDP are ultimately unsustainable, and a radically different kind of economy is the required response. Space should be made for the poorest countries to grow, but the richest should radically change tack. Continue reading →
This is the third and final post inspired by Vince Cable’s new book Money and Power, following discussions on the making of history and the keys to successful development. Today I take as my point of departure a quote from the concluding chapter to the book (p.345-6):
“It is tempting to look for a big picture and in particular a pattern of success or failure. If there is a big picture, it is probably around the attraction of hybrids. Planned socialist economies have moved towards markets, pragmatically and gradually or in a ‘big bang’. State capitalism has become a distinct and seemingly successful model not just in China but in many emerging economies such as Korea’s. Capitalist economies have tried to blend competitive markets and a strong state with welfare and public goods: the German model from Bismarck to post-Erhard Christian Democracy, Roosevelt’s American liberalism (while it lasted) and Nordic social democracy. Lee’s Singapore is perhaps an extreme example of how a powerful and effective state can coexist with an open market economy, and succeed (though there are some obvious failures like the attempts at reformed communism in Eastern Europe). Despite attempts to shift the balance, as in the Thatcher and Reagan years, such hybrids seem to have proved more durable, politically and economically, than purer models.”
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 →