Reorientating Economics

In most debates about capitalism, it seems, no-one has a clue what it is they are talking about!  Capitalism has become a catch-all for the modern economy.  I heard two Conservatives debating capitalism on the radio the other morning.  Is capitalism essentially free enterprise?  Or does it also encompass the financial markets (a misnomer if ever there was one) and capital accumulation with no connection to production?

If small businesses are part of a capitalist economy, then so are co-operatives.    Mutuals hold wealth in common and some people do not believe this is really capitalism.  Their view is capitalism is about accumulation of personal wealth.

I have argued elsewhere that accumulation of wealth is the wrong priority.  Wealth needs to circulate and to measure its circulation is to measure the economy’s health.  How do we set about reorienting economics?

I’m not an economist and so one problem I have had is finding an economist who discusses these ideas.  Perhaps Roberto Mangabeira Unger, whom I mentioned in my post Approaches to Social Innovation a couple of weeks ago, is one such economist.  If you click on the link over his name it will take you to his Wikipedia page.

I make no apology for basing this post on a Wikipedia page; you are following the development of my thinking and this is as far as I’ve got with his contribution.  I intend to read some of his books and will review them later.  For now, if you want to follow these thoughts you can scroll down the Wikipedia page to Economic Thought and read on from there.

Today I shall highlight two insights from these paragraphs.  I’m sure I shall return to these themes in the future.

Classical and Marginalist Economics

Unger distinguishes these two approaches.  Classical economics focuses on social value and this means economics  has a vision for the future.  You can look at what’s happening and say, “We don’t like that so let’s change the way we do things.”

Marginalist economics began as a response to socialism and is the dominant approach today.  It is an empirical approach to economics, which claims to be more scientific because it measures things.  You can look at what’s happening and say, “It’s a pity things are that way but there’s nothing we can do about it because that’s what the statistics say.”

Unger seems to be saying there is something profoundly wrong with marginalist economics but I don’t think he is advocating a wholesale return to classical economic models.  So, what is his model?

Permanent Innovation

This is a massive generalisation but it seems to me Unger has thought through the implications of an economy based on permanent innovation.  There are, he argues, no real economic eras such as feudalism or capitalism.  These are rationalisation we impose upon history.  What actually happens is a struggle, as I see it, between those with a practical, innovatory approach who seek problems and solutions and those who have an absolutist, ideological approach who seek certainty and domination.

The former tends to be reformist and the latter revolutionary.  Looked at this way, we can see both approaches are potentially flawed.  The practical approach can lose sight of social values, whilst the ideological approach can stifle innovation, running after a false vision of what human society can be.

He advocates a revolutionary reformist approach, an approach designed to make politicians on both the left and the right worried!  This is exactly where I have found myself, advocating a national localised economy.  It looks reformist to the left and revolutionary to the right.  It is the approach most co-operative and trade-union movements took in the UK.  Compare their approach with the 1917 revolution in Russia.

How to Stimulate the Economy

I fully intend to return to Unger’s contribution in future posts.  In the meantime, I shall finish by listing three key policies he advocates.  They are all about encouraging innovation in the local economy:

  • Finance needs to be in the service of production.  Finance that is not, should be taxed.
  • Support small and medium enterprises.  Here I depart from Unger because we need to think about local enterprises, their size is not as important as their contribution to money circulation.  He also wants to reject government regulation.  This needs unpacking but for now I believe regulation can protect small businesses and I find it hard to see how local economies can be supported without regulation.
  • Reform to education, less job-specific and presumably equipping students to be innovative.  There isn’t enough information in the Wikipedia article to work out exactly what Unger is advocating, for example does he mean education for young people or life-long learning?

The Wikipedia article hints that Unger’s work is worth exploration.  Leave a comment if you know his work or find what we know so far exciting (you’re allowed to be excited even if you don’t agree!)

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About the Author

I've been a community development worker since the early 1980s in Tyneside, Teesside and South Yorkshire. I've also worked nationally for the Methodist Church for eight years supporting community projects through the church's grants programme. These days I am developing an online community development practice combining non-directive consultancy, strategic management, participatory methods and development work online and offline. If you're interested contact me for a free consultation.

Leave a Reply 2 comments

Mark Woodhead - November 6, 2015 Reply

Thank you for allowing me to be excited. I am British, so I would not dream of being excited. Thanks for the pointer towards Unger’s work.

There is much to think about here, but here are a few thoughts to be going on with.

‘A vision of what human society can be’ – economists don’t often talk about society, or so it seems to me, but politicians wishing to push a particular approach to the economy sometimes have interesting understandings of society. I find it especially interesting to notice that for some politicians society is sometimes something to be conveniently ignored, or even something whose existence is to be denied, and then at other times it is a thing to be wheeled out and used – ‘the big society’ – let’s have a bit of employee volunteering, – that’ll fix the ‘society bit’ (and perhaps make us look as though we have a ‘vision of what human society can be’ – and then a few weeks of days later it will be convenient to forget about society again for a while.

Internal contradictions – I think there is some mileage in looking at internal contradictions in economic models or approaches. ‘Competition’ for example. Conventional economic theory tells us that competition is central to the good, proper working of the economy, and many good things, eg wealth creation, will flow from competition. However, look at the activities of many transnational corporations and many pharmaceutical companies, and we see that competition is the last thing they want – they go out of their way to stifle it. Who are these people who want to stifle competition? Marxists? No, the stifling of competition is being done in the name of capitalism.

The distinction between transnational corporations and other kinds of businesses such as small and medium enterprises and co-ops. While I think it is helpful also, as has been suggested, to look at ‘the local’ and at contributions to the local economy and local money flows, I do think this distinction between transnationals and others is helpful. the Transatlantic Trade and Investment Partnership illustrates this. Who will benefit? ‘business’? Maybe, but which businesses? Not small and medium sized enterprises or co-ops, you can be sure of that. No, the beneficiaries will be transnationals.

A last thing I would like to say for now to anyone reading this is don’t be scared of economics. Don’t be put off. When economists start putting forward fancy models, talking jargon, etc, it can be offputting. Economics has been described as ‘the dismal science’, but it needn’t be that way. The economy is our economy, not theirs; let’s that the first steps towards reclaiming it.

Chris - November 10, 2015 Reply

Thanks Mark, lots to respond to here. I’m not sure being British means you don’t get excited. The Scots seem to be particularly excited at present. The English on the other hand …

Your point about society and the economy is what Unger seems to be saying (going by the Wikipedia page). Classical economics was concerned about social value and there is a clear strand that links society and economics, in the co-operative movement, for example. The Marginalist approach to economics claims to be a scientific approach that uses statistics. This claim to some sort of absolute truth effectively separates economics from any vision for society because it claims to measure what is really there. I don’t think this means marginalist economics does not have a vision for society; it conceals its vision for society. Why? Presumably to conceal the interests of those who benefit from the status quo.

When I started to write about economics I noted that businesses actually collaborate. Successful businesses do not see competition as anything like their primary activity. Competition is part of the marginalist model I suspect. Assume perfect competition and their models work. So we can all subvert their models by collaborating! But as you point out it is not quite so clear cut. Collaboration is beneficial in the local economy but the collaboration between corporations or between corporations and governments is not necessarily beneficial. Competition is a lie, to put it bluntly. If the lie is believed locally, it prevents local businesses thriving. If it is believed of the corporations it serves to conceal the degree of collaboration that goes on between them.

The key to understanding the distinction between the corporations (including TTIP) and local businesses is money circulation. The steel companies that have recently closed belong to (if I remember correctly) India and Thailand companies. So, to some degree profit was leaving the country, other than what was paid to the workers. This might be a good thing as perhaps India and Thailand need the money – that is assuming these companies really belong there and spend their profits locally. Ultimately the problem is accumulation of wealth that effectively takes money out of circulation. I pubished a post the other Friday about how the poorest half of the population puts more money into circulation than the richest 10% even though the poorest 50% own virtually none of the nation’s wealth. The wealthist 10% own 70% of the wealth and circulate only 20% of the economy.

Yes I entirely agree about economics and in my lifetime community development has largely ignored the economy. Even community economic development has focused on building social enterprises and taken no real interest in the pre-existing local economy.

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