Tag Archives: political economy

Whose island?

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A hint of broadband here …. Next in the holiday line-up was James Meek’s thought-provoking [amazon_link id=”1784782068″ target=”_blank” ]Private  Island: Why Britain Now Belongs to Someone Else.[/amazon_link] I was doubly interested to read this because the boundary between the state and the market, and the space for other non-state, non-market collective institutions is one of the themes running through the course I teach on public policy economics.

[amazon_image id=”1784782068″ link=”true” target=”_blank” size=”medium” ]Private Island: Why Britain Now Belongs to Someone Else[/amazon_image]

The book covers several of the UK’s privatised industries – electricity, rail, water, and post, as well as the housing crisis, the NHS and its marketisation, and a final chapter on immigration and the rise of UKIP. The chapters are largely self-contained, and indeed some started as extended essays in the London Review of Books. Each raises valid questions about the specific failures of privatisation – in particular, the failure of the privatisers to consider that markets need far more than private ownership of assets to operate efficiently and in the interests of consumers. Competition and regulation are required, in the right mix, regulations that do not turn out to inhibit competition, but rather limit monopoly rents and enable new entry.

In the end, though, the book is more a lament about financialisation and short-termism than about private sector operation of these sectors in itself. It is hard to tell whether Meek objects to private ownership at all, but he certainly objects to the ownership of large amounts of the country’s infrastructure by foreign owners and/or through debt-financed instruments. The grounds for this objection shift between chapters. In the case of water, it is that overseas bondholders require high financial returns and so necessary investment has not occurred. In the case of electricity, it is that EDF, a state-controlled French company, has bought the UK’s nuclear fleet and plans to invest in new nuclear plants – even though the essay accepts that low-carbon baseload generation is needed, and even though no UK companies were prepared to make the investment. (I sit on an advisory panel for EDF Energy.)

Should we be concerned about the high proportion of UK infrastructure owned by foreigners? I don’t know. Will Hutton recently used the purchase of the FT by Japan’s Nikkei to make this argument. But I’ve not seen a full analysis of what extent of foreign ownership is ok, in which sectors, and why nationality matters, although of course there are obvious arguments in some cases eg the threat of offshoring R&D in pharma made by big multinationals which had to be bought off with a big tax break (the ‘patent box’). It seems to me an academic questin, however, until and unless British investors are prepared to stump up the funds for long-term projects and long-lived asset holding.

Meek doesn’t address this question, though some chapters do have clear and sound policy conclusions. Build more council housing is one – yes! Scrap the dreadful ‘Help to Buy’ scheme – yes!

Still, overall the essays, with their sympathetic reportage of the conditions of casualised mail workers, about-to-be-homeless disabled people, flooded householders, add up to a powerful critique of the absence of strategic thinking in the British state. “No one has answered the question,” he writes, “of how governments with five year terms can be held to account for their stewardship of projects whose lifespan is measured in generations.” Only the Treasury, with its equally short-termist, penny-wise pound-foolish principles endures. I don’t think the question is mainly specific accountability, though; it is the absence of any institutions or public consensus about the need to take a long term perspective and embody responsibility to the future.

Not all economists are neoliberal, honest

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It was because of a tweet linking to her LSE lectures that I decided to read Wendy Brown’s [amazon_link id=”1935408534″ target=”_blank” ]Undoing the Demos: Neoliberalism’s Stealth Revolution[/amazon_link]. My relationship with the concept of neoliberalism is an uneasy one, in that I don’t really know what it means. Often, radical writers use it to mean ‘most of economics’ – Philip Mirowski’s Never Let A Serious Crisis Go to Waste is a good example of this –  making an exception only for certain Marxist or otherwise unimpeachably heterodox economists. I understand the idea well enough to know [amazon_link id=”178360610X” target=”_blank” ]Yanis Varoufakis[/amazon_link] is not neoliberal. However, writing off all the rest of economics makes it an unhelpful concept in my book. Of course there are ideologically right wing economists but there is a wide range of views about both politics and economics within the profession.

[amazon_image id=”1935408534″ link=”true” target=”_blank” size=”medium” ]Undoing the Demos: Neoliberalism’s Stealth Revolution (Zone Books Ner Futures)[/amazon_image]

I thought Brown’s book was going to be subtler. Here is her definition: “neoliberalism is not about the state leaving the economy alone. Rather, neoliberalism activates the state on behalf of the economy, not to undertake economic functions or intervene in economic effects, but rather to facilitate economic competition and growth, and to economize the social, or as Foucault puts it, to ‘regulate society by the market’.” She adds that neoliberalism entails “the dramatic curtailment of public values, public goods and popular participation in political life.” This definition makes sense to me – and makes neoliberalism a political ideology, one that uses its claim about the primacy of markets to extend a certain political order into more and more areas of life. It is similar to Michael Sandel’s argument in [amazon_link id=”0241954487″ target=”_blank” ]What Money Can’t Buy[/amazon_link].

However, Brown goes on to list all the neoliberal economists who include Milton Friedman, Friedrich Hayek, Gary Becker – but also Joseph Stiglitz. Wait – Joe Stiglitz in the same camp as Becker?! Barack Obama also gets labelled as neoliberal, along with Reagan and Bush. So this is back to vacuous.

It’s a shame because the argument that the primacy of the market has been extended into inappropriate domains needs to be taken seriously. People regard ticket scalping as unfair – this includes many economists – so those of us who do economics have to respect the fact that some values other than economic efficiency might have to win out. Freedom, civic cohesion, fairness are all important values. Where it is appropriate to prioritise efficiency, or to use market processes to achieve either efficiency or other outcomes, should always be a matter of public and political debate. Most of the economists I hang out with – applied micro people – think it will depend on both people’s political choices and on the exact circumstances: the US trade in SO2 emissions works well, the EU market in carbon emissions does not; [amazon_link id=”B00ODG9VUM” target=”_blank” ]Alvin Roth[/amazon_link]’s matching markets for kidneys or medical jobs are magical (and no money changes hands). My kind of economists tend to be pragmatists, unlike those in politics who argue the market is always best.

There are some real dilemmas. Later in the book, Brown gives short shrift to the idea that ‘governance’ is ever more important than politics, and argues that independent, technocratic bodies such as central banks should not take decisions with political consequences – and no doubt the many critics of the ECB and the right-wing critics of the Fed would warmly agree. It does not seem so obvious to me. Central banks take ‘better’ decisions when they are independent in the specific sense that growth is less volatile and inflation lower. Yet of course they need legitimacy – answering to parliament, fulfilling a remit set by the government. And the Greek crisis has indeed demonstrated that central banking is political at times of great stress. Perhaps Brown is right but I don’t think she argues the case well, when there are areas of policy in which expert advice or decisions made by technocrats delivers good outcomes. Surely this is debatable.

Anyway, [amazon_link id=”B00YDJ33RG” target=”_blank” ]Undoing the Demos[/amazon_link] is an interesting book even though I ended up disagreeing with much of it. I will say that whenever anybody next tells me economics is an abstract, wholly theoretical subject, I will make them read this. But it still helped me understand Michel Foucault’s almost totally incomprehensible [amazon_link id=”1403986541″ target=”_blank” ]The Birth of in Biopolitics[/amazon_link], which I read recently. And I do think it’s important to push back against the political stance that disguises ideological projects with the claim that market are always right.

Inventors and manufacturers, and their economics (Version 1.0)

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Courtesy of Anton Howes (his economic history blog is here) and Marc Andreessen, here are other works of political economy written by 19th century people who could and did make things. There is obviously a rich vein of literature to revisit here. This post is now updated with better links, also courtesy of Anton.

Here is his list, with his comments and a few notes from me.

“The one that immediately sprang to mind was the chemist Andrew Ure (1778-1857) and his [amazon_link id=”5519176558″ target=”_blank” ]The Philosophy of Manufactures[/amazon_link] (1835). (Free online copy.) I believe he had other works on political economy too.

[amazon_image id=”5519176558″ link=”true” target=”_blank” size=”medium” ]The Philosophy of Manufactures[/amazon_image]

My note: Here’s another, [amazon_link id=”1231159510″ target=”_blank” ]The Cotton Manufacture of Great Britain[/amazon_link]:

[amazon_image id=”1231159510″ link=”true” target=”_blank” size=”medium” ]The cotton manufacture of Great Britain systematically investigated Volume 1; with an introductory view of its comparative state in foreign countries[/amazon_image]

And a free online copy.

[amazon_link id=”1170437060″ target=”_blank” ]James Anderson[/amazon_link] (1739-1808) had quite a few writings on political economy, apparently anticipating Ricardo. Here is Observations on the means of exciting national industry. My note:  this article says he critiqued Adam Smith.

John Marshall (1765-1845), the flax spinning pioneer, wrote a book called The Economy of Social Life in 1825. I’m not sure if it’s on political economy, but he certainly lectured on the topic later on in life.

[amazon_link id=”1171962851″ target=”_blank” ]John Sinclair[/amazon_link] (1754-1835), the agricultural pioneer and writer, had quite a few works touching on political economy and the national finances. He was apparently a notorious bore offering unsolicited advice on the latter topic in particular. Here is his History of the Public Revenue of the British Empire.  [amazon_link id=”1438505582″ target=”_blank” ]Arthur Young [/amazon_link](1741-1820) may have similar works, but was a little more focused on just agriculture.

[amazon_image id=”1170437060″ link=”true” target=”_blank” size=”medium” ]Account of the origin of the Board of Agriculture, and its progress for three years after its establishment. By the president.[/amazon_image]  [amazon_image id=”B00A1V6SOA” link=”true” target=”_blank” size=”medium” ]An Account of the Systems of Husbandry Adopted in the More Improved Districts of Scotland: With Some Observations On the Improvements of Which They … Agriculture with a View of Explaining How F[/amazon_image]

[amazon_link id=”1152894218″ target=”_blank” ]Andrew Yarranton[/amazon_link] (1619-1684), the metallurgist and civil engineer, has quite an interesting work called “England’s Improvement by Land and Sea: how to Beat the Dutch without Fighting” (2 vols., 1677–81). Quite interesting, particularly for the time. Here is the free online copy.

[amazon_image id=”1152894218″ link=”true” target=”_blank” size=”medium” ]England’s Improvement by Sea and Land[/amazon_image]

John Chapman (1801-1854), the inventor of the cab, had quite a few well-known (at the time) works on the political economy of India. May well be considered one of the earlier development economists! Here’s The Cotton and Commerce of India.

The actuarial and navigational pioneer Francis Baily (1774-1844) had quite a few works on political economy. One that sticks out as sounding quite interesting is called “The Rights of the Stock Brokers Defended Against the Attacks of the City of London” (1806)

Another actuarial pioneer, Robert Wallace (1697-1771), was also very prolific writing about demography and political economy. One that sounds quite intriguing is called [amazon_link id=”1142321886″ target=”_blank” ]Dissertation on the Numbers of Mankind[/amazon_link] (1753). Here’s the free online version.

[amazon_image id=”1140998420″ link=”true” target=”_blank” size=”medium” ]A dissertation on the numbers of mankind in antient and modern times: in which the superior populousness of antiquity is maintained. With an appendix, … on Mr. Hume’s Political discourse, …[/amazon_image]

A lot of people also tend to overlook [amazon_link id=”1170181791″ target=”_blank” ]Richard Price[/amazon_link]’s (1723-1791) contributions to economics. They’ve been largely overshadowed by his radical political and theological works. But it was he who originally proposed and then advised on the National Debt sinking fund, as well being the person to promote Bayes’ work on statistics and probabilities. Here is Observations on the Debt.

[amazon_image id=”1170181791″ link=”true” target=”_blank” size=”medium” ]An appeal to the public, on the subject of the national debt. The second edition. With an appendix, … By Richard Price, D.D. F.R.S.[/amazon_image]

[amazon_image id=”B00FDVBZHI” link=”true” target=”_blank” size=”medium” ]Observations on Reversionary Payments: On Schemes for Providing Annuities for Widows, and for Persons in Old Age; On the Method of Calculating the Values of Assurances on Lives; And on the National Debt. Also, … a PostScript on the Population of the Kin (Paperback) – Common[/amazon_image]

You may also be interested in the works of William Cobbett (1763-1835). [Me: best known name on this list.] He’s on my list as an agricultural pioneer, but he’s better known as a political radical and for compiling what would later be better known as Hansard. In 1815 he wrote something called [amazon_link id=”1172783411″ target=”_blank” ]Paper against Gold[/amazon_link], (available here too) but there are many other works on economics and political economy.”

[amazon_image id=”1172783411″ link=”true” target=”_blank” size=”medium” ]Cobbett’s Paper against gold: containing the history and mystery of the Bank of England, the funds, the debt, the sinking fund, the bank stoppage, the … shewing, that taxation, pauperism, poverty,[/amazon_image]

Many thanks to Anton for those. And from Marc via Twitter (@pmarca), this one by David Wells, Recent Economic Changes and Their Effect on the Production and Distribution of Wealth and the Well-Being of Society.

Hope amid the gloom?

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Anybody in the UK who is feeling gloomy about the General Election result could deepen their gloom by reading the new edition of Danny Dorling’s [amazon_link id=”1447320751″ target=”_blank” ]Injustice: why social inequality still persists[/amazon_link]. The book has quite an upbeat conclusion: “Slowly, collectively, with one step back for every two taken forward, we inch onwards to progress; we gradually undo the mistakes of the past, and recognise new forms of injustice arising out of what we once thought were solutions. … Everything it takes to defeat injustice lies in the mind. What matters most is how we think. And how we think is metamorphosing because – everywhere – there are signs of hope.”

[amazon_image id=”1447320751″ link=”true” target=”_blank” size=”medium” ]Injustice: Why Social Inequality Still Persists[/amazon_image]

Clearly this new and greatly revised edition of the book was written before the election. What’s more, everything that is new in it ought to make a campaigner for social justice even gloomier. The indicators collected in the book have at best improved only a little since the financial crisis – household indebtedness, income inequality, for instance. Perhaps even more noteworthy is the apparent absence of any change in the zeitgeist, or public philosophy. When the first edition was published in 2010, many commentators thought the scale of the crisis would lead to a significant swing in public opinion away from Big Finance, markets and greed. With the exception of popular disapproval of unseemly bonuses in the socially destructive banking industry, that doesn’t seem to have happened.

Or has it? Dorling presents some evidence – Janet Yellen calling extreme inequality ‘un-American’, international efforts to collect unpaid taxes from rich globocrats, popular dislike of elites. It’s not much, perhaps. One could add a few more examples, like today’s call from the OECD for tech companies to stop their “aggressive tax planning”. Is this enough to justify a belief that the social and economic order will change. Dorling writes, optimistically in the circumstances: “No-one can truly know what will be sufficient to change deeply held and institutionally transmitted beliefs.”

In a terrific book, [amazon_link id=”0691151571″ target=”_blank” ]Masters of the Universe[/amazon_link], Daniel Stedman Jones described the long process of organising, campaigning, debating by many people that paved the way for the triumph of the individualist ‘free market’ philosophy from 1980 and is still our official public philosophy. Who knows how long it will take how many people who dislike this to pave the way for an alternative – but when a system change of this kind happens, it happens relatively quickly (over a decade at most) and is then dramatic.

[amazon_image id=”0691151571″ link=”true” target=”_blank” size=”medium” ]Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics[/amazon_image]

[amazon_link id=”1447320751″ target=”_blank” ]Injustice[/amazon_link] replaces Beveridge’s original Five Giants with new ones: elitism, social exclusion, prejudice, greed and despair. The book links these in a vicious circle of social and economic inequality – exactly why single policy measures are drops in the ocean and a broader change is needed, Dorling argues, collecting all the evidence one could need to conclude this. I wouldn’t want to predict whether we’ll get it or not; that will depend on what we all do, and think, next.

Debt, no brainers and no-nos

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Yesterday I attended the launch of a new CEPR (free) e-book, A New Start for the Eurozone: Dealing with Debt. Written by some of Europe’s most distinguished macroeconomists, it notes that a return to sustainability requires a reduction in the legacy debt burden. It proposes using the seigniorage revenues from the Euro to finance a one-time debt buyback for the most indebted Eurozone countries, reducing their debt-GDP ratios to a sustainable level. This would be combined with a stronger regulatory structure to prevent future debt build-ups (and mitigate the unavoidable moral hazard involved in the first step), and the creation of a safe asset, a synthetic European bond.

A New Start for the EurozoneThis is very far from my area of expertise, so it sounds a promising package of measures but I’m not in a good position to evaluate its details. Among the audience at the launch, the questions centred almost entirely on political economy questions: how could European governments be persuaded to do anything now the markets are calm? how would the new measures sit within the existing institutional framework? could northern Europe (Germany) be persuaded to allow the seigniorage revenues to be used in this way?

In short, an economic no-brainer – that the debt legacy has to be tackled – is a political no-no. The fact that the economic hurdles are huge but the barriers to reform are political was brought home by Gillian Tett’s Financial Times column this morning. She writes: “On the eastern side of the Atlantic, policy makers are now at pains to suggest that a Greek default, or even a eurozone exit, would not be disastrous; at last week’s International Monetary Fund meetings German officials argued that the chance of a Greek exit had already been priced into the markets, and that shocks could be contained.”

She argues – and I agree – that the Eurozone could yet go very pear shaped, and the dangers of renewed systemic financial crisis are non-zero. At least if the pessimistic view is correct, the political economy of reform along the CEPR or other lines will become more favourable.