Tag Archives: political economy

Regulatory capture. Or, how to fend off the lobbyists

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A forthcoming book, [amazon_link id=”1107036089″ target=”_blank” ]Preventing Regulatory Capture: Special Interest Influence and How to Limit It[/amazon_link] edited by Dan Carpenter and David Moss, looks very timely. The draft chapters can be downloaded free from the Tobin Project website until publication later this year.

It has become abundantly clear that lobbying by special interest groups, notably finance but others too, has probably entrenched economic and consequently political power, and contributed to the increase in inequality over recent years. The aim of the project has been to develop a “rigorous and empirical standard for diagnosing and measuring capture.” The book argues – the blurb says – that this assists in identifying ways to prevent capture. The range of case studies is wide. The chapters on finance (by James Kwak) and economics (by Luigi Zingales) look most interesting to me, but there are others on oil, mining, and radio, for example, and contributions from lawyers including Richard Posner. Well worth a look.

Fear and loathing

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[amazon_link id=”1844678644″ target=”_blank” ]Chavs: The Demonization of the Working Class[/amazon_link] by Owen Jones deserves the praise it has earned from other reviewers. It paints a picture of class division in modern Britain that is over-simplified in some ways, but captures an important truth. The big truth is that the worlds of the social classes have separated, and the middle classes and elites have grown more contemptuous – because fearful – of working class people the less contact they have with them.

In my own comfortable suburban milieu this takes the form of supposedly left-wing friends who nevertheless send their children to private schools. London’s state schools add more value than any other schools in the country so the ‘rationale’ for this choice in terms of not wanting to sacrifice one’s children’s education for the sake of one’s own principles is threadbare. I believe the reason is the fear of social contact with other classes. (My children have attended our local comprehensive.)

Jones pins the start of the demonisation of the working class as ‘chavs’ to the economic and political ideology of the Thatcher government. Housing policy seems key. The right-to-buy for council housing was taken up by those families with a bit more money, leaving the poorest in a shrinking stock of council accommodation, which was increasingly earmarked for the most troubled families and isolated from other parts of society. The knot of related problems we are so familiar with consequently developed in these estates – the unemployment, ill-health, low-quality housing, poor schooling, drug abuse, crime. (Lynsey Hanley’s [amazon_link id=”1847087027″ target=”_blank” ]Estates[/amazon_link] is brilliant on this issue.) Jones is equally scathing about New Labour, for acceding to the Thatcher revolution, and its depiction of the working class as something to escape from rather than a cohesive class to be proud of and raise collectively.

He also opened my eyes to just how disdainful and disrespectful is so much comment and language about the working classes. Clearly, I lead a sheltered life by never reading tabloid newspapers. The book is definitely onto something, too, in noting that the politics of race are sometimes deployed to disguise the politics of class – the white working classes can be portrayed as simply anti-immigrant and racist, another reason (for the commentariat of the left) for being disdainful about them.

However, there are some aspects of Jones’s pre-Thatcher perspective that lead him to underplay some of the complexities of class politics in modern Britain. For example, he argues that commentators malign the British working classes as work-shy couch potatoes who just want to claim benefits by comparing them with hard-working immigrants who, far from ‘stealing’ jobs, are doing them because the natives are too idle to bother. Until recently I was a member of the Migration Advisory Committee and spoke to many employers during my five year term about their reasons for preferring immigrant labour; it is a fact that large numbers of young native-born people have never been taught the basics of the workplace – punctuality, politeness, putting in some effort – and are essentially unemployable. This is not to say it is their individual fault. But to trace the reasons, schools are facing a social catastrophe with a portion of their intake. I have heard London teachers talk of the widespread low-level neglect of children who turn up at primary school lacking minimal social and language skills, unwashed, fed on crisps – all of which makes discussion of which kings’ reigns to cover in the national curriculum a bit, well, academic.

It is hard to know where to start addressing these multiple challenges, although clearly housing and education lie at the centre of the complex of problems. Chavs gives the impression of wanting to turn the clock back to the pre-Thatcher era of union power, which wouldn’t be my choice. Still, the book does a great service in calling out the unacceptable demonisation that has accompanied the growth of inequality and the withdrawal of the powerful elites and middle classes from their own society.

[amazon_image id=”1844678644″ link=”true” target=”_blank” size=”medium” ]Chavs: The Demonization of the Working Class[/amazon_image]

All-powerful economists?

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There are really two separate books rubbing shoulders in [amazon_link id=”0857284592″ target=”_blank” ]Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards[/amazon_link] by Norbert Häring and Niall Douglas.

One of them is a clear and well-made case that modern economics has been in error in ignoring the part played by institutions, politics and power relations in actual economies. It has chapters covering the acquisition and abuse of power by the financial services industry, the distortion of business in the interests of executives rather than customers, employees or shareholders, and the increasing concentration of the US economy through merger waves. Although many or most professional economists who work in business or regulators or consultancy have always been well aware of institutional detail, I think it is fair comment that academic economics overlooked the reality of markets and economies for too long. I’d also add that this has been changing quickly, with the rise over 20 years of institutional economics, behavioural economics etc (see [amazon_link id=”0691143161″ target=”_blank” ]The Soulful Science[/amazon_link]) – but there is further to go.

The second book within this set of covers is more tendentious. It is a history of economic methodology in the first chapter (I must say, I’d have put this at the end if I’d been the author). While the authors land some punches, and make some good points about the way theory shapes reality (see my Tanner Lectures on this question of performativity), they are too conspiracy theorist about it. The original spin-meister Edward Bernays is wheeled out, along with the Inside Job accusations that the financial crisis came about because some economists were paid to write a report by the Icelandic government. Although many economists in universities do paid consulting work – and should certainly declare it when they publish their work – I don’t believe there is signficant distortion of what gets published as there seems to be in the case of pharma companies and medical research. The economists simply have a much wider choice of options, and are not beholden to one set of powerful business interests. There would be something interesting to say, nevertheless, about the narrowing of economic research as published in mainstream journals – I just don’t believe it’s as crudely marxist as suggested here. Similarly, the way economic theory and practice developed from the 1940s to 1980s was certainly bound up with the wider ideological/political climate (like any social science discipline is sure to be), but not in such a purposive way. I think the messy sociological reality of the profession would be far more interesting to understand than the ideological, top-down assertions presented in this book.

Still, it’s an interesting read. The argument that marginalism, the refusal to compare individuals’ utility and rational choice added up to the inevitable demotion of interest in economic institutions is quite interesting. Besides, I’m all in favour of economists continuing to introspect for at least as long as the world economy remains in such a fragile state.

[amazon_image id=”0857284592″ link=”true” target=”_blank” size=”medium” ]Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards (The Anthem Other Canon Series)[/amazon_image]

Culture and capitalism

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The obituaries of Albert Hirschman (like this obit in the FT) pointed me to some of his other books, in addition to [amazon_link id=”0674276604″ target=”_blank” ]Exit, Voice and Loyalty[/amazon_link]. I’ll be ordering [amazon_link id=”0691015988″ target=”_blank” ]The Passions and the Interests: Political Arguments for Capitalism Before Its Triumph[/amazon_link], of which the blurb says:

“In this volume, Albert Hirschman reconstructs the intellectual climate of the seventeenth and eighteenth centuries to illuminate the intricate ideological transformation that occurred, wherein the pursuit of material interests –so long condemned as the deadly sin of avarice –was assigned the role of containing the unruly and destructive passions of man”

[amazon_image id=”0691015988″ link=”true” target=”_blank” size=”medium” ]The Passions and the Interests: Political Arguments for Capitalism before Its Triumph[/amazon_image]

More importantly, Deirdre McCloskey cites it in her marvellous book [amazon_link id=”0226556743″ target=”_blank” ]Bourgeois Dignity: Why Economics Can’t Explain the Modern World[/amazon_link], in a section describing the emergence in the 18th century of “the emergence of the economy as an explicit object of concern,” the separation of the economic or commercial sphere from the political and social. Although capitalism is as out of fashion as it has been in a generation, it’s salutary to remember its origins as a positive social and political trend incorporating personal freedom, cultural innovation and material prosperity. As McCloskey put it in her previous book, capitalism is founded on [amazon_link id=”0226556646″ target=”_blank” ]The Bourgeois Virtues[/amazon_link]. Our current problems stem from the severing of market economics from its social roots.

McCloskey’s book has a Ferdinand Bol portrait of late 17th century Dutch wine merchants on the cover. I think I’ll need to go downstairs to ferret out Simon Schama’s [amazon_link id=”0006861369″ target=”_blank” ]The Embarrassment of Riches: An Interpretation of Dutch Culture in the Golden Age[/amazon_link], which I’ve not looked at for ages.

[amazon_image id=”0226556743″ link=”true” target=”_blank” size=”medium” ]Bourgeois Dignity: Why Economics Can’t Explain the Modern World[/amazon_image]

[amazon_image id=”0006861369″ link=”true” target=”_blank” size=”medium” ]The Embarrassment of Riches: An Interpretation of Dutch Culture in the Golden Age[/amazon_image]

Find me some economists who support my views

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At the end of last week I did a talk based on the [amazon_link id=”0691156298″ target=”_blank” ]Economics of Enough[/amazon_link] at the Netherlands Environmental Assessment Agency (PBL) followed by a workshop at the Netherlands Scientific Council for Government Policy (WRR). It’s always interesting to present to new audiences because of the varying expertise and viewpoints they bring, and it also gave me a bit of an insight into the institutional structures of government in a country I don’t know all that well.

[amazon_image id=”0691156298″ link=”true” target=”_blank” size=”medium” ]The Economics of Enough: How to Run the Economy as If the Future Matters[/amazon_image]

The themes from the book I highlighted in this case were: (a) that there is a challenge of sustainability in several domains, not just the environment. After all, the financial system was literally unsustainable and stopped working. Addressing one element is likely to involve the others, because there is a common thread in the lack of attention paid to the claims of the future; and (b) that economists and other experts need to do a far better job in measuring stocks of assets as well as flows and telling in an accessible way the tale of the extent to which current consumption has involved running down natural capital and building up financial and other debts.

The audience asked lots of perceptive questions, and challenged parts of my talk – especially my contention that ‘zero growth’ is neither desirable nor possible. So many people think of GDP growth as purely material – more designer handbags and big cars – whereas it is largely intangible in the advanced economies and anyway much more about innovation, new services and products, than about stuff. But this is a debate where environmentalists and economists are likely to continue to disagree. One of my interrogators, Wietske ter Veld (a local and regional politician and teacher of environmental sciences) kindly sent me her take on economists – and politicians, below. I would have to agree with her that we’ve got a long way to go on the political economy of policies to achieve long-term rather than short-term aims.

© Wietske ter Veld