An age of economic soul-searching.
Was the great recession a bigger game changer than we realise?
In women’s month, on a cold Sunday night in the farm-workers’ compound, cheap wine-fuelled joviality again turns to discord. A stone is thrown in drunken fury. A skull is crushed. A young women dies. A young man ends in jail. One life is ended, another destroyed. Neighbours and co-workers become sworn enemies. Tranquillity in the small community is shattered.
A few more decibels are added to the clamour about gender violence. Another line is written in the tome of hazy hopelessness that is the life of a very large part of a young generation. And just as many in the final generation, those whose formative years were marked by much post-war deprivation but large promise of “never again”, reflect sadly on what has been done to that promise. It’s a global story. The content may differ, but the context is the same: a fractured, disconnected, economically malfunctioning world. Is the new normal, as Dutch economist, Servaas Storm says: “radical inequality, suffocating debt, job uncertainty, secular stagnation and a vanishing middle-class”? Theories abound. Purists argue that their elixirs were never purely administered. Solutions exceed the problems themselves, but none has proved to be a lasting absolute truth. Some hope that the current few green shoots in the desert will still the dissent.
We are not too afraid of “unchartered waters”, drawing some comfort from history that we have been in unfamiliar places before, and somehow emerged with new approaches and discoveries. This time is no different. But perhaps it is in the scale and depth of questioning all assumptions about economics and about ourselves as a species. The view increasingly being seen is through an evolutionary rather than the traditional reactive quantitative lens – do we evolve or construct on statistical models? This lens is being captured in research directions and discoveries within evolutionary economics and complexity economics, and driven by a number of institutions and scholars.
Eric Beinhocker Executive Director of the Institute for New Economic Thinking at Oxford University, believes the financial crisis of 2008 and the momentous global political shifts last year, have heralded a collapse of major economic-political ideologies that have dominated the 20th century. Older economies in particular are searching for a completely new paradigm that can show a better way for all. Such as the OECD’s NAEC (New approaches to Economic Challenges) which says: “We need a full re-vamp of our analytical frameworks and the assumptions that we make, to better capture the reality. Economic models that rely only on inputs such as GDP, income per capita, trade flows, resource allocation, productivity, representative agents, and so on can tell a part of the story, but they fail to capture the distributional consequences of the policies we make, and do not address the fact that the growth process has only benefited a few.”
It will be a mistake to see these shifts in economic introspection in an ideological context, and brand them as “socialist” or “left”. Indeed our sometimes powerfully drawing biases are the biggest barriers to discovery. According to Beinhocker, it’s time for new economic thinking based on the best science available, not Ideology. “It should be highly interdisciplinary” he says, “involving not only economists, but psychologists, anthropologists, sociologists, historians, physicists, biologists, mathematicians, computer scientists, and others across the social and physical sciences”. He notes that over the past several decades a number of Nobel prizes have been given to researchers working in what today might be called the new economics tradition.
Beinhocker reflects a common thread followed by economic evolutionary advocates in developing a view of the economy as an evolutionary system of cooperative problem solving. Prosperity is seen as “solutions to human problems” and cooperation is the key to solving more and more complex problems thus increasing prosperity.
“Economics has painted itself as a detached amoral science, but humans are moral creatures. We must bring morality back into the centre of economics in order for people to relate to and trust it,” he says.
Oxford and Cambridge Research Associate, Kate Raworth in following that thought in her latest book, suggests dumping GDP as the holy grail and setting a “far more ambitious and global economic goal: meeting the needs of all within the means of the planet”. She then explores a seven step approach to achieving that.
In this article, David Wilson, renowned biologist and anthropologist at Binghamton University, suggests not only that Adam Smith’s invisible hand is dead, and always fails, but that the metaphor itself has caused much harm. “We are different from other primate species,” he argues, “because we are so cooperative. Why are we so cooperative? Because it is so easy to regulate each other’s behaviour in small face-to-face groups.” Wilson’s brave challenge of the “invisible hand” has another context: Smith’s assumption of high moral standards in humanity, which precluded seeing “the hand” as an instrument of pure self-gain and unbridled selfishness.
“Moral systems evolve in societies because they enhance group cohesion and survival.
Implications of evolutionary thinking for economics and the social sciences have only partially been explored.” (Geoffrey M. Hodgson, research professor at Hertfordshire Business School, University of Hertfordshire, England.)
One of the more telling indictments of orthodox economic models is from complexity economics of which Steve Keen, Kingston University economist and author of Debunking Economics is a leading advocate. He believes economists have to embrace complexity to avoid disaster and the fact that they don’t, explains why most were caught flatfooted by the speed, depth and length of the great recession. “Macroeconomic models are painstakingly derived from microeconomic foundations, in the false belief that it is legitimate to scale the individual up to the level of society.” Using his own simulations, Keen shows a number of cases (see essay here) where generally accepted assumptions at a micro level, including important ones such as price and demand, simply don’t hold true at a macro level.
It is extremely difficult to do this important subject justice in a broad sweep such as I have made here. Essays and articles on the website evonomics.com bear testimony to the weight, depth and breadth of a perspective that is perhaps not new but compelling, profound and refreshing in today’s context. It does offer a framework of thought for South Africa’s own Radical Economic transformation, but with a huge caveat – the need for a trustworthy government. I have frequently argued that radical government transformation is an absolute prerequisite for RET. (See article here.)
What remains unchallenged and perhaps gains significance is that economics itself is built on the enduring principle of adding value to each other’s lives. This should put business and companies at the core of any economic construct seen through any lens.
From a relationship point of view, they are after all, and irrespective of motive, an inclusive collective of people serving people.