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LQD : Towards an Institutionalist Political Economy - a Manifesto

by linca Mon Dec 24th, 2007 at 05:20:37 AM EST

Many critiques can be made of what has become the main social science used to analyse our societies, Economics. Its paradigms - that each man is a rational utility maximiser, that a free market for them to interact in leads to an optimal state - have to be debunked; as it seems they are accepted as true by policy makers around the world, which in turn has lead to various economic crises.

The science of political economy needs not be reduced to this aspect. If the Left wants to have alternatives to put forward to the "Free Market", it needs scientific tool to analyse the state of the economy. But the currently prevailing Economics won't provide those, as thoroughly grounded is a false vision of societies that are only the sum of their individual members.

Various "heterodox" economical theories are being developed, trying to provide this alternative to the usual economics science.

French researcher Alain Caillé has written about what these approaches agree on, a "quasi-manifesto" towards an institutionalist political economy. It is not only a critique of standard economics, but also a programme on what these approaches must deliver, which tools they must develop.

Diary rescue by Migeru


In this text, he and his co-authors sum up their critiques of mainstream economics: the way its mathematical aspects have become the only tool through which the economy may be analysed, keeping the political and social context hidden:

Historically, economic analysis has been practiced in two definitive traditions : within its political context, as political economy and without, as economics or economic science. We believe that the first must be recognized as having principled superiority over the second. [...] An institutionalist political economy is thus incapable of separating the analysis of economic markets from reflection on their political and ethical backgrounds. It regards as deceit, the preliminary, isolated, analysis of the market or economy and secondary analysis of the institutions necessary to its implementation. Analytic integrity is restored with the understanding that economic institutions are tightly intertwined with political, juridical, social and ethical norms, and with their concurrent analysis. The political, as opposed simply to politics or policy matters, is the place/moment where this intertwining is given shape.
or the need to get beyond the traditional Market/State dichotomy:
All forms of institutionalism show up the incompleteness and the inevitable failures of pure market regulation. But no one advocates the substitution of a state-led economy for market regulation : all recognize that both State (more or less broadly conceived) and Market have roles to play. The important thing is to escape the zero-sum conception of the desirable relationship between the two : the State as the only genuine remedy to market failure and the Market as the only genuine remedy to failures of the State. IPE holds, above the importance of Market-State coordination and regulation, that of society itself. As well as State and Market, then, IPE also takes into account Society, however it is defined : Civil and Associative Society or, more generally, any bundle of local, national, subnational or supranational social relationships.
The consequence is that incentives alone can't make a proper economic policy:
According to IPE, no viable, lasting, global coordination can be obtained (or structured) through purely instrumental individual rationality, either parametric or strategic. Any effective macro-coordination implies, to some extent, shared values and political regulation.
The consequences are that economic policy must take into account the local context:
One of the primary conclusions of IPE is therefore that one economic "best way" does not and cannot exist. There is no unique set of recipes or technical devices to be applied anywhere, at any time, in the absence of a detailed study of the historical, social and geographical context, or the path-dependency, of a specific economic system.
Very important is that economical science must be able to analyse causes of behavior beyond the individual self-interest:
It must build models of the subject able to act not only as a separated self-regarding individual, but also as a member of a family (and in the interest of the family), of a peer-group, of an organization or institution, of one or several social, political, cultural and religious communities (and for the sake of them) etc.
Points are made that economic action can't come before political, social and moral action:

The most general conclusion we can draw is that we cannot have lasting economic efficiency outside a lasting, strong and lively, political and ethical, community. In this sense, the political and the ethical dimensions of community are prior to the economic, even in the solution of economic problems. And there cannot exist a lasting and lively political community that is not, in practice, a working social community, i.e. that does not share some core values and a similar sense of justice: briefly, that is not also a moral community.
The conclusion is that economic policy, which must be undertaken with institutional policy (whereas nowadays it sees institutions as a given), can't aim towards a single, ideal, utopian model, but need to take careful attention to local conditions. Which doesn't mean it won't propose strong reforms:
One of the primary conclusions of IPE is that those who plan to reshape existing institutions must be both modest and cautious. Owing to the compound, entangled effects of any institutional change, one can never be sure of its final result. If a reform is imposed for purely ideological or rhetorical reasons (and, a fortiori, if it is imposed by a foreign power), the most probable results will be opposed to those expected. Very gradual reforms are thus safer than harsh ones. This seems to be a plea for some sort of shy reformism. Such is not the case. A good reform is a reform which no one (not even opponents who win the next election) dares think of abolishing once it has been adopted. This is the criterion: the measure of the gap between existing and desirable institutions. A good reform is one that should have been undertaken long ago and which nobody can contest when it begins to be realized. Such reforms -which we might call shifting - can seem very modest and yet generate huge effects. Such shy reforms can be revolutionary. But a political situation may be such that only a revolution, a brutal and violent change of political regime, permits the launch of shifting reforms...
This manifesto, in full, is a very good summary of the many things wrong with current economics, and the memes it has propagated ; and an interesting basis to what will have to be done to get beyond it.

Not only from the point of view of developing nations - who have the most to lose or to gain from a good economics policy; and what has Putin done if not understood that neoliberalism alone was destroying the Russian society, and corrected this?

But if we want to fight neoliberalism in the EU, for example, we need to have a EU-wide model to put forward ; one that will need to make a EU-wide polity possible, as that is needed to have a non-neoliberal economical policy.

If you support the ideas put forward by the manifesto, there is a petition to sign...

Display:
I believe that the problem is Metaphysical. The assumptions that underpin conventional Economics bear no relation to reality as we know it.

They are distorted in a way designed to suit the beneficiaries of the value flows that result from the surreal financial structures that comprise our current Economy.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Dec 16th, 2007 at 05:53:45 AM EST
OMG.  You write like an economist already. (;  Chris, please come back!

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Sun Dec 16th, 2007 at 01:26:24 PM EST
[ Parent ]
NOooooooo....not writing like an economist...

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Dec 16th, 2007 at 01:30:59 PM EST
[ Parent ]
crackle, crackle, hiss, buzzzzzzz

"NASA we've achieved econo-speak."

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Dec 16th, 2007 at 02:04:36 PM EST
[ Parent ]
I think one of their point is that not only money is important, and that economics, as a social science, needs to look beyond money, as it is not the only means of social exchange - that is basically the basic axiom of current economics, that are way to much based on econometrics.

The vote, the christmas gift, the exchange of drink rounds, are also important means of economical interaction, but are denied by the modern economics influenced thinking.

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Sun Dec 16th, 2007 at 01:41:18 PM EST
[ Parent ]
... to the extent that decentralization of production, consumption and productive investment decisions are beneficial.

From an ecological economic perspective, there are a large number of complex systems that must be designed if we are to mitigate the already existing impacts of our economic activity, much less to move toward an ecologically sustainable economy.

On the one hand, markets cannot design complex systems.

On the other hand a government, whether public or privatized, which can design complex systems, can only do a certain number of things well at any given point in time.

Therefore, high level public governments need to identify the highest priority complex systems that need to be designed, or those that private government is least likely to design well, and tackle those, and establish frameworks that provide incentives for lower level public governments and for private government to design the balance.

The limitations of government implies that we need both market solutions as well as appropriate decentralizations of those goals that lower level public government can effectively pursue. However, making that decision based on the interests of private government is absurd ... corporate charter entitlements ought to exist on sufferance, due to public benefits of the existence of the chartered corporation, and not as some sort of intrinsic right.

Money is an important instrument of that process, but acting as if money is intrinisically important is akin to thinking that diseases are caused by imbalances in the amount of blood, lymph or "bile" circulating in the body.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Dec 24th, 2007 at 12:59:51 PM EST
[ Parent ]
Good catch linca, thank you.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Dec 16th, 2007 at 02:52:08 PM EST
I am DELIGHTED you found this stuff.  

As you may or may not realize, Institutionalism and Institutional Analysis were the "inventions" of my favorite political economist--Thorstein Veblen.  I have been sort of a pest about Veblen on this site:

http://www.eurotrib.com/story/2007/2/22/182915/491
http://www.eurotrib.com/story/2007/3/15/22453/4609

As you might imagine, the idea of a French Institutionalist is quite exciting.

Thanks for the post!

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Mon Dec 17th, 2007 at 01:37:06 AM EST
It seems they are the heirs of Veblen, Mauss and Polanyi...

Go sign the petition ! :)

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Mon Dec 17th, 2007 at 06:52:11 AM EST
[ Parent ]
Sorry, I don't read French even well enough to sign a petition.

But I am certain it will do OK without me.  Institutionalism can stand by itself.  Institutionalism has only one large flaw--it is extremely difficult to learn how to do well.

I have been saying for years that Institutionalism is the answer for people who want a progressive society but want something better than Socialism / Marxism because those ideas just didn't work.

So you can imagine how happy I am that someone else has discovered position without my help and coming from a VERY different background.

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Mon Dec 17th, 2007 at 04:06:56 PM EST
[ Parent ]
That's why I'm trying to make some noise about those MAUSS people ; they say interesting and important things. As long as Friedmanism is taken as gospel, the left will have an uphill battle. If heterodox economists can't get a hearing here, where will they?

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Mon Dec 17th, 2007 at 04:29:31 PM EST
[ Parent ]
did you check out my essays on Veblen?

I thought I got a fair hearing on this site.  But yes, there MUST be an answer to the insanity of Friedman.

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Mon Dec 17th, 2007 at 06:03:40 PM EST
[ Parent ]
Yes, I did read them. They were very good. (And to think that the Theory of the Leisure Class was only translated to French in 1970, and is quite hard to find...)

About the hearing, I meant that the basic reaction is still to go to standard economics and eventually criticise it, rather than to try and build upon non-standard economics, although there are exceptions. (And I'm more guilty than most).

I just bought this book which is closely linked to the topic of this diary (link to English abstracts ), and may do a diary on the interesting bits...

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Mon Dec 17th, 2007 at 08:42:01 PM EST
[ Parent ]
Some (most? all?) of Veblen is available for free but in English at Munseys.

They have his books written while at the University of Chicago: "Theory of the Leisure Class" and "Theory of Business Enterprise."

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Dec 18th, 2007 at 12:44:20 AM EST
[ Parent ]
A French translation of TOLC would be, I would imagine, a VERY difficult book to read.  Further, the French were really not so much in need of an Industrial Class economic theory as some others--they already had their dirigisme.  

By contrast, I once heard a Japanese professor present a paper on Veblen in Japan.  All of Veblen's major works had been translated and there had been several hundred books and scholarly papers since then.  It could be argued that the Japanese took Veblen more seriously than any other group.

The paper
http://elegant-technology.com/TVjapI.html

The Bibliography
http://elegant-technology.com/TVjapIN.html

Here's to your great success in understanding and promoting heterodox economics, Institutionalism, and Institutional Analysis.

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Tue Dec 18th, 2007 at 02:45:23 AM EST
[ Parent ]
The Japanese certainly seem to have the knack of coordinating government and private action effectively, although sometimes the ends seem a bit dubious.

The Japanese wanted to build an automotive industry, which means they needed people to buy new cars.  So the government puts together safety regulations that strongly encourage people to buy new cars every 3 or 6 years.  So, people buy new cars all the time.  Problem solved!

Some of the problems may be attributable to the rather tenuous state of Japanese democracy (single party rule for 50 years), allowing cooperation to fester into corruption, but they're still there.

by Zwackus on Tue Dec 25th, 2007 at 11:39:02 PM EST
[ Parent ]
Wonderful diary.
I'd like to take it a piece at a time and comment on the thing in detail, but it's Christmas here in the Port de Plaisance, and I'm making cookies with the girls. Cookies trump ET today. Which relates to the diary, if you think about it.
Suffice it to say that the approach you diary is at the heart of what I think and feel about the need to progress beyond the mechanistic economic models into a more humanistic, systems-oriented approach to policy- one that will include cultural and social diversity as central elements while searching out cross-cultural values and needs and building policy on both of these.
The language --the cult-- of the expert demands repeatability, precision, clarity, universality, mathematical rigor----all things that are generally absent in the social fabric that makes life rich and people happy. This diary finally touches on it- a bridge between the necessary mechanistic and the essential humanistic is what we need, and this is a good start.
Thanks.
     

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Mon Dec 24th, 2007 at 08:07:44 AM EST
We'll have to talk more about this...

The diary was frontpaged (thanks, Migeru !) when I was away on holidays, so that I couldn't follow up on the discussion either...

Experts' policy decisions must be informed by the knowledge and understanding of their effects on people's lives, not only on their economical status. That is the absurdity of Travailler plus pour gagner plus.

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Thu Dec 27th, 2007 at 08:44:42 PM EST
[ Parent ]
One of the amazing chapters in American history, is how corporate and financial interests have been able to win the tortuous compliance, even allegiance, of American Christianists to an economic theory that at its core can be described as godless materialism, perhaps even satanist, since it worships as causal effect some of mankind's basest instincts and motivations.

Fortunately, this remarkable suborning of American Christianity is beginning to be written: see, for example, Kevin Phillips, American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century, or Craig Unger, The Fall of the House of Bush: The Untold Story of How a Band of True Believers Seized the Executive Branch, Started the Iraq War, and Still Imperils America's Future.

More directly to the essence of this excellent diary, I would draw attention to the works of 19th century German economist Friedrich List,
http://en.wikipedia.org/wiki/Friedrich_List
and 19th century American economist Henry Charles Carey
http://en.wikipedia.org/wiki/Henry_Charles_Carey
Both can be seen as forerunners of an Institutionalist Political Economy.

by NBBooks on Mon Dec 24th, 2007 at 01:16:04 PM EST
YES!  List and Carey.  YES

You are really on a roll NBBooks.  Been enjoying your posts on Kos as well.

Merry Christmas.

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Tue Dec 25th, 2007 at 03:46:12 PM EST
[ Parent ]


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