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Pluralism in economic thought should be the goal

Wednesday, 20 August 2014 - 5:00am IST Updated: Tuesday, 19 August 2014 - 10:20pm IST | Place: Mumbai | Agency: dna

Failure of capitalist economy to stave off crises, necessitates a change of economic theory
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History as we know it, is full of devastating crashes, panics and crises. Even in the initial periods when Capitalism grew out of its British origins, crashes were quite persistent. The global Depressions of 1857-1860 and 1873-1877 were dwarfed by the “Great” Depression of 1929-1934 which displaced millions of workers in the West, rendering them homeless and poor. The 1997 Asian financial crash proved that the East Asian countries were just as prone to crisis. No matter what the expert economists have tried, the crashes have never slowed down. In 2008, a devastating financial crash spread from America to the rest of the world, ravaging everything in its path. People lost both houses and jobs.

The story of economic thought has thus been like the story of Vikram and Betaal. Just like the horror tale, the legendary king Vikram represents every economist who goes into the dark woods, seeking to bring back Betaal, the ghost. Here we observe Betaal, the personification of the capitalist economy that repeatedly returns (read crashes) back into its earlier position -- hanging upside down from a peepul tree. Every time the experts think they have better and better ‘correct’ answers to the riddles of employment, growth and accumulation, and yet the crises of the world remain as unpredictable as ever.

Today, despite these blatant failures, economics still remains firmly in the control of the Neoclassical School. A school that has long been the mainstream for the last 40 years. After adopting formal mathematics as its language, it claims to be the only ‘scientific’ way of studying the economy. The Neoclassical tradition is founded on the belief that agents (households, firms) are rational and use perfectly ‘free’ markets to reach desired ends. This ‘free’ market is where large numbers of buyers and sellers interact and prices are decided by ‘impersonal’ market forces. History has little or no role here because the ‘laws’ of economics are considered fixed in time, allowing us to conveniently forget that countries like Britain, United States, Germany, Japan and Korea; now champions of free trade, have already reaped the benefits of nurturing home industry and playing protectionist

The Neoclassical School has influenced the majority of economic advisors to most countries, policy makers in the World Bank and the United Nations. It is the academic foundation to ‘Neoconservatism’ or the ‘Washington Consensus’ of 1989 which calls for simultaneous privatization, globalization and liberalization in all countries.

Despite the confidence of the mainstream, the crashes have clearly not stopped. With each major crash come waves of academic reaction but still economic thought refuses to change. So with the Great Recession of 2008, Betaal has flown back, and King Vikram must now go back to square one. The Heterodox Economics Student Association (Kolkata) or the Post-Crash Society (Manchester) were the first student societies to protest against what they were being taught and to demand pluralism in economics. Shortly after, the International Student Initiative for Pluralist Economics (ISIPE) took shape, a loose umbrella for such student groups in over 30 countries.

Pluralism in economics means three things. One, to be open to different schools of thought such as Institutional, Ecological, Feminist, Marxist, etc. Two, it involves different methodologies, moving beyond purely quantitative to more qualitative analysis that can help gauge the implications of say, cultural capital. Three, it calls for interdisciplinary study, drawing from rich sources like sociology, history, political science, psychology etc. Even the established economists are now calling for change, some reluctantly some eagerly. The work of economists such as Thomas Piketty and Ha-Joon Chang give considerable weightage to this revolutionary wave.

The problems of Neoclassical economics are evident. The ‘free’ market was never an objective aspiration but rather a subjective evaluation; at one point in history pro-market advocates were also lobbying against anti child-labor legislation. Social, political and economic inequalities of the past, render markets permanently imperfect. For example, Neoclassicals oppose government employment schemes because they unnecessarily “inflate” real wages and distort the ‘free’ labour market. However, this market is embedded in an unequal society and can never be ‘free’. The contractors are usually of a land-owning upper caste, wealthier sort, and have associations in local governments, giving them social, economic and political dominance. Thus, they have the legal and economic resources to survive any deadlock arising out of conflict with large numbers of landless labour. Employment Guarantee in India, in providing welfare and work, can be used to abolish this hegemony that allows contractors to easily break minimum wage laws, pay women lesser, and extend working hours.

These problems are not trivial as they often form a veil of ignorance. A few examples will suffice. In 2010, the United Nations Development Programme (UNDP) released their report for Egypt. In a major faux pas, history let slip the true worth of expert advice, for even after a “two year long study”, these experts could not fathom the turmoil that would, in a few months, cumulate in the Arab Spring. Similarly, the sudden application of Neoconservatism in post-communist Russia caused a major catastrophe, and absolute poverty rose from 14 million in 1989 to 147 million in 1998. During this time, rich oligarchs gobbled up the rapidly decreasing national income. And while the ‘First World’ enjoys staying on the right side of history, the ‘Third World’ has been subjected to rigid economic doctrines that overlook people and the environment. No wonder ISIPE calls for a broad set of economic tools and rejects myopic economic theory.

We should not forget how the Vikram and Betaal story ends. Only when King Vikram concedes to the riddle, does Betaal reveal the answer himself. Betaal then comes along and even saves the king’s life. Even today, there is a lot that mainstream economics cannot answer. Due to the extraordinary complexity of the economic system, few patterns in few variables cannot be the basis for far too many conclusions. The experts ought to be more humble and pluralist in outcome, and over time the economy will reveal itself. Pluralism at this moment in time can save as much of the economy as it could the expert.

The writer is a student of Economics at Presidency University, Kolkata. @pranjaleco

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