Wednesday, 15 January 2014

Economics: Part of problem, or part of the solution?

by Allister McGregor
Allister McGargeor

Leonardo DiCaprio, are you part of the solution or part of the problem? The film, ‘The Wolf of Wall Street’ is receiving very positive reviews: it portrays and caricatures the behaviour of ‘out of control’ capitalism. Apparently (I have not seen it yet) it does not overtly judge this behaviour and comically portrays the possible returns to a ruthless and unscrupulous pursuit of wealth that some still dream of. It’s a comedy and a caricature, but this is still essentially what many experts see as necessary for the continued growth of the global economy.

The global financial crisis that emerged in 2008 and its related financial and commodity price crises should have taught us some lessons. The fundamental lesson is that the economics that has for so long guided and shaped how we think about development has become profoundly misdirected and dysfunctional (Krugman 2009, Smith and Max-Neef 2011, Skidelsky and Skidelsky 2012). A narrow and anti-social conception of economics that has focused on economic growth and profits, almost at any cost, is generating more problems that we can cope with globally. One of those problems is the persistence of debilitating and destructive poverty for many men, women and children in countries around the world.

Lest this be misunderstood, this is not a criticism of the insightful analysis or the many useful tools that economic science provides; it is a criticism of the way that economics and ideology have become fused at the level of policy and in public political narratives. This fusion provides a justification both for reckless profit-oriented public policy decisions and for individual behaviour that evidently produces damage to other human beings. This ideology is one that myopically champions individualistic gain as the driver of economic growth and relegates to secondary considerations the many problems that the underlying individualistic pursuit of profit produces. Thus, in this approach to economic development we must deal with environmental damage as a global side-effect; we must deal with persistent chronic poverty for some people around the world as a discrete technical problem; and we must cope with the increasing levels of social and individual damage that our development path is producing as if it had nothing much to do with the economic policies that have been promoted by the ideology.

But the problem is not solely ideological: a new kind of economics is also required. We need a global post-2015 anti-poverty initiative, but the nature of the post-2015 MDG settlement has the potential to be as much part of the problem as part of the solution. Or to be more precise the economics that we apply to the analysis of major global problems can be as much part of the problem as part of the solution. 

The post-2015 debates should provide a global opportunity for new thinking and new development measures. To achieve this however will require a rethinking of how economics is formulated and is applied to the analysis of major global development problems. The challenge, as implied by the Sarkozy Commission Report, is whether economics can be reoriented to focus on improvements in human wellbeing as the fundamental purpose of societal development and economic growth. To do so involves a major reconception of the relationship between economic behaviour and society and
this hinges around how we conceive of human wellbeing.

In a Working Paper released by IDS this week, myself and Nicky Pouw, a colleague from the University of Amsterdam, begin to explore what an economics of human wellbeing might look like. We argue that such an economics would shift to build on a social conception of human wellbeing and a shift away from an individualistic notion of wellbeing[1]. The problem for economics is to find modes of analysis that support us in meeting the challenges of living well together and away from legitimising the pursuit of living well as an individual. In ontological terms this involves a rejection of the pure methodological individualism that lies unquestioned at the heart of much popular economics.

Human beings are social animals and most of our major global problems - whether conflict and war, climate change and environmental degradation, poverty and inequality - represent failures to find ways to live well together. Currently, narrow and selfish economistic behaviour is a driver behind most of these problems, but we then expect ‘politics’ to solve the problems. This approach to politics and governance doesn't work. Rather an inclusive economics that focuses on the challenges of living well together must be seen as a necessary foundation for governance at all levels. In this formulation economic growth would undoubtedly be a feature of enabling some people in the world to live better than they do currently, but it must be growth that is designed in a way that meaningfully supports human wellbeing and which seeks to avoid damaging the wellbeing of others, either in the present or in the future.

In this sense the challenge to effective global governance for the coming decades is the challenge of finding ways of living well and sustainably together with others, from global to local levels. The reorientation of economics in a progressive and sustainable-post 2015 MDG settlement could make an important contribution to that effort to live well together.


[1] See Deneulin and McGregor, 2010 and the Final Report of the Bellagio Initiative, 2012