Too important to leave to the economists: putting the ‘political’ back in political economy

The crisis has shown us that we can’t let mainstream economists continue setting the policy agenda

Colin Hay
Colin Hay

One of the starkest lessons of the global financial crisis is that we can no longer afford, if ever we could, to leave the analysis of economics to mainstream economists alone.  Their achievement and our misfortune has been to depoliticise and technicise economic policy – and now, more than ever, we need to be bringing the politics back by recognising the inherently political character of all economic choice.  Now is the time to make the case for political economy, a genuinely political economy.  My task in this blog is to explain what that might be.

Yet before I proceed further it is important to clear up a potential misinterpretation.  By a more political economy I do not mean a political economy which focuses more, say, on the international diplomacy of economic policy – the international relations and power politics of economic policy-making in effect.  Nor do I mean the comparative political science or public policy of economic decision-making.  For such approaches to political economy, valuable though the insights they generate typically are, all proceed from the assumption of the analytic, practical and ontological separability of the political and the economic that I think we need to be challenging.  And they all cede economics to economists – and economics is too important to be left to economists.

No, what I mean by a genuinely political economy is a political economy that acknowledges the interdependence of economics and politics, refusing to partition potential objects of analysis between distinct domains (and hence refusing to cede economics to economists) – not so much a politics of economic relations, then, as a political economy of political and economic interdependence.

From such a perspective, the distinction between the political and the economic is and always has been an artificial or analytical one rather than a real one.  In effect, dissolving the social into separate realms of economic and political behaviour was an analytical strategy rather than being inherent in the nature of social and political reality itself.  It was a distortion of the profound interdependence of the political and the economic (as in the pre-disciplinary political economy of Smith, Ricardo and Marx).  From such a perspective, the analytical distinction may well continue to be valid and useful in so far as it helps clarify our thinking to refer to political and economic dynamics separately.

But it is important that such a distinction does not become an impediment to the analysis of the social processes it was intended to aid – by giving rise to a rigid disciplinary division of labour that might preclude an analysis of the interdependence of the political and the economic.

Such a view and such a perspective has implications.  Crucially, it refuses to sanction talk of logics of economic compulsion or necessity (the imperatives of competitiveness, the inevitability of globalisation, the non-negotiability of austerity and so forth), seeing such discourses as themselves expressive of a certain politics – a depoliticising and, typically, market liberal politics.  For to acknowledge that economic dynamics are necessarily and profoundly political is to acknowledge that there are no politically unmediated logics of economic compulsion – that economics is not a source of logics (as distinct from rhetorics) of determinism.  ‘There is no alternative’ is never the description of an economic reality – it is a (typically mendacious) strategy of political legitimation.

But this is not all that needs to change in the move from apolitical economics to political economy.  For far too long we have been overly enamoured with approaches to political economic analysis that incline us towards equilibrium analysis – to the point that when we see (or think we see) path dependent tendencies we invariably infer self-equilibrating effects and a kind of dynamic stability.  The influential ‘varieties of capitalism’ perspective is a case in point and the crisis offers the opportunity for a change in perspective.  Self-equilibrating liberal market economic orders look rather less self-equilibrating now than they did – or should ever have done.  Equilibrium assumptions, as we perhaps see more clearly now, are dangerous things (especially where the models to which they give rise prove influential – even more so when they become the very condition of exerting influence).

The point is a simple one.  Highly pared down or parsimonious accounts of the sources of systemic instability may not be very useful, but they are not in themselves dangerous – in that they alert us to systemic pathologies; but highly parsimonious accounts of the sources of systemic stability are extremely dangerous – in that they fail to prepare us at all for what they still tend to treat as exogenous shocks (which, of course, arise from endogenous frailties which less parsimonious accounts are more likely to pick up).

The modern economic theory in whose image far too much political economy has been recast in recent years is formal theory.  It is constructed from a series of abstract premises about the rationality, self-interest and narcissism of homo economicus – economic ‘man’ (sic.) – and the self-equilibrating nature of the economic systems that he (economic man) has built.  It paints a picture of the world and constructs models of it on the basis of such assumptions.  These assumptions are not chosen for their accuracy or their credibility but because they make possible the kind of abstract formal algebraic model building which is modern economic theory’s raison d’etre.  Modern economics is about making economic systems amenable to this kind of modelling – and that entails a commitment to analytical assumptions which are, at best, distorting simplifications and at worst demonstrably false.

Indeed, it is precisely this that makes mainstream economics so attractive to policy-makers.  It both claims to be and ‘looks’ very scientific.  It is neat and reproducible and its models lead typically to clear policy inferences.  It does what policy-makers want and it has the added attraction of doing so in a way that is largely immune to critique from those not fluent in the private language in which it is conducted.  It depoliticises and technicises economics.

But this comes at a massive price – as we are now all too well aware.  Crucially for us (for all of us), the assumptions which make mainstream economics so attractive to political elites are equilibrium assumptions.  Modern economics offers us a spurious science of equilibrium – a science of certainty in and for an age of uncertainty.  Its models informed the thinking and the conduct of those who inflated the bubble whose bursting precipitated the crisis (by, in effect, telling them that the bubble wouldn’t ever burst – and offering them rational investment algorithms given that assumption).  As such it is deeply and profoundly implicated in the crisis.

This is their crisis.  We cannot allow the economics of certainty to govern again the world of uncertainty in which we live.  That is as good an argument as any for a genuine political economy of political economic interdependence and uncertainty; it is that kind of a political economy that SPERI, along with very many others, is seeking to develop.