As it happened, I read Minxin Pei’s China’s Crony Capitalism in the couple of days after I’d written this article about the importance of property rights in the Financial Times. In this interesting short book, Pei links the emergence of the rampant corruption in today’s China to “partial and incremental reforms of property rights associated with nominally state owned assets in the post-Tiananmen era.” These changes decentralized control over the assets to regional and local officials, without clarifying the ownership rights. The incentive was there, from the early 1990s, to exploit the lack of clarity. At about the same time, a political decentralization created the opportunity. The appointment system went from one where senior officials appointed people one and two ranks down, to one where each layer appointed the next layer down. A market for patronage emerged, which encouraged corruption because officials needed deals with private business to make the money to pay for their jobs. Finally, a fiscal reform enabled local governments to keep the proceeds from land sales while re-centralizing tax revenues to Beijing.
The book concludes: “It is inconceivable that the CCP can reform the political and economic institutions of crony capitalism because these are the very foundations of the regimes monopoly of power.” Even if the corrupt authoritarian regime were to fall, the book argues, liberal democracy would not be the outcome. Something more like Russia’s kleptocracy would emerge. Or will, rather. “The fragility of the institutions of the party state … raies fears that even modest reform efforts could unleash a revolution. The prospect of genuine market-oriented reform is equally unpromising because such a change would eliminate the rents for the ruling autocratic elites.” Any kind of change seems to spell collapse.
In another coincidence, as I finished this book, the FT’s Jamil Anderlini (author of a brilliant e-book about the rise and fall of Bo Xilai) published a big feature on neo-Maoism in China, which he portrays as am anti-elite, anti-inequality, populist movement in the same spirit as Trumpism, Brexiteering and right-wing and left-wing populism around the continent. Sobering stuff.
A comment on my post reviewing The Nobel Factor by Avner Offer and Gabriel Soderberg asked if the book covers the reasons Joan Robinson was never awarded the prize. There is a passing mention: “In the list of those who were denied the prize, it is difficult not to conclude that Robinson and Galbraith were kept out for ideological reasons.” Other non-winners in contention include, among others, Will Baumol, Zvi Griliches, Albert Hirschman, Moses Abramovitz, Harold Hotelling, Anthony Atkinson, Dale Jorgensen, Partha Dasgupta, Nicholas Kaldor and – the other woman – Anna Schwartz. A mixed bunch, some still alive of course.
I also received an interesting email from Helmut Lubbers, who pointed me to this review of the book from a heterodox perspective. It is of course true that although there has been great variety among the winners, to a degree that you can’t label it 100% mainstream, neither has it rewarded heterodox economists.
The Nobel Factor: The prize in economics, social democracy and the market turn by Avner Offer and Gabriel Soderberg is quite an interesting read (if for a niche market) but it’s a book of two parts, albeit braided together. One story is about the decline of the solid post-war social democratic consensus in Sweden over the years. The book argues that the creation of the prize by the Swedish central bank was one of the vehicles for ‘the market turn’, which in the UK had the Institute of Economic Affairs and Margaret Thatcher as its institutional vector, and will have had others elsewhere. Perhaps the prize helped the market turn elsewhere. The book concludes: “The existence of a Nobel prize in economics implied that the ‘market turn’ since the 1970s was scientifically grounded, and that it was objectively necessary.”
The other strand of the book looks at the recipients of the economics prize since its launch in 1969. The argument is that the dominance of Assar Lindbeck on the awarding committee meant the kind of economics that was recognised took a market turn of its own in the1990s with the recognition of Robert Lucas, Robert Merton & Myron Scholes, Ronald Coase and Gary Becker. One of the problems with the book’s thesis, however, is that so many of the winners have clearly not been free marketeers. Indeed, the recipients have arguably tended more strongly toward the maverick free thinkers than in the profession as a whole, and there have certainly been many ‘liberal’ (American sense) winners. Think of Herbert Simon, Joe Stiglitz, Paul Krugman, Robert Solow, Robert Shiller, Elinor Ostrom, Amartya Sen, Daniel Kahneman ….. There are a couple of chapters calculating the ideological leanings of the winners, and it shows the left ahead of the right for all but the periond 1990-97. This figures: the high tide of free marketry in the profession was the 1980s, and significant proponents were awarded the prize about a decade later. As the book notes, the character of economics (in the world of research at any rate) has changed substantially since then.
So if anything, these calculations suggest that to the extent the existence of a prize gave economics ‘scientific’ credibility, it was a liberal, institutionalist, historically and psychologically rich kind of economics! The other point is that there are few, if any, winners who would not be acknowledged by other economists (however grudgingly) as significant intellectual pioneers. Even if you disagree with their political leanings or their economic models, the prize is no mickey mouse affair.
In sum, an interesting book for the economics community, but one whose argument did not convince me.
Mulling over the debate under way about general equilibrium and macroeconomics, I picked up Paul Samuelson’s Foundations of Economic Analysis for the first time in ages. In the foreword to my 9th (1979) edition, he wrote: “In a hard, exact science a practioner does not really have to know much about methodology. … By contrast, a scholar in economics who is fundamentally confused concerning the relationship of definition, tautology, logical implication, empirical hypothesis and factual refutation may spend a lifetime shadow-boxing with reality. In a sense therefore, to earn his daily bread as a fruitful contributor to knowledge, the practitioner of an intermediately hard science like economics must come to terms with methodological problems.” Hmm. We have a lot of shadow-boxers, I fear.
(Samuelson adds: “I stress the importance of intermediate hardness because when one descends lower still, say to certain areas of sociology that are almost completely without substantive content, it may not matter much one way or the other what truths or errors about scientific method are involved – for the reason that nothig matters.” Although this probably reflects the view of some economists still, it’s clearly wrong. Financial regulators might not be paying attention to the sociology of banking but they should be – see for example Swimming With the Sharks.)
Interestingly, the early reviews quoted on the back of this edition make it clear that it was seen at first as a book about economic methodology, specifically price theory, rather than a book setting out economics in equations, which is how it was introduced to me back in the day. Rather optimistically, Samuelson also says in the introduction that whereas every educated person used to need to know their Milton and Hazlitt, Greek and Latin, now they should read a mathematical exposition of basic economic theory. Although the book ran to many editions, I suspect it has had few readers who were not economics students. Fewer still these days – all the editions available on Amazon seem to cost a minimum of around £50, though there’s a $40 edition on Amazon.com.
I just started reading The Nobel Factor: The prize in economics, social democracy and the market turn by Avner Offer and Gabriel Soderberg. I thought it was going to be more or less a history of the economics Nobel prize – which pedants always want spelled out as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Judging from the introduction and 1st chapter, it is more about the role awarding the Nobel prize played in the increasing orientation of economics as a subject toward the free market version emphasising deregulation and individualism. The book points out that “abstract theory peaked in the 1980s” – but the legacy of the deliberate ideological use of rational expectations/real business cycle economics has lingered in the policy and political worlds to this day. The book’s first chapter demolishes these macro models, rooted in ‘microfounded’ general equilibrium models, describing them as ‘surreal’ and ‘lacking respect for reality’. What I’m interested to find out is how the authors argue the Nobel Prize assisted this turn, for many of the recipients were somewhat maverick, working against the tide – think of Herb Simon, or Danny Kahneman, James Tobin and Robert Solow. Anyway, it looks like a good companion to Daniel Stedman-Jones’s account of the Mont Pelerin Society and its acolytes in right wing think tanks, Masters of the Universe.
The Nobel Factor might have caught the moment. Paul Romer’s excellent paper about the state of macroeconomics has made waves. Simon Wren-Lewis has made some interesting points about it. There is an excellent Beatrice Cherrier tweetstorm about rational expectations, well worth looking up. The ESRC is looking to create a macroeconomics network encompassing non-mainstream approaches. Eight years after the crisis, the moment for this debate has arrived.