Tag Archives: political economy

Economists, spies and imperialists

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Many of you will have noticed already that I’m an anorak about economics, and I’ve read a lot of books about economics, not to mention history and politics. So I started Benn Steil’s [amazon_link id=”0691149097″ target=”_blank” ]The Battle of Bretton Woods[/amazon_link] expecting to find a re-telling of a familiar story. In fact, it’s not only full of things I hadn’t already known, but also serves as a great overview of the analytical issues in international monetary arrangements. The book works as a very well-written history, with lively personalities – even though many of them, especially the protagonists John Maynard Keynes and Harry Dexter White, come across as rather unlikeable in their arrogance. It also works as an excellent introduction (for students and others) to the specific history of the era and the general economic principles of the international monetary system.

[amazon_image id=”0691149097″ link=”true” target=”_blank” size=”medium” ]The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Council on Foreign Relations Books (Princeton University Press))[/amazon_image]

One prominent sub-plot is, of course, White’s spying for the Soviet Union. He was questioned by J Edgar Hoover’s HUAC, but confirmation of his espionage came late, in the 1990s with the [amazon_link id=”0002570009″ target=”_blank” ]Venona[/amazon_link] and [amazon_link id=”0140284877″ target=”_blank” ]Mitrokhin[/amazon_link] archives. I hadn’t before realised that the FBI had not informed the President of the extent of they evidence they held on White by 1946, in order not to let the spy ring know its cover had been blown. Hence White continued to play such a prominent role in the new World Bank until his death. However, the FBI did ensure he wasn’t appointed as Managing Director of the IMF, as President Truman originally planned, this being the origin of the tradition that a European holds that post.

Nor had I appreciated how badly Keynes went down with the Americans before, during and after the war. Steil makes a strong case that Britain would have done better out of both Lend-Lease and the post-war arrangements if its government had sent somebody else as the British negotiator. Most of the Americans couldn’t abide his intellectual arrogance and smartypants manner. However, nobody in Britain could bring themselves to believe that the Americans didn’t have an innate loyalty to them, whereas the reality was that many on the US side were actively determined to bring about the end of the British Empire and the role of sterling. As this became a reality after the war, Ernest Bevin said plaintively to the US Ambassador, Lew Douglas, surely Britain should not be “lumped in” as if it were “merely another European country?”

The book ends with an interesting Epilogue on China. Although a surplus country, it is not in the same position as America in 1945, as an architect facing a blank page. Chinese officials are also aware – as White was not – of Triffin’s dilemma: the issuer of a reserve currency “cannot pursue different domestic and international objectives at the same time,” as central bank governor Zhou Xiaochuan expressed it. Still, the US-China trade imbalance has brewed monetary trouble and we can’t yet be sure that monetary nationalism won’t be the consequence. How does that old Chinese proverb go?

 

 

The paradox of trust

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I’m off early this morning to the OECD Forum – on Jobs, Equality, Trust – in Paris, taking part in two sessions. The organisers picked up on the themes of my book [amazon_link id=”0691156298″ target=”_blank” ]The Economics of Enough[/amazon_link], especially the section on trust. I wrote a new essay on trust for the OECD Yearbook, focusing on the paradox that the complex, globalized economy is more dependent on trust than ever, but measures of trust in institutions of various kinds indicate that it’s rather fragile.

[amazon_image id=”0691145180″ link=”true” target=”_blank” size=”medium” ]The Economics of Enough: How to Run the Economy as If the Future Matters[/amazon_image]

It’s going to be interesting to see what the mood of the Forum is, as it gathers policymakers, business people, unions and NGOs, as well as academics – in other words, more workmanlike and less insulated from the world by affluence than Davos. I’ll be tweeting, under the hashtag  #OECDwk as no doubt will other participants @SpeakerLab @slaughteram @tsipirikos @acraiginparis @diane1859 @LaurenceEvans @JArleRH and @yanisvaroufakis

The humility of economists*

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In the course of working on a forthcoming lecture, I’ve been dipping back into James Scott’s superb 1998 book [amazon_link id=”0300078153″ target=”_blank” ]Seeing Like A State: How Certain Schemes to Improve the Human Condition Have Failed[/amazon_link].

The book describes the catastrophic consequences of a number of idealistic grand schemes of the 20th century, including Soviet collectivization and Tanzanian ‘villagization’. In the conclusion, Scott focuses on the common theme of the failure to take account of the radical uncertainty of the future.

“Social and historical analyses have, almost invariably, the effect of diminishing the contingency of human affairs,” he writes. “A historical event or state of affairs simply is the way it is, often appearing determined and necessary when in fact it might easily have turned out otherwise.” He offers policymakers some rules of thumb:

1. Take small steps – and stand back and observe in between each.

2. Favour reversibility. “Irreversible interventions have irreversible consequences.”

3. Expect surprises.

4. Plan on human inventiveness. “What is perhaps most striking about all the high modernist schemes is how little confidence they repose in the skills, intelligence and experience of ordinary people.” The less is ‘left to chance’, the less room for local experience and knowledge.

He doesn’t spell out the conclusions for social scientists, but the main one I take from the book is: be extremely cautious about assigning causality. Or in other words, be far, far humbler about what we know than is typical. A lot of economic analysis suffers from the same high modernist blinkers as the disastrous social engineering described in the book.

* Spot the irony – just in case you hadn’t

[amazon_image id=”0300078153″ link=”true” target=”_blank” size=”medium” ]Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (Yale Agrarian Studies)[/amazon_image]

Predatory capitalism

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Isn’t all capitalism predatory, some contemporary critics might well ask, looking at the post-crisis economic landscape? Geoff Mulgan, chief exec of NESTA, is more optimistic in his recent book [amazon_link id=”0691146969″ target=”_blank” ]The Locust and the Bee: Predators and Creators in Capitalism’s Future[/amazon_link]. He foresees the possibility of sustainable economic growth built on relationships, with productive health and social care sectors, green innovation and social enterprise.

[amazon_image id=”0691146969″ link=”true” target=”_blank” size=”medium” ]The Locust and the Bee: Predators and Creators in Capitalism’s Future[/amazon_image]

It won’t be business as usual; instead we’ll see “concentrations of capital guided by social and environmental goals as well as commercial ones; circular production systems; the civil and social economy; the ever-growing social industries providing health care, education and support; the collaborations of cyberspace and new tools for collective intelligence; the household reasserting itself as a place of production; the worlds of parallel exchange systems, collaborative consumption and time accounts.”

This lovely vision of ‘creative capitalism’ is some distance from the ‘predatory capitalism’ that brought us the crash, and continues to serve up poor service at high prices to support executive pay packets. The book makes a good case that the dysfunction we’re all too aware of now is itself the dynamic that will change the character of the capitalism mixed economies we live in. Mulgan draws on the literature on technology-driven long waves to explain how cycles of change come about: every crisis contains the seeds of its own destruction, as it were. Of course there are forces of reaction, but he has a fundamental belief in the power of innovation and human creativity to overcome them. The chapters on these dynamics form the core of the book, and set out the dynamics very clearly.

This is cheering, but I’m not so sure. The book is excellent on the economic dynamics of innovation, but oddly quiet – certainly for such a politically-aware author – on the politics of changing ‘the system’. It discusses, and dismisses, the utopianism of anti-capitalist protest, but does not cover the forces of cynicism and inertia. Mancur Olson’s classic work on rent seeking and the political economy of elite predation (for example in [amazon_link id=”0674537513″ target=”_blank” ]The Logic of Collective Action[/amazon_link]) is cited briefly; this theme is underplayed. The predators are in a strong position. They are defended by a barricade of legislation, ways of doing business and social norms.

Take one small example of the ability to resist change: today’s FT reports that the drive to increase the proportion of women in the boardroom of FTSE companies has ground to a halt, might in fact be going into reverse. The reason is almost certainly that the method of recruitment remains the old boys’ network: incumbents and headhunters will say, with sincerity, they’d love to appoint more women, they make huge efforts to shortlist women, but there aren’t enough suitable candidates. But ‘suitable’ means known to them and with the same career path as a male candidate. Of course, nothing will change without a legal quota. What are the odds on getting that legislation? Indeed.

Now pan out, and think about the legal and regulatory changes needed to open large swathes of the economy – banking, transport, pharmaceuticals, farming & agricultural trading – to the innovative start-ups that are indeed, as the book suggests, all around.

So although I like the vision set out in [amazon_link id=”0691146969″ target=”_blank” ]The Locust and the Bee[/amazon_link], and like Geoff Mulgan am encouraged by the opportunity offered by the crisis and inherent dynamics, it’s time to plunge into the legal and political nuts and bolts of turning predation into creation.

The robots are coming. Or are they?

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This morning I warmed up for work by reading some intriguing articles that have been much linked-to in recent days: an interview with Jaron Lanier about his new book [amazon_link id=”1451654960″ target=”_blank” ]Who Owns The Future?[/amazon_link]; a Mother Jones article Welcome Robot Overlords, Please Don’t Fire Us; and an essay about how the intellectual left must re-engage with practical political economy.

[amazon_image id=”1451654960″ link=”true” target=”_blank” size=”medium” ]Who Owns the Future?[/amazon_image]

All three articles are inspired by the economic precariousness of the (former?) middle classes, the loss of jobs in the middle of the income distribution compared to the top and bottom, and the downward dip in real incomes in the middle too. We’re not scared about robots turning rogue and killing humans, but we are scared about them taking on the 9-to-5 grind, the commute, the office politics…. Robot angst has also shown up in economics with the excellent book by Brynjolfsson and McAfee, [amazon_link id=”0984725113″ target=”_blank” ]Race Against the Machine[/amazon_link], and in Paul Krugman’s blog posts.

[amazon_image id=”0984725113″ link=”true” target=”_blank” size=”medium” ]Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy[/amazon_image]

The underlying hypothesis is that the way robots substitute for humans today is different from the way machines have substituted for us in the past; that they can now perform cognitive rather than physical tasks and the technical change is therefore capital-biased. It will be good for capital but not people. The ‘therefore’ in that sentence is an assumption, which might turn out to be true. I have an open mind on it.

However, there are some questions I’d pose before we let technological determinism run away with us.

1. The pattern of shifts in employment and income distribution – the hollowing out of the middle – is common to all OECD countries but rates of robotisation differ widely. What’s the linkage?

2. Why has automation so far coincided with increases in returns to education but will from now on be linked to decreasing returns to education?

3. The debate tends to focus on creative and routine admin or manufacturing jobs but the most heavily-automated sector of the economy is finance, which has seen the biggest increases in real incomes. How has this happened and why would it be different elsewhere?

My alternative hypothesis is that the returns to any new technology, whatever its bias, will be determined by social and political factors. So that leads me to think James Harkin’s LA Review of Books essay challenging people to stop being distracted by ‘nudge’ politics and think about the classic political economy questions of social structure and income distribution is the most optimistic of this morning’s three reads.