Economics and authoritarianism

After a two-week reading fest on holiday in the Italian countryside, I’m back with a fistful of reviews. As it was a holiday, the books I took with me were not as directly economics-related as my everyday reading, but of course there’s economics in everything.

The first two I happened to read were [amazon_link id=”0713998687″ target=”_blank” ]Iron Curtain: The Crushing of Eastern Europe 1944-56[/amazon_link] by Anne Applebaum and [amazon_link id=”0857208861″ target=”_blank” ]The Arab Uprisings: The People Want the Fall of the Regime[/amazon_link] by Jeremy Bowen.

[amazon_image id=”0713998687″ link=”true” target=”_blank” size=”medium” ]Iron Curtain: The Crushing of Eastern Europe 1944-56[/amazon_image]

[amazon_image id=”0857208861″ link=”true” target=”_blank” size=”medium” ]The Arab Uprisings: The People Want the Fall of the Regime[/amazon_image]

The latter is reportage by the BBC’s distinguished Middle East editor, and it combines his clearly extensive knowledge of the region with the edge-of-seat quality of reportage from the extraordinary events that started in Tunisia – it already seems a long time ago. The subtitle is a slogan that has appeared frequently in the countries where uprisings have occurred. However, the hope of the early ‘Arab Spring’ has given way to the horror of civil war in Syria and increasing violence in Egypt; of course, no book can keep up to the minute. I can’t say it left me feeling optimistic.

On the face of it, Anne Applebaum’s detailed and authoritative work on the descent of the Iron Curtain on Europe in the post-World War 2 years is entirely different. But one commonality struck me between the two books, namely the way that apparently endless and powerful authoritarian regimes are hollowed out by economic stagnation, no matter how violent they are. One day, it seems nothing can ever change, and the next day the whole edifice has collapsed. Sometimes, when it’s the secret police versus the economy, the economic forces win. This brought to mind Ben Friedman’s powerful arguments in [amazon_link id=”1400095719″ target=”_blank” ]The Moral Consequences of Economic Growth[/amazon_link].

The main part of Applebaum’s superb book is not, though, the collapse of Soviet-dominated Communism but rather its construction in the first place. It is going to be a standard reference on this time and place in history, a companion volume to Tony Judt’s [amazon_link id=”009954203X” target=”_blank” ]Postwar: A History of Europe Since 1945[/amazon_link]. She details the methods by which communist parties –  assisted by Soviet military dominion in the post-war years, and by the collapse of order after the Nazi defeat – systematically destroyed all institutions and aspects of society that were not part of the state apparatus, even extending into family life as the years went by.

The violence and inhumanity documented are simply horrifying. So is the ‘total’ in totalitarianism: “No-one could be apolitical: the system demanded that all citizens sing its praises, however reluctantly. And so the vast majority of East Europeans did not make a pact with the devil or sell their souls to become informers, but rather succumbed to constant, all-encompassing everyday psychological and economic pressure. The Stalinist system excelled at creating large groups of people who felt nevertheless compelled by circumstances to go along with it.” The idea of there being no private space even inside one’s own mind is intolerable.

If I have one complaint about the book, it is that there isn’t more of it: Applebaum has spent years interviewing people around Eastern Europe and I would have liked to hear more from those interviews. Although the book does not cover the post-1956 or post-1989 periods, it is an essential read for anybody interested in the shadows East European history continue to cast.

Worldly Philosopher

As I’ve already confessed, I’ve read very little by Albert Hirschman. By the time I was learning economics, he and the mainstream of the economics profession had moved quite far along divergent paths. The mainstream was embracing mathematical techniques for modeling and – more significantly – the reductive assumptions about human behaviour and social context that made this approach feasible. Hirschman became increasingly interested in the connection between economic policies and politics. The one book of his I had ever been introduced to was [amazon_link id=”0674276604″ target=”_blank” ]Exit, Voice and Loyalty[/amazon_link], and possibly as part of my politics reading rather than economics.

This means Jeremy Adelman’s superb biography, [amazon_link id=”0691155674″ target=”_blank” ]Worldly Philosopher: The Odyssey of Albert O Hirschman[/amazon_link], has been a real education. Its 600+ pages never flag; this is a very enjoyable book to read. It also means I’ve got some of Hirschman’s other books on the in-pile now, for the great lesson of recent years is that economists need to stay alert to the politics and the human behaviour that define the possibilities of economic choice; and that political scientists and other social scientists for their part need to pay more attention to economic incentives and to the domain of economic choice. Hirschman emerges as above all a careful observer of actual societies and economies, who therefore was multidisciplinary to the marrow.

[amazon_image id=”0691155674″ link=”true” target=”_blank” size=”medium” ]Worldly Philosopher: The Odyssey of Albert O. Hirschman[/amazon_image]

The biography begins with his extraordinary early life in the tumultuous Europe of the 1930s and Second World War. A second chunk concerns his work in and on Latin America and economic development more generally, based in a variety of institutions. The final leg covers Hirschman’s more settled period, mainly at Princeton’s IAS, as a distinguished political economist and author of a number of classic books. The book covers in some detail The Passions and the Interests and also his last book, [amazon_link id=”067476868X” target=”_blank” ]The Rhetoric of Reaction[/amazon_link].

Hirschman’s conclusions about the nature of capitalism and economic growth have real resonance for the current situation. His reading of the classics, including Adam Smith, made him one of the first people to reclaim (from Milton Friedman and other economists) the wiser Smith who understood that “moral sentiments” as well as self-interest determine people’s behaviour. Adelman sums it up: “The rule of passions could lead, without checks, to horrible utopias; the rein of interests to soulless pragmatism.”

Hirschman argued against the kind of theorising that insisted on pre-determined outcomes from given pre-conditions, insisting instead on the number of possible paths depending on happenstance and unintended consequences. I suppose we would call it pervasive path-dependence; it contrasted greatly with both the mainstream and the alternative or heterodox approaches of the time. He also identified the way that beliefs or expectations constrain outcomes – in the context of developing economies, he thought that policymakers and economists fettered themselves by their own perceptions of insurmountable hurdles or cultural inferiority. Latin America in the 1980s, he thought, was imprisoned by clashing intellectual paradigms, the false dichotomy between free market ‘neoliberalism’ (as we call it now) and Marxist revolution. He wrote: “The obstacles to the perception of change thus turn into an important obstacle to change itself.” Many economists point out the importance of expectations for economic outcomes, but usually in a rather abstract way in a model; expectations are what people believe to lie in the realm of possibility, and are shaped by intellectuals and economists and policymakers, among a whole host of others. We live in a world shaped by ideas, both embedded in technologies and embedded in policies and beliefs.

As the years went by, Hirschman turned increasingly to reading the classics of economics and the Enlightenment. As Adelman writes: “The pathway to recasting self-interest in a way that did not make it incompatible with the public good required going back centuries to the founding of its modern meaning.” His final book, [amazon_link id=”067476868X” target=”_blank” ]The Rhetoric of Reaction[/amazon_link], is now at the top of my reading list. Although seen as a response to the politics of the Reagan era, Adelman argues that it should be read in a broader way as concerned with the kind of public discourse that sustains democracy. The rhetorical habits Hirschman describes in the book have not only become pretty pervasive, but are also amplified by online media. The state of civic discourse is a vital question in itself and because it shapes beliefs and therefore economic possibilities.

In these comments, I’ve picked up themes that interest me particularly, including the light cast on the state of economics. [amazon_link id=”0691155674″ target=”_blank” ]Worldly Philosopher[/amazon_link] has a lot for readers with other interests too, particularly development economics (I touched on this in an earlier post). It’s also the well-told life story of a fascinating and obviously charming man. Half way through 2013, I’m sure it’s going to be one of my books of the year.

The loneliness of the long-distance whistleblower

For Tube reading, I turned to Michael Woodford’s [amazon_link id=”0241963613″ target=”_blank” ]Exposure: From President to Whistleblower at Olympus[/amazon_link], his account of his whistleblowing as President of Olympus on the huge fraud perpetrated by some of his colleagues. The blurb compares it to a thriller, and that’s no exaggeration.

To recap the story, he was made the first foreign President of the company he had worked his way up for 30 years. There had been only three foreigners before him to hold similar positions, so his appointment was high profile indeed. Soon after taking the job, he was alerted to reports of nefarious financial dealings published in a small investigative magazine. Woodford soon found the claims seemed to have some substance to them. Some of his senior Japanese colleagues tried to play them down, then freeze him out. Woodford instead went public.

[amazon_image id=”0241963613″ link=”true” target=”_blank” size=”medium” ]Exposure: From President to Whistleblower at Olympus: Inside the Olympus Scandal: How I Went from CEO to Whistleblower[/amazon_image]

His account of the experience of being a whistleblower is convincing, and gripping. The book is very good on the psychological ups and downs – mainly downs – and on the strains the pressure imposed on his family and friends. The cost of such an act of individual courage is obviously enormous, all the more so as there were through this period hints, never proven, of Yakuza involvement (“Goldman Sachs with guns,” as they’re described here). The book also paints a persuasive and not at all flattering picture of Japanese business culture, at least in a hierarchical company of this kind – Woodford clearly loves the country despite all that happened. In the end, he was wholly vindicated.

It’s a very pacy read, well worth picking up for a flight or the beach.

Politics, populism and people

There’s nothing like reading the newspapers at the weekend to put you off politics – not that weekday politics are much better. Even people like me who are positively interested in policies, albeit not party politics, sometimes despair about government by populist headline and short-term polling. Perhaps I should say ‘especially’ rather than ‘even’. The UK government is funding four evidence-based research centres, known as ‘what works’ centres. I find it hard to imagine how politicians will use the research if it happens not to fit in with the “narrative” of the day, shaped by prior beliefs or by prejudice and ideology. It isn’t just me. Polls, and turnout in elections, show that pretty much everybody is repulsed by the political system. For example, an Ipsos MORI poll from January 2013 found that fewer than one in five Britons trusts politicians, while net satisfaction with the way the UK (Westminster) parliament works has been trending broadly down since the 1990s, with more dissatisfied than satisfied.

Anthony Painter’s new book, [amazon_link id=”1780766610″ target=”_blank” ]Left without a future?[/amazon_link], diagnoses this structural problem very astutely. He writes of politics ‘without humility’, “A spectacle of false partisan divides, dishonest posture, lessons missed and opportunities wasted. Is it any wonder that our politicians are held in such low regard?” If politicians insist on acting out stereotyped Punch and Judy roles, people will stop taking them seriously.

[amazon_image id=”1780766610″ link=”true” target=”_blank” size=”medium” ]Left Without a Future?: Social Justice in Anxious Times[/amazon_image]

The book, written under the auspices of the progressive think tank Policy Network, analyses the socio-economic reasons for the decline of the Labour Party alongside the role played by free market or ‘neo-liberal’ ideas. Why, Painter asks, has the crash not so thoroughly discredited this dominant ideology of the 1990s and 2000s that the organised left benefited politically? As he points out, it is hardly as if people are entirely uninterested in current issues. Still, “The mainstream left is in crisis.”

Part of his explanation is that the left has concentrated on staking a claim to the moral high ground in the realm of ideas, in a rather didactic manner, without bothering with the humble, practical politics of paying attention to people and organising around their concerns and needs. Indeed, he obviously finds the moralising pretty unappealing. “It is through forming inclusive institutions that the left will be in a position to advance social justice….. The market is not a force of nature; it operates in accordance with a deliberate institutional design. It is to thinking about the institutional design of the future that the left’s energy should now be directed.”

I’m a technocrat, not a party political person, and so am not the target audience of a book aimed at the organised left of politics. However, I couldn’t agree more with the general point Painter is making here. Many politicians, as others have pointed out, have spent their entire career doing politics, moving from student politics to think tanks and advisory or lobbying roles, into constituencies and on up the ladder. They think of politics only as a battle of policy ideas, or rather as a battle to announce such ideas and get media attention for them. I’m generalising of course, but this quite common career path makes for a political world that broadly speaking has little traction with people, until one of the policy ideas is implemented from above and causes (usually) all kinds of problems.

The book starts with an account of the decline of the left, much of which carries over to the decline of the standing of party politics in general. It traces the failure of parties to respond to the vast social and cultural changes of recent decades. It describes the euphoria on the left that generally greeted Barack Obama’s election, and the subsequent disenchantment: “It was not just a change of government these people were interested in – it was a change in the whole of politics. The general consensus was that an intolerable chasm had opened up between the people and their representatives.” There are echoes here of the sympathy Matt Taibbi expresses toward the Tea Party supporters in the US, in his terrific book [amazon_link id=”0385529961″ target=”_blank” ]Griftopia[/amazon_link]; why would people not distrust their government, Taibbi asks. Painter still has some faith in Obama, seeing him as a politician who is after long-term change, not day-to-day headline victories.

Left Without A Future? goes on to explore the way society has changed, with ‘bubbles’, ‘networks’ and ‘tribes’ replacing class identification. The left’s old ‘solidarity’ approach does not speak to people now. What’s more, the character of the economy has changed, but business and politics do not take account of how value is created in a services and intangibles economy, nor of the erosion – to the extent it ever existed – of a clear division between the market and the state. Cultural identities have changed as much as economic realities. There is a widespread sense of anomie. Meanwhile, “each party is holding together an unstable coalition of quite incompatible views.” One chapter looks specifically at Scottish nationalism, and – in one of the more optimistic passages – sees this debate as a potentially constructive one that could lead to a more balanced and culturally confident UK.

What to do about the state of politics and the left? Painter writes: “Those who seek sustainable change through collective action need to understand the context in which they operate. They have to build enduring coalitions of support.” The coalition-building needs to recognise the changed economic, social and cultural identities of the day, rather than cleave to the class-interest identities of the 1960s and 70s. He rejects the various strands of political thinking he describes as ‘new moralism’, including thinkers on the right such as Jesse Norman and Philip Blond, as well as Maurice Glasman with his emphasis on community on the left.

Painter argues that although attractive, the practical impact of a discourse about re-moralising is likely to be limited. What’s more, he writes, “The moral conversation is a hubbub that is becoming deafening. Britain is socially divided; values are plural, needs diverse and attitudes varied. … The problem is not the absence of moral certainty; it is the presence of clashing moral certainties. … A top-down moral politics in a pluralistic nation is bound to result in anger and resentment.”

He is more attracted by the pragmatic justice of Amartya Sen. The book ends with an argument for the specificities of addressing and disrupting concentrations of overweening power, of seeking improvements in people’s lives from day to day, and above all of working to build new types of institution. Restructure education, look at the way business operates, concentrate on local institution-building. Painter cites  approvingly Tamara Lothian and Roberto Unger in their Crisis, Slump, Superstition and Recovery, where they make the case for small-scale institutional experimentation. He calls for a combination of top-down leadership to give people a hopeful vision and bottom-up civic activism.

This could sound a bit underwhelming – certainly in the context of a political culture geared towards big policy announcements that are supposed to fix complicated and intractable problems. However, I found the emphasis here on humility and pragmatism refreshing, although needless to say not agreeing with all the specific suggestions the book makes. Although the book is billed as a contribution to rescuing the mainstream left from irrelevance, the points it makes about the said irrelevance apply to all the main parties. Pretty much every day I come across examples of people saying that politics is – well, irrelevant at best, and sometimes much stronger adjectives are used. They are not making a party political point, but a systemic one. Left Without A Future? speaks to that wider sentiment. And if our ‘actually existing’ politics does not give itself a future, a different kind of politics will fill the vacuum.

Political bubbles

The Adelman biography of Albert Hirschman, [amazon_link id=”0691155674″ target=”_blank” ]Worldly Philosopher[/amazon_link], is great but too big to carry around so I’m reading it at home, and on the tube I’m reading [amazon_link id=”0691145016″ target=”_blank” ]Political Bubbles[/amazon_link] by Nolan McCarty, Keith Poole and Howard Rosenthal, & have almost finished.

[amazon_image id=”0691145016″ link=”true” target=”_blank” size=”medium” ]Political Bubbles: Financial Crises and the Failure of American Democracy[/amazon_image]

It’s long been my view that history is over-determined, looked at from today (under-determined of course, if you’re trying to predict events.) These three political scientists have another causal explanation to add to the list of explanatory factors for the Great Crash of 2008. As well as greed and fraud, toxic financial innovation, global imbalances, fiscal irresponsibility, gigantism in banking and all the other contributors, there is the political dimension.

The charge is that a combination of three political factors created the conditions for all those other contributors to financial meltdown to develop. The first is ideology, the pure belief that markets are good and government regulation bad; the second is the array of special interests hoping for an endless boom, especially in housing – the lenders, the realtors, the people getting cheap loans; the third is the American institutional framework, expressly designed to stop things happening rapidly, in the context of ultra-rapid developments in financial markets. The three interact in a pro-cyclical way, the book argues, hence the terminology of the ‘political bubble’.

Nobody in the political elite, on the executive or the legislative side, comes out of this book well. The authors even trace some of the rot as far back as the now-saintly-seeming Jimmy Carter – after all, the savings and loan debacle of the early 1980s had its root in his presidency. The book is equally scathing about the ideologically free market Republicans, Reagan and the two Bushes, and the differently ideologically free market economics team of the Bill Clinton years.

The focus is solely on the United States. This means there is more political detail than many non-American readers will either want or be fully able to interpret.

With that caveat, I found the argument persuasive. After all, there are plenty of other mature democracies that have experienced that combination of housing bubbles, Franken-finance, and political incapacity. The US financial markets have also hugely influenced global markets. It would be interesting to work through the same kind of argument in other countries. One might even add another layer of political sclerosis in the international context, adding a fourth ‘i’ for ‘international incompetence’ to the three ‘i’s making up the book’s hypothesis.