Posts Tagged ‘institutions’

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Teaching critical literacy.

That’s what professors do in the classroom. We teach students languages in order to make some sense of the world around them. How to view a film or read a novel. How to think about economics, politics, and culture. How to understand cell biology or the evolution of the universe.

And, of course, how to think critically about those languages—both their conditions and their consequences.

I’ve been thinking about the task of teaching critical literacy as I prepare the syllabi and lectures for my final semester at the University of Notre Dame.

Lately, I’ve been struck by the way mainstream economics is usually taught as a choice between markets and policy. Whenever a problem comes up—say, inequality or climate change—one group of mainstream economists offers the market as a solution, while the other group suggests that markets aren’t enough and need to be supplemented by government policies. Thus, for example, conservative, market-oriented economists teach students that, with free markets, everybody gets what they deserve (so inequality isn’t really a problem) and greenhouse gas emissions will decline over time (by imposing a tax on the burning of carbon-based fuels). Liberal economists generally argue that market outcomes are inadequate and require additional policies—for example, minimum-wage laws (to lower inequality) and stringent regulations on carbon emissions (because allowing the market to work through carbon taxes, or even cap-and-trade schemes, won’t achieve the necessary reductions to avoid global warming).*

That’s the way mainstream economists frame the issues for students—and, for that matter, for the general public. Markets or policies. Either rely on markets or implement new policies. Once someone learns the language, they see the world in a particular way, and they’re permitted to participate in the debate on those terms.

The problem is, something crucial is being left out of those languages, and thus the economic and political debate: institutions. The existing set of institutions are taken as given. Therefore, the possibility of changing existing institutions or creating new institutions to solve economic and social problems is simply taken off the table.

Among those institutions, perhaps the key one is the corporation. The presumption within mainstream economics is that privately owned, publicly traded corporations are simply there, allowed to operate freely within markets or nudged in a better direction by government policies. What mainstream economists never encourage students (or, again the general public) to consider is the possibility that institutions—especially the corporation—might be modified or radically transformed to create the foundation for a different kind of economy.

Consider how strange that is. Corporations are the central institution when it comes to the distribution of income and therefore the obscene, and still-growing, levels of inequality in the U.S. and world economies. It’s how most workers are paid (because that’s where jobs are available) and where the surplus is first appropriated (by the boards of directors) and then distributed (to shareholders and others). And as workers’ wages stagnate, and the surplus grows, economic inequality becomes worse and worse.

The same is true with climate change. The major institution involved in producing and using fossil fuels—and therefore creating the conditions for global warming—is the corporation. Especially gigantic multinational corporations. Some make profits by extracting fossil fuels; others use those fuels to produce commodities and to transport them around the world. They are the basis of the fossil-fuel-intensive Capitalocene.

Within the language of mainstream economists, the corporation is always-already there. They may allow for different kinds of markets and different kinds of policies but never for an alternative to the institution of the corporation —whether a different kind of corporation or a non-corporate way of organizing economic and social life.

If the goal of teaching economic is critical literacy, then we have to teach students the multiple languages of economics—including the possibilities that are foreclosed by some languages and opened up by other languages. One of our tasks, then, is to look beyond the language of markets and policy and to expose students to a language of changing institutions.

Now that I begin to look back on my decades of teaching economics, I guess that’s what I’ve been doing the entire time, exploring and promoting critical literacy. I’ve always taken as one of my responsibilities the teaching of the language of mainstream economists. But I haven’t stopped there. I’ve also always endeavored to expose students to other languages, other ways of making sense of the world around them.

Maybe, as a result, some of them have left knowing that it’s not just a question of markets or policy. Economic institutions are important, too.

Addendum

To complicate matters a bit further, the three elements I’ve focused on in this blog post—markets, policy, and institutions—are not mutually exclusive. Thus, for example, at least some conservative mainstream economists do understand that properly functioning markets do presume certain institutions (such as the rule of law and the protection of private property) and policies (especially not regulating markets), while liberals often advocate policies that allow markets to operate with better outcomes (I’m thinking, in particular, of antitrust legislation) and institutions to be safeguarded (especially when they might be threatened by grotesque levels of inequality and the effects of climate change). As for institutions, I can well imagine noncorporate enterprises—for example, worker cooperatives—operating within markets and relying on government policy. However, such enterprises imply the existence of markets and policies that differ markedly from those that prevail today, which are taken as given and immutable by mainstream economists.

 

*Dani Rodrik summarizes the terms of the debate well in a recent column: when a local factory closes because a firm has decided to outsource production,

Economists’ usual answer is to call for “greater labor market flexibility”: workers should simply leave depressed areas and seek jobs elsewhere. . .

Alternatively, economists might recommend compensating the losers from economic change, through social transfers and other benefits.

Once again, it’s a question of markets (in this case, the labor market) and policy (more generous social transfers to the “losers”).

Inequality

Mainstream economists have finally discovered the importance of institutions. But they get it all wrong.

Take Daron Acemoglu (of MIT) and Jim Robinson (of the University of Chicago). In their view (according to Adam Davidson), Donald Trump threatens to disrupt the institutions that serve as the basis of “American Exceptionalism.”

The problem is, the United States does not represent an exception to the rule that “Over most of history, a small élite confiscated wealth from the poor.”

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As I showed the other day, the distribution of wealth in the United States is obscenely unequal (with the top 1 percent owning more than 40 percent of the nation’s wealth), and has been getting more unequal over the course of the past three decades. And it’s the existing set of institutions—economic, political, and cultural—that has made it possible for a small élite to confiscate wealth from the vast majority, including the poor.

Trump is thus a consequence, not a cause, of the institutions that have come to represent the unexceptionally unequal “American way of life.”

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Mike the Mad Biologist [ht: sm] casts doubt on the idea of scarcity. And for good reason:

While they seem to have receded somewhat, a couple of years ago, there were quite a few arguments about the fundamentals of economics (especially macroeconomics) and how to teach them. As an outsider, one thing that struck me as odd was the emphasis on scarcity (e.g., economics is called the science of scarcity). It’s odd because, at least in wealthy societies, there are very few scarce items. We’re definitely not slacking in our ability to produce calories, which arguably for most of human, if not hominin, history was the vital concern.

Mainstream economists, as I teach my students, start with the idea of scarcity—the combination of limited means and unlimited desires. And then, after a great deal of math and a wealth of assumptions, they prove that a system of private property and free markets provides a perfect balance between those limited means and unlimited desires.

But, as I also teach them, the mainstream presumption is that scarcity is universal—both transcultural and transhistorical. In other words, they start with the idea that all human beings, in all times and places, have had to confront and solve the problem of scarcity.

An alternative is to see scarcity as an institutional, historical and social, phenomenon. In particular places, at particular times, the existing set of economic and social institutions makes certain goods and services scarce. Thus, for example, oil is scarce because of the particular configuration of the energy industry, the personal car and truck culture, the government-sponsored expansion of the highway system, and so on. That’s what makes oil scarce. Similar stories can be told about the scarcity of water, arable land, good public transportation, high-quality mass education, and so on. Their scarcity is the product of particular sets of institutions in particular societies.

Why is that important? Because, as against the assumption of mainstream economists that scarcity is always with us (and therefore can’t be changed), the idea that scarcity is an institutional phenomenon means that changing economic and social institutions can change or eliminate scarcities.

The same applies, of course, to abundances. Right now, we’re living in a society that has created a surplus of labor (and, as a result, stagnant wages), which is part and parcel of capitalism’s law of population. If we get rid of capitalist institutions, then we can create a new law of population, one in which the labor workers perform and the value they create are not turned against them.

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The answer, to paraphrase Jack Nicholson, is: you can’t handle institutions!

Certainly not Daron Acemoglu and James A. Robinson [pdf]—and not, for that matter, Branko Milanovic. They simply can’t handle the institutions Marx refers to and analyzes throughout his oeuvre.

Milanovic discusses many of the problems in Acemoglu and Robinson’s treatment of Piketty’s book I noticed when I read their critique: dismissing the role institutions play in Piketty’s analysis (although, to be honest, I would have preferred to see less on elite educational institutions and more on the institutions that are the sources of the income and wealth of the 1 percent), the facile equation of Piketty and Marx (and thus, in their mind, guilt by association), the failure to understand what it means that labor income plays a role in driving the inequality of the 1 vs 99 percent (do we really want to treat the salaries of the 1 percent in the same way as we do the labor incomes of the other 99 percent?), and so on. And, of course, there’s Milanovic’s quite-accurate dismissal of Acemoglu and Robinson’s own attempt to conduct an institutional analysis of Sweden and South Africa:

I do not discuss Acemoglu-Robinson  analysis of South Africa vs. Sweden increase in inequality because I really fail to see a great virtue in it. As I unfortunately have to confess, I often find reading Acemoglu-Robinson descriptions of political changes quite superficial: they read like Wikipedia entries with regressions. I had the same feeling here too.

But let me take issue with one of Acemoglu and Robinson’s assertions, with which Milanovic agrees: that there’s no institutional analysis of capitalism in Marx’s texts.

Acemoglu and Robinson do admit that Marx allowed for “feedback from politics and other aspects of society to the forces of production” in the Eighteenth Brumaire but that’s it. They can’t seem to find any other institutional analysis worth its name in the rest of Marx’s oeuvre—nor do they even bother to mention Engels (ever hear of The Condition of the Working Class in England, The Peasant War in Germany, or The Origin of the Family, Private Property, and the State?) or the work of generations of Marxian scholars (on a wide variety of local, national, and international institutions).

But let’s stick with Marx for the time being. Do they want institutions? Admittedly, they won’t find much in the 1844 Manuscripts or the German Ideology. But they might take a look at Marx’s journalism (with Engels, for the Neue Rheinische Zeitung, or Marx alone in the New York Daily Tribune). Or beyond the journalism: The Civil War In France and The Paris Commune. And the list could go on.

But maybe Acemoglu and Robinson and Milanovic are just confining themselves to volume 1 of Capital. Surely, they’ve read the institutional detail in Marx’s discussion of such topics as The Working-Day, National Differences of Wages, the Industrial Reserve Army, and, of course, the entire section on the so-called Primitive Accumulation of Capital, in which Marx analyzes the institutional detail surrounding the Expropriation of the Agricultural Population from the Land, the Bloody Legislation against the Expropriated, from the End of the 15th Century. Forcing down of Wages by Acts of Parliament, the Genesis of the Capitalist Farmer, the Reaction of the Agricultural Revolution on Industry. Creation of the Home-Market for Industrial Capital, the Genesis of the Industrial Capitalist, the Historical Tendency of Capitalist Accumulation, and The Modern Theory of Colonisation.

They want institutions? Then try this vivid summary (from Chapter 31) of the institutions that gave rise to capitalism:

Tantae molis erat, to establish the “eternal laws of Nature” of the capitalist mode of production, to complete the process of separation between labourers and conditions of labour, to transform, at one pole, the social means of production and subsistence into capital, at the opposite pole, the mass of the population into wage labourers, into “free labouring poor,” that artificial product of modern society. If money, according to Augier, “comes into the world with a congenital blood-stain on one cheek,” capital comes dripping from head to foot, from every pore, with blood and dirt.

Acemoglu and Robinson and Milanovic (not to mention Piketty) can’t, it seems, handle that kind of institutional analysis.

In the world of neoclassical economics, private corporations are expropriated by “greedy elites” but letting large corporations and wealthy individuals expropriate the social surplus is the foundation for “growth.”

That’s how the world looks to Ryan Avent, building on Daron Acemoglu and James Robinson. Avent is all up in arms about Argentine president Cristina Fernández’s decision to seize a majority share in the country’s largest oil company, YPF.

A country with strong, pluralistic institutions can restrain the grabby hands of the government, reassuring private investors that the fruits of their efforts won’t simply be stolen from them. That, in turn, encourages investment and growth. A country with poor institutions, however, can’t stay the hand of the greedy elite. The government will therefore be inclined to take decisions that enrich or protect its leaders, in the process poisoning the well of future growth.

And what, their “strong, pluralistic institutions” did  such a good job protecting us from the “greedy elite”—of large banks, giant corporations, and wealthy individuals—in the United States in the lead-up to the Second Great Depression?