Economic crisis a door to new thinking
There is a great opportunity in public policy making that may be going to waste. A growing body of new thinking in economics can be converted into public policy.
I have previously written about this, but it is worth restating, briefly. Since the 2008 crisis, many questions have been raised about the tout court application of mainstream economics as the basis for public policy making.
This crisis provided a marvellous opportunity for a more systematic and aggressive rethinking of economics; of public policy-making in general; for opening the scope of the discussion much wider. The scrutiny should expand beyond economics, an academic or professional practice that presents itself as independent and aloof and necessarily inaccessible to everyone else.
It is always rather disappointing that whenever there is an economic crisis — especially when economic policies fail in their stated objectives — the very same economists who presented the original policies are almost exclusively relied upon (again) to make new plans and formulate new policies.
Economists revert, as they always do, to what Joseph Stiglitz in one of his core textbooks called “the basic competitive model”.
This draws on and reproduces the belief in rational choice and settles on general equilibrium theory.
The return to orthodoxy is one of the more invidious outcomes of cognitive capture — where it is assumed that everything there is to be known about the economy is known only by economists of a particular persuasion. This reminds me of the young soldier in Columbia, South Carolina, who once told me that I could not speak about the horrors of war because I had never fought in a war.
In his study of the 2008 crisis, Raghuram Rajan, a former chief economist of the IMF and author of Saving Capitalism from the Capitalists, insisted that greater diversity was required to tackle the failures of economic policymaking. He explained that in the US, ground zero for the 2008 global crisis, Wall Street bankers played a much too prominent role in public policy making. While they generally could be trusted with doing what was right for the US, “what they think accords with their Wall Street training, and the people [on Wall Street] they talk to”.
There are important precedents for using a crisis to give birth to better things; more in the explorative ways of Albert Hirschman than through the psychedelia of Frank Zappa.
After the depression of the 1930s, classical economics gradually gave way to Keynesian planning.
This would last until the 1970s, when stagflation (high inflation coupled with slow rates of growth and high unemployment) emboldened deregulation and brought us neoliberal orthodoxy.
The foundations of neoliberalism were shaken by successive banking, currency and financial crises in the span of a decade — from the 1997 East Asia crisis to the subprime mortgage crisis of 2007 — and exposed fractures and fault lines in the global political economy.
There has emerged, at least since the East Asian crisis, a renewed belief in the role of the state in the economy.
The biggest problem in this regard is the massive trust gap between the public and the state in SA. This gap has to be closed by foregrounding the historical role of the entrepreneurial state and collaboration with the private sector. It has to be closed by tapping into horizontal networks, affiliations and co-operatives.
The horizontal dimension is important for SA, given the unsustainable levels of exclusion and alienation across society. While there is much to gain from taking economic inclusivity higher — up into global political economic engagement — we could benefit significantly from tapping into the multiplicity of affiliations and the end of homo economicus as atomised individuals obsessed with greed and pecuniary gain.
The state, in general, has historically played an important role in promoting inclusivity as a vital aspect of expanding economic activity. This does not mean the state should be a centralised mechanistic entity. It means the state can encourage and promote collaboration or “nudge” participants towards vertical and horizontal inclusivity and expansion.
The spread of information networks has introduced a very real urgency into using the current crisis as a midwife for inventive new thinking in policy making. The rapid spread of the internet and the rise (again) of machines robotics and artificial intelligence have deepened the complexity of the world, causing a reconsideration of all existing ways of seeing, knowing, explaining and understanding the world.
We may want to avoid what someone has referred to as the revolution in Candy Crush capitalism: the fact that the better-known innovations since the turn of the century have been in entertainment and communications devices that have had no large-scale social impact — at least not in the way that, say, flushing toilets or modern sewerage have contributed to increasing life expectancy rates in the 20th century. We cannot let a good crisis go to waste.
THE RAPID SPREAD OF THE INTERNET … HAS DEEPENED THE COMPLEXITY OF THE WORLD — CAUSING A RECONSIDERATION OF ALL EXISTING WAYS OF UNDERSTANDING
Lagardien is a former executive dean of business and economic sciences at Nelson Mandela Metropolitan University and has worked in the office of the chief economist of the World Bank as well as the secretariat of the National Planning Commission.