Lecture at CEMUS, Uppsala, September 29, 2010 RATIONALITY, DEMOCRACY AND ECONOMIC THINKING

1. Lecture at CEMUS, Uppsala, September 29, 2010 RATIONALITY, DEMOCRACY AND ECONOMIC THINKING Peter Söderbaum, professor emeritus, ecologicaleconomics School of Sustainable Development, Mälardalen University, Västerås Box 883, 72123 Västerås, Sweden www. eki.mdh.se/personal/psm01 Latestbook: Understandingsustainabilityeconomics. Towards pluralism in economics, Earthscan, London 2008

2. Wehave problems in contemporary society, for example: • Degradation of environment, naturalresources, ecosystems (Copenhagen 2009, BP 2010) • Financial crisis in somecountries and regions • Poverty in a monetary and non-monetarysense • War, violence • Dictatorshipratherthandemocracy • These problems suggest that ourpolitical-economic system in nations and globallyis not alwaysperformingwell • There are reasons to learnmoreabout and discuss the mental maps and ideologicalorientation of ’establishmentactors’ (politicians, business leaders, journalists, professors of economics etc.) and otheractors

3. The problems are many and complex. As I see it, there has beentoomuchreliance on the twins of neoclassicaleconomics (as science and ideology) and neoliberalism as ideology I am concerned in particularabout the monopoly position of neoclassicaltheory in many parts of the world (Textbooks are more or less standardized with Gregory Mankiw’sPrinciples of Economics as an example) My position: One singletheoretical (and connectedideological) perspective is not enough to deal with all the complexissueslistedabove. Wehave to open the door for additionalperspectives and PLURALISM in economicseducation. I willhereemphasize the potential of institutionaleconomics

4. First a fewwordsaboutthe problems with mainstream neoclassicaleconomics. (These problems already suggest a direction in the search for alternative perspectives) • Positivism as the onlytheory of science (Reference to ”The ScientificMethod” by Mankiw) • Historicalaspecttoooftenmissing • Lack of interest in and sensitivity to value (ideological) issues • Simplisticidea of markets (’monetaryreductionism’) and actors in the market place • Isolationism in relation to other social sciences • Dictatorship with monopolyclaimsglobally: Protection of one paradigm. Global standardization of economicseducation

5. HOW CAN ONE BRING BACK THE POLITICAL ASPECT INTO ECONOMICS? • Economics is alwayspoliticaleconomics. ”Values are always with us” in social science research and education (Myrdal 1978) • It was a mistake to abandon the term ’politicaleconomics’ in the 1870s • Instead the political and ideologicalaspect of economics has to be acknowledged and openlydiscussed • Gunnar Myrdaldeclaredhimself an institutionaleconomist in the 1970s (His view on the roles of valueswas not shared by all institutionaleconomists at the time, for examplesome of thoseconnected with the Association for Evolutionary Economics and itsJournal of Economic Issues)

6. Institutionaleconomicsperspective (overview): • A historicalperspective • Holisticidea of economics and the economy • Interdisciplinaryopenorientation (in relation to other social sciences, for example) • Complementarytheories of scienceconsidered (social constructivism, hermeneutics, narratives etc.) • Focus on actors, theirsubjectivity and ideologicalorientation • Focus on institutionalarrangements and institutionalchangeprocesses • Admittance of the role of values (politicaleconomicsaspect) • Democracy as a guidingprinciple

7. Selectedearlywritings in institutionaleconomics: • Ayres C.E., Neil Chamberlain, Joseph Dorfman, R. A. Gordon, Simon Kuznets, 1964. Institutional Economics: Veblen, Commons, and Mitchell Reconsidered, University of California Press, Berkeley. • Myrdal, Gunnar, 1972. Against the stream. Critical Essays on Economics. Random House, New York • Myrdal, Gunnar, 1978. Institutional Economics, Journal of Economic Issues, Vol. 12, No. 4, pp. 771-783 • Kapp, K. William, 1971 (1950), The Social Costs of Private Enterprise. SchockenBooks, New York. • Kapp, K. William, 1976. The Nature and Significance of Institutional Economics, Kyklos, Vol.29, No. 2, pp. 209-232 • William Kapp wasborn 27th October 1910. Those of us who appreciate his work cancelebrate his 100 yearbirthday

8. Political Economics – Attempting a new start for economics: • The individual as actorguided by herideologicalorientation (Politicaleconomic person, PEP, assumptions) • The organization as actorguided by itsideologicalorientation or mission (Politicaleconomicorganization, PEO, assumptions) • Decision-making, rationality and efficiency as a matter of an actor’sideologicalorientation • Twocomments: • Ideology (ideologicalorientation) stands for ’means-endsphilosophy’ and is accepted as a term at the collectivelevel. In my understandingsomethingsimilar must exist at the level of the individual • Economics has to takesome steps away from technocracytowardsdemocracy. A politicaleconomic approach is a way of DEMOCRATIZING ECONOMICS

9. DECISION-MAKING (and judgments) as a MATCHING PROCESS • Eachactor as decision-maker’matches’ herideologicalorientationagainst the multidimensional (qualitative, visual, quantitative) impactprofile of each alternative considered, looking for an ’appropriate’ alternative • ’Patternrecognition’, or a ’search for appropriateness’ are otherways of describing this ’matching’ process • The ideologicalorientation of an actor is normallyfragmented and uncertain and can be modified and changed over time when the actor is faced with new alternatives, for example • (The matchingideadiffersconsiderably from the optimizationidea in neoclassicaltheory and method)

10. A POLITICAL ECONOMIC UNDERSTANDING OF MARKETS: • Market actors are individuals and organizations as PEPs and PEOsrespectively • A market actor is seldom an isolatedentitybutrather part of complexrelationships and networks • A market transaction is normallybased on an agreementbetweenseller and buyer (and part of an ongoingrelationship) butan actor (being part of the transaction or outside it) mayperceive the transaction as fair or unfair, as being part of cooperativerelationships or a case of exploitation • Market transactionsnormallyaffectinterestsoutside the seller and buyer. In addition to the private spheres of buyer, seller and otherinterestedparties, there is a commons and public sphere. And ”the public sphere is everywhere” and cannot be dealt with as singleexternalities

11. Public (political ) assessment of investment projects in situations with conflictinginterests or ideologicalorientations • CBA (neoclassicalCost-BenefitAnalysis) can be excludedsince no consensus about the CBA ideologycan be expected • Taking DEMOCRACY seriously in a situation as describedaboveone has to forgetaboutonesingle optimum and instead ILLUMINATE an issue with respect to • Relevant ideologicalorientations • Alternatives of choice (that more or less match the ideologicalorientationsidentified or articulated) • Expectedimpacts in non-monetary and monetary terms for each alternative considered • Conclusions (or ranking) will be conditional in relation to eachideologicalorientation

12. Categories of indicators and impacts in economicanalysis: • Keepingmonetary and non-monetaryimpacts separate (avoiding ’monetaryreductionism’) • Focus on non-monetary positions (states) in studyinginertia, path –dependence, irreversibility (e.g. when illustrating land-usechanges with decision-trees)

13. P X P X P X P X P X X P P X time • Positionalthinking as part of positionalanalysis (PA): Emphasis on non-monetary positions (in multi-dimensional terms) • There are no final ’pay-offs’ as in neoclassicalanalysis – only new positions as starting points for furthermoves • Compare a game of chess; you are consideringmultiple steps in spite of uncertainty • Conceptssuch as pathdependency, irreversibility in non-monetary terms are relevant

14. Categories of approaches to decison-making NeoclassicalCost-BenefitAnalysis (CBA) belongs to category ’a’ PositionalAnalysis (PA) is in category ’d’

15. Main model to understandinstitutionalarrangements and institutionalchangeprocesses

16. Neoliberalism as ideology • Conceptually and ideologically it is close to neoclassicaleconomics • The market is at the heart of the perspective – onemayevenspeak of ’market fundamentalism’ • Economic growth in GDP-terms as the mainindicator of welfareimprovements • Globalizationpolicies with maximum freedom for market actors to movecapital, exploitnaturalresourceswheretheywish etc. • Monetary profits in business is regarded as the best indicator of efficiency at the level of organizations. Through ’privatisation’ of historically public activitieswewill get a moreefficient society, it is argued • Neoliberalism is closelyconnected with the interests of largetransnational corporations

17. ”Wehavemany friends” • Institutional (environmental) economists are in favour of pluralism in economicsbutwe are not alone. There are manyinitiatives and groups that advocate pluralism • The Handbook of Pluralist Economics Education, edited by Jack Reardon, Routledge 2009 • International Journal of Pluralism and Economics Education • Pluralist economics, edited by Edward Fullbrook, ZedBooks 2008 • Associations for: • Social economics • Feminist economics • Ecological economics • Heterodox economics etc. • There is even an International Confederation of Associations for Pluralism in Economics (ICAPE) • The post-autisticeconomicsmovementstarted by students in Paris (nowReal-worldeconomicsreview) • www.toxictextbooks.com

18. Possiblequestions for discussion: • Whatdo you think of this entrance of democracyintoeconomics? • Do you think that Political Economic Personassumptionswilladd to whatcan be ackomplished with Economic Man assumptions? • Is pluralism and ’paradigm co-existence’ (as opposed to ’paradigm-shift’) a goodidea for the futuredevelopment of economics as a science?