New strategy: visions of an economic future

Following the credit crunch and the ensuing global economic crisis, some economists are still promoting outdated and inadequate financial methods – ‘bad maps’ – for the world. New strategies, argues our writer, must be people-centric, inclusive and anchored by a strong sense of creativity, courage and imagination 

The global financial crisis has forced the economics profession to re-examine its existing paradigms. Leading up to the 2008 crisis, economics was providing bad maps of the financial seas.

Leaders from around the world are now rightly looking for answers about what happened and how to fix it. In June 2009, Queen Elizabeth famously asked British economists why no one saw the credit crunch coming. And this May, Ban Ki-moon, the Secretary General of the United Nations, addressed the UN General Assembly’s debate on the state of the world economy and finance in stark terms. “Let us face the facts: the old model is broken,” he said. “We need to create a new one – a new model for dynamic growth.”

What Rothkopf and Ostrom have in common is the willingness to look into societal taboos, the silences created by deference to power, and to illuminate what they find there. It is this kind of vision that now is needed to create new economic maps that can help us grapple with the challenges of the 21st century

In response to these demands, as well as to the urgency of the current crises, some in the economics profession have doubled down on recalibrating and adjusting old models. Their hope is that with the addition of a few new frictions, or with slight relaxations of assumptions, or with a subtle refinement in technique, the old approaches can still solve new problems.

Failing models

The continued struggles of countries around the world to emerge from the current economic crisis are a testament to the failures of this approach, and simply retracing the bad maps that have led us into the current situation is not adequate to the challenge at hand.

But the problem lies deeper than the failure of any one model. The real problem is that economics’ approach to solving problems is inadequate because it fails to place real human beings at its centre. What is needed now is not simply new models, but rather new visions for the economic future.

Hiding in the monastery of economic technique has allowed economists to avoid confronting the political realities. But this approach has real costs when the dominant economic models make no account of the role of political power and the pervasive effects on the real world. Externalities are a common topic in economics, and yet economists have failed to recognise that their own narrow focus on mere technique is not a substitute for real economic vision, and that this focus and the avoidance of key, divisive political and economic issues is doing significant harm to everyone else.

Economics must return to the moral and philosophical visions that were once at the heart of the profession at the time of luminaries such as Adam Smith and David Ricardo, both of whom saw themselves as moral philosophers and practitioners of political economy. The great economists of the past all understood that economics was inseparable from politics, and that at the heart of the challenges societies faced was the need for collective action.

More recently, a few prescient and insightful economists have taken on these challenges and peered into this blind spot of the modern economics profession.

One example is David Rothkopf, whose recent book Power, Inc. exposed some of the changes in the political and economic landscape that are unaccounted for in traditional economic theories. Rothkopf suggests that while we tend to think of economics as being organised by nation states, we now live in an era where leading multinational corporations are actually more powerful than all but approximately 15 nations – where just the leading 300 companies control about a quarter of the world’s productive capacity.  And even in the strongest nations – the United States included – those powerful corporate interests dominate the political agenda because of the influence of money and economic power in politics.

Rothkopf’s study helps to redraw modern economic maps to account for the contours of power in today’s world – a world very different from the one that we faced even a century ago.

Another economist who has helped to illuminate the challenges society faces is the late Elinor Ostrom, the first female Nobel prize winner in economics. Ostrom spent her career highlighting the pervasiveness of collective-action problems in society and how these problems could be addressed.

'Collective action'

Many well-meaning economists cultivated a cynicism about the prospect for collective action and the prospect for government to make a meaningful difference, leading to a despondency where they saw the need to do something but lacked the belief that anything could be done. Yet Ostrom had the courage and will to work tirelessly to illuminate the need and capacity for collective action, a capacity that will also be required to address today’s urgent collective-action challenges, such as financial regulation and climate change. Ostrom’s work shows that an important part of economics is providing the necessary vision to re-establish the will to create mechanisms of governance that can deal with collective-action challenges.

What Rothkopf and Ostrom have in common is the willingness to look into societal taboos, the silences created by deference to power, and to illuminate what they find there.

It is this kind of courage and vision that now is needed to create new economic maps that can help us grapple with the challenges of the 21st century. This task also includes the important goal of widening the economic debate to incorporate voices and insights from all parts of the globe, especially from those outside of the Western world that have been locked out of the economic conversation for too long. A healthy economic debate will have a more diverse set of visions than the current near-monolithic economic mainstream offers, and it will be willing to re-examine the assumptions the old economic models simply took for granted.

These new areas of exploration include the power of nation states, the role of corporations and the need for collective action in addition to market activities. But there are many more topics that need brave explorers to help draw new maps.