Players of political economy
6 May 2009
The International Monetary Fund recently revised its global economic projections downwards. The global financial crisis has created the most difficult economic conditions for more than 70 years. Australia, though better placed economically than many other nations, cannot avoid being adversely affected by the global downturn.
These are circumstances in which we may expect some fundamental rethinking by economists. It was their confidence in free markets producing efficient outcomes that gave legitimacy to the neo-liberal policies of the past two decades. Those policies, including privatisation and financial deregulation, reduced the capacity of the government to directly influence economic outcomes. During the boom years this did not seem to matter, but with the benefit of hindsight we can see that it was a fools' paradise.
"Obey ye the market" has proved to be a misleading mantra. The emergent recession shows the economic rationalist approach did not provide sound foundations for sustainable economic activity. Some see the policies as directly culpable for the disastrous economic outcomes. The unwarranted faith in market outcomes led in practice to an orgy of speculation and mounting levels of unsustainable debt. Productive investment, including socially necessary infrastructure investment, has been correspondingly neglected.
It is necessary to look more critically at economic processes and institutions to understand what has happened. Keynesian economics has rightly experienced a revival because it provides an explanation of recession and tools for counter-cyclical economic management. There is also renewed interest in Marxian analysis of capitalism, focusing on the contradictory aspects of the capital accumulation process, the causes of growing economic inequality and periodic economic crises.
There are mild echoes of such concerns in Kevin Rudd's denunciation of "extreme capitalism".
Institutional economics also has an important contribution to make. This is a dissident tradition of economic thought that emphasises the significance of institution building in creating the conditions for sustainable economic activity. As US political economist William Lazonick has written: "History shows the driving force of successful capitalist economic development is not the perfection of the market mechanism but the building of organisational capacities."
None of these alternative schools of economic thought have much faith in the free market mechanism to deliver economic outcomes that are consistently efficient, equitable and sustainable. They challenge the neoclassical economic orthodoxy that has underpinned the embrace of economic rationalism and neo-liberal policies.
Are our universities going to start teaching about these alternatives? All alternative approaches warrant careful consideration, especially in the present difficult economic conditions. Universities need to restructure their courses in economics to consider and compare the contributions that each of these schools of thought can offer.
Unfortunately, the curriculum in almost all universities remains overwhelmingly neoclassical. This perpetuates the type of economic policy advice coming from the Productivity Commission and the right-wing think tanks.
However, it is not conducive to an economic outlook that is sensitive to the present needs for recovery and reconstruction.
One university that seeks to explore the different approaches to economic analysis is the University of Sydney. For decades it has offered students the opportunity to study courses in political economy as well as mainstream economics. The courses look at Keynesian, post-Keynesian, Marxian and institutional analyses of capitalism as well as the neoclassical orthodoxy.
It was a tremendous historical struggle to get those alternative courses established, contrary to the wishes of professors wedded to the orthodoxy approach.
It's interesting to see that graduates of the political economy program during the past 40 years include many people now at the forefront of government, academe and journalism.
As a political economy student, Anthony Albanese staged a protest on top of the university clock tower in support of an autonomous political economy department. Now as federal Infrastructure, Transport, Regional Development and Local Government Minister, he oversees much of the vast stimulus spending that the Rudd Government is hoping will see us through this crisis. In NSW politics you'll find Deputy Premier Carmel Tebbutt (portfolios include climate change, the environment and commerce) and David Borger (housing), to name just two.
It's also perhaps no coincidence that two of the most vocal figures warning of unfettered consumption and market speculation - public intellectual and author Clive Hamilton and University of Western Sydney economics academic Steven Keen - also are former political economy graduates and activists, both of whom write about the formative role the discipline played in their thinking in a new book about the efforts to establish political economy at Sydney University.Others are reporting on the crisis: an activist from the early years, Steve Burrell, is a senior Fairfax business journalist, while more recent graduates include business and economics journalists Jessica Irvine (The Sydney Morning Herald) and Stephen Long (ABC), The World Today presenter Eleanor Hall and Lateline Business' Michael Janda. Hopefully another graduate, The Chaser's Charles Firth, will provide us with some light relief from the gloom. The list goes on.
A new book about the years spent establishing alternative economics at the university, titled "Political Economy Now! The Struggle for Alternative Economics" at the University of Sydney, includes a cameo appearance from a young Malcolm Turnbull, who tried to play a mediating role between activists and university management.
Today students are again flocking to the study of political economy. A surge means more than 600 undergraduates are enrolled in political economy, with more completing majors, honours and masters qualifications.
Will other universities follow the lead in revising and diversifying their teaching of economics? Or will they remain wedded to a neoclassical orthodoxy that has shown itself to be part of the present economic problem?
Contact: Kath Kenny
Phone: 02 9351 2261 or 0434 606 100