Albena Azmanova – Why Does Economics Matter?

How economics matters — as a science committed to the study of the material conditions of the good life

Scholar, author, public intellectual. Associate Professor of Political & Social Thought at the University of Kent’s Brussels School of International Studies.  Albena Azmanova has written extensively on the transformation of capitalism and the rise of new ideologies, social conflict, judgment and justice, rule of law and democratic transitions

Cross-posted from Age of Economics

1. Why does economics matter?

Well, there’s hardly a better, or at least more striking, definition of economics than the one Adam Smith left us: economics is the science of opulence, a science whose purpose is the enrichment of both the people and the sovereign. With a bit of help from Marx, we could tweak this definition and replace opulence with the way society secures the material circumstances of its existence. Now, the thing about the issue of opulence or of material circumstances is that you cannot avoid it.

“Luxury corrupts all,” Rosseau remarked, “the rich who enjoy it and the poor who long for it.” So, the only plausible way to dispense altogether with the vulgar question of wealth is to secure some wealth. A certain level of affluence is the enabling condition for freeing the mind from economic concerns.

The young rebels who launched the 1960s revolution against the narrow-minded consumerism of their parents lived in conditions of stable prosperity. As one of their leaders, Tom Hayden, put it in their manifesto, the Port Huron statement of 1962 ”We were bred in at least modest comfort”. I recall how appalled I was when immediately after the fall of the communist regime in my native Bulgaria in 1990, one topic dominated everyday conversation: the price of things. People had just been given the historical opportunity to embark on an epochal change, but instead they were obsessing about the prices of shoes, and this was because they suddenly faced dramatic economic instability. Their fear of impoverishment made them fixate on money.

This is, in my mind, how economics matters — as a science committed to the study of the material conditions of the good life. And this applies even if you endorse the epicurean ideal of plain living and high thinking.

2. What are the differences between economic science (academic economics) and economic engineering (policymaking)?

The difference is the conceptual scope, I think, the time horizon. Politics is the response to the urgencies of the day. It is animated by grievances, by contestations, by the need to solve conflicts. This binds politics to the short view.

Economics, being a science, should supply the long, or the longer, view. And this makes policy more perceptive, wiser. However, exactly in this sense, the predominant form of economics — neoclassical economics, has disappointed. With its theory of rational expectations, its concerns with utility maximization, its penchant for mathematical modelling, system building and deductive reasoning, it has proven to be quite useless. But why is this? This has to do with the peculiarity of political judgment, I have written a book about that actually (The Scandal of Reason).

That peculiarity was first observed by Aristotle. He noted that in political matters, the proper objects of judgment are the particulars of our collective existence. Therefore, practical wisdom, what he called ‘phronesis’, not general principles and theoretical reasoning, is what is needed when we seek the right organization of society, which is the main concern of politics. But the dominant form of economics is void of phronesis, of practical wisdom.

The source of that short-sightedness are two: first, the obsession of neoclassical economics, with abstract laws. Second, economics is seduced by what can be measured. It overlooks, therefore, the rest . Because of that, the danger is that economics often gives the wrong diagnosis of the phenomena that interest politics, and politicians then respond with the wrong policies. Let’s take an example: the way economists have tried to explain the rise of far-right populism in recent times. The typical explanation goes something like this: In recent decades, inequality has increased, so the story goes. Globalization has split society between winners and losers, you know the story…

Thomas Piketty has warned, for instance, that unless we do something about inequality, which is the main concern in his writings, populism will become more militant. So, inequality is the culprit in this story of the rise of populism. Institutes, conferences, even academic degrees in inequality studies have mushroomed. Why is this? Because inequality is a statistical fact. It can be measured and reported. It makes headlines “The wealth increase of 10 men during the pandemic could buy vaccines for all” Oxfam reported a couple of days ago. Or headlines like “the world’s richest one percent owns 44 percent of the world’s wealth”.

This is striking, this captures attention, so economists see a correlation between the upsurge of populism and the rise of inequality and conclude that the former is caused by the latter, that inequality causes populism. Now, other scientists would approach the matter differently. A historian would note that capitalism has always created inequality. There’s nothing remarkable or novel about that. Just noticing this would prompts us to ask: how come inequality suddenly matters? The same historian might also note that while fa- right insurgences have usually been sparked by economic crises, as in the case of the rise of Nazis in the 1930s, the current wave of populism began rising in the affluent 1990s, in conditions of good economic growth and low unemployment. Curious, isn’t it? This points the analysis in another direction. The inequality comparisons we read about are taken between people from vastly different social groups. A social psychologist would look at that and would remark that we usually compare ourselves to other people from the same socioeconomic group.So growing inequality is not sufficiently visible to the average person so as to spark political action. A sociologist will draw on surveys disclosing that most people do not care about inequality and that most poor people in capitalist democracies actually admire the rich. What do we make of that? A political theorist would remark that it is strange, maybe even symptomatic, that the radicalization is taking a shift to the right and not to the left, as many expected, as impoverishment should shift people to the left.

Now, I’m not an economist, I’m a social theorist. So, a social theorist like me, one who is tempted to draw on history, psychology, sociology, would therefore take the very concern with inequality not atits face value, but as a sign that some new social phenomenon has emerged, a novel social evil, which we are wrongly expressing with the available language of injustice, that of inequality. And this is because the phenomenon is so new that we do not have a term yet for it.

I have argued in my last book, Capitalism on Edge, which came out in January with Columbia University Press, that what is ailing the 99 percent is not inequality, but massive precarity. The social and economic insecurity that now affects everyone — rich and poor, men and women, manual labor and the highly skilled. But this has escaped the attention of economists because precarity cannot be measured, you cannot pin it down with mathematical methods. Then to be politically useful, we need to dig deeper and ponder when economic inequality becomes a social problem.

The answer is: when it translates into social inequality. That is when wealth translates into social privilege. We then should ask further, what are the drivers of this? First, when specific institutional mechanisms translate personal wealth into power, for instance, campaign finance in the US… Second, when the commons are so depleted that we need to rely on personal wealth to secure for ourselves such essentials as healthcare and education.

But for this kind of analysis or this kind of diagnosis of the roots of the problem underlying the rise of populism, economics needs to be informed of history, psychology and sociology at least. And the policy prescription would not be a simple redistribution from rich to poor, as progressive economists now so eagerly prescribe. The solution would be to eliminate the institutions that translate wealth into power and privilege and build the commons, build up a solid public sector. So, back to the link between economics and politics, what we probably need to do is to redefine economics again as political economy. To regain some of its connection to the realities of politics.

3. What role does economics play in society? Does it serve the common good?

Economics, let’s admit it, can be dangerous. Karl Polanyi called classical economics ‘the most formidable conceptual instrument of destruction’. Economics becomes dangerous when it supplies plausible but wrong diagnosis of grave societal problems and thus points us in the wrong direction. But economics can also be very useful. Right now, to become a force for good, economics needs to help shift the understanding of prosperity from material affluence to well-being.

But to do this, economics needs to pay attention to intangibles, things one cannot even measure, such as people’s desire for economic stability or improved health, or leisure time, and not just the productive time spent making money or making a home and raising a family. This should be the vocation of economics in our time.

The challenge really is not just to address specific concerns, it’s easy to address specific concerns like how to pay for the shift to green energy, to challenge is to square the circle, to answer questions such as: how can we reduce inequality without damaging the economic engine of prosperity? Because the two might be correlated… growth and inequality. Because taxes might diminish the incentives for investments risk or for entrepreneurship. So how to square the circle or how can we secure the material conditions of the good life while respecting the environment? Kate Raworth’s idea of Doughnut Economics offered such an answer, that’s why it’s such a powerful book.

Or, how can we reconcile environmental justice with social justice? The growth, employment and redistribution formula that provided the inclusive prosperity of the post-war welfare state is a dead end because it’ll wreck the environment. We cannot rely on that solution. So, how do you square that circle? Currently, even allegedly progressive economic programs such as the Green Deal in the US promise unprecedented prosperity for all. And people are not buying it. Because they know that a green transition will be costly.

I have proposed that to make social justice compatible with environmental justice, we need to replace the stress on growth and redistribution with the stress on providing economic stability, not prosperity, but securing people’s livelihoods, the essentials of life. Then once people feel more secure, they might be able to venture into the risky experiment and even maybe with a new type of society, a post-capitalist society. But to think big, we need to have some basic economic security.

5. As we live in an age of economics and economists – in which economic developments feature prominently in our lives and economists have major influence over a wide range of policy and people – should economists be held accountable for their advice?

Economists should not be held accountable, politicians should. The trouble is not so much with economists themselves, but with economic fashions, with hegemonic modes of economic thinking. The economist Nassim Taleb has urged that the Nobel Prize in economics should be done away with because of the enormous damage done by economic metanarrative. Now, I personally do not think that the trouble is with the metanarratives. Actually large-scale theorizing is useful, it can shed light on the bigger picture when politics has become too short-sighted.

But I agree that things like the Nobel Prize in economics should be abandoned because such things foster intellectual fashions which suffocate the diversity of thought. We need synergetic thinking, controversies, clashing of perspectives. Let me give you an example: since the publication of my last book in which I argue that poverty and generalised precarity, rather than inequality, are the scourge of our times, I have presented this argument in a number of publications in the mass media. And very often, when social media picks up on my articles, they advertise my argument as ‘inequality is bad for democracy. So exactly what I’m not saying. So strong is the intellectual fashion of the obsession with inequality. But thinking of social justice in terms of equality implies a logic of comparison between individuals. This stress on individual circumstances is typical for neoliberalism, it obscures the commons, the public, society. Traditionally socialism has been about the commons, not about equality. Marx speaks in very strong terms against the obsession with equality of wages in his Economic and Philosophical Manuscripts of 1844. Solidarity is a socialist value, not equality.

We can have a perfectly equal society as the one in which I grew up, well, not perfectly equal, but very equal, and this society might not be solidaristic, for instance because of high levels of economic and political insecurity that make people hostile to each other, as was the case with Soviet-type societies — those of ‘really existing socialism’. But the new liberal mindset has become so prevalent that it has also permeated the thinking on the left, of self-appointed ‘progressive’ thinkers. I call this phenomenon the ‘paradox of emancipation’ as we seek inclusion and equality within one model of well-being, we further validate that model of well-being, like the club in which we want to be a member, we validate it, together with all the injustices it might contain beyond inequality and exclusion. If we redistribute radically from the rich towards the poor and equalize everyone’s wealth, yes, we might deal with poverty, which is important, but this will neither help us have better health care, education and culture, nor will it do much to safeguard the natural environment — the two grave concerns of our time: the commons and the ecosystem. So, my appeal is to think beyond inequality and dig into the engine of our concerns with inequality.

6. Does economics explain Capitalism? How would you define Capitalism?

Most economically-minded pundits speak of capitalism as a market economy. But markets, as a place of trading goods and services, even markets as the mechanism of fixing the price of a traded commodity, have existed in many social formations. There is a version of socialism which does not dispense of markets: market socialism.

Proudhon is probably the most famous proponent of market socialism. In academic circles, capitalism tends to be defined as a social order based on the private ownership of the means of production — in contrast to socialism, which is marked by the socialization of production. I find this approach to capitalism gravely deficient. Capitalism is a system of social relations which is, above all, committed to the pursuit of profit, the profit motive, through such supporting institutions as markets and the private control of capital.

This process has distributive outcomes, namely rising inequality. But the core feature is the profit motive. One thing we also need to remember is that there is a difference between a profitable economic activity (there’s nothing wrong with that, it would be stupid to waste resources and not have a profitable economic activity), but there’s a difference between that and activity that is motivated by the pursuit of profit. So, the profit motive as a driving force of economic activity defines capitalism, in my understanding. The element of competition is crucially important also, as it intensifies the profit motive. The transformation of the global economy into an oligopoly, a state of limited competition in which the market is shared by a small number of companies, has been presented as the death of competition and the death of the corruption of capitalism. However, market dominance is the telos, it is the implied goal of competition.

It is therefore a confirmation of competition as the core dynamic of capitalism. So capitalism has three core elements: competition, the productivist nature of work, that is, labour engaged in the production of commodities, and three, profit-seeking. In combination, the three elements of capitalism shape the economic process as one of actively creating needs, which are then satisfied. The structures of ownership of capital are secondary to this process. In my work I have urged, pleaded and insisted that we refocus attention on the process of the competitive pursuit of profit, as this is the source of our current predicament.

Now, let me illustrate the implications of this with an example. Let’s take a well-known proposal — Thomas Piketty’s model of what he calls ‘participatory socialism. This vision of society is to be achieved by things such as taxing the wealthy in order to provide for everyone a pot of money at the beginning of their adult life. Piketty calls this a ‘capital endowment inheritance’ of something like a hundred and twenty thousand euro we would get at age 25. Another thing is involving workers in the running of the companies that employ them. So, worker participation is an element of this model. This vision of socialism as egalitarian society in which workers run the companies is based on a twin understanding of capitalism as being a matter of private ownership and management of capital. But in condition of globalized capitalism, even state-owned companies or companies owned by the workers, behave like capitalist actors in the pursuit of profit. This is clearly the case in China.

So, involving workers in this way, even if they become owners of these companies, they will get only more deeply invested in their company’s capacity to turn profit. They will become more complicit with capitalism, with all the attendant evils of self-exploitation, alienation and destruction of the environment. So, the model of participatory capitalism, as described by Thomas Piketty, is actually deepening of the neoliberal nature of capitalism.

7. No human system to date has so far been able to endure indefinitely – not ancient Egypt or Rome, not Feudal China or Europe, not the USSR. What about global Capitalism: can it survive in its current form?

Yes, what is going on with global capitalism? Very important question, because this will determine what we can do domestically with our societies.

Now, in the aftermath of the financial meltdown 10 years ago, there was a lot of talk about the crisis of capitalism, terminal crisis of capitalism, capitalism on its deathbed. No, let’s not hold our breath. Capitalism is not on the edge of its collapse. However, it is somehow on edge. It is in a sort of a nervous breakdown. That’s why I called my book Capitalism on Edge, not ‘on the Edge’.

It is a state of a low fever, a permanent inflammation. I call this state a ‘metacrisis’ of capitalism. So capitalism as an engine of prosperity is doing well, it is proving very resilient. It will recover from Covid, too. But society is disgruntled;even the rich, the proverbial winners, are discontented with work pressures, with insecure jobs and insecure investments, worried about the climate crisis and the precarious future of their children.

Capitalism famously reinvents itself through its crisis. Since the 19th century, it has undergone four major transformations. The 19th century liberal capitalism was replaced in the early 20th century with welfare capitalism or ‘coordinated capitalism’, in which the state actively interfered to steer the economy and to manage society. This was replaced in the late 20th century by the neoliberal form marked by the withdrawal of the state from society and the economy. The state starts delegating more of the job of social coordination to the market.Individuals were treated as market actors and left to fend for themselves. I have argued that since the early twenty first century, we inhabit yet another model of capitalism, what I called ‘precarity capitalism’. One of the peculiar features of this new model of capitalism is that the state actively helps specific economic actors by enhancing the advantage they already have in the global economy for the sake of ensuring not so much competition, but rather the national competitiveness.

So the shift from competition to competitiveness as a policy concern was the trigger of the transformation from neoliberal capitalism to precarity capitalism. In this situation, the privileged position of a select number of economic actors, usually global corporations, which are sheltered from competition, intensifies the competitive pressures on all the rest. People compete for fewer and fewer jobs. Employment insecurity rises for all, funds for public services and public goods are slashed, all for the sake of remaining competitive in the global economy. So, the trouble is not just for the underclass of workers or the insecure and poorly paid jobs or what the sociologist Guy Standing has called ‘the precariat’. The insecurity has become massive, it afflicts highly educated professionals in the legal profession, in information technology, in the medical service. Insecurity is forcing the labour market insiders to work more than they would normally like to (because of the kind of life they value), but under the competitive pressures of global integrated capitalism they remain in the rat race out of uncertainty. On the other hand, this precludes access to the labour market for others. I have labelled this new state of capitalism ‘precarity capitalism’.

Generalised precarity is the root cause, in my analysis, of right wing populism. Why is this the case? On the one hand, insecurity makes people conservative. It makes them long for stability, take the familiar slogan ‘Make America great again’. We defend ‘our national capitalism’ versus ‘their global capitalism’. On the other hand, insecurity makes people compete with each other, insecurity does not foster social solidarity feelings.

Ergo, the far right, malevolent, rancorous conservatism that has been on the rise. We cannot do much about this without addressing the root of the problem. And this is the fact that the globally integrated economy has become a battlefield for the war between the democratic capitalism of the West versus the autocratic capitalism of China, as autocratic capitalism has proven highly competitive and very resilient and is emerging stronger from the pandemic. To continue competing with it, Western democracies have started to absorb some of its features, repression of labour and economic standards, cutting down the social safety net.

Now, the competition between the US and Europe for Chinese markets is aggravating the situation. And autocratic capitalism will be our future if we do not change the nature of globalization. And that’s that.

8. Is Capitalism, or whatever we should call the current system, the best one to serve the needs of humanity, or can we imagine another one?

No, it is not. But neither is socialism. Here, I agree with Václav Havel, the Czech dissident and one-time statesman. Capitalism v/s socialism is a false dichotomy… These seemingly opposing social systems, in fact, share a lot, they have a lot in common.

They present two versions of the same social logic which Havel called ‘samopohyb’, self-waste: a waste of human life and nature. Havel was not an economist, he was a philosopher and a playwright. If we want to advance, we need to think beyond the duality of capitalism versus socialism. We need also to stop experimenting with combinations of the two, so we need to dispense with this kind of thinking altogether.

All we need to do in the current historical moment is to oppose the competitive pursuit of profit, capitalism’s constitutive dynamic. If we do systematically this, we will achieve a social transformation, a radical social transformation, we will exit capitalism without relying on a terminal crisis of capitalism, on a revolution or the treacherous help of utopias.

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