What were my motives for writing the book entitled Understanding Sustainability Economics. Towards Pluralism in Economics (Earthscan 2008)? This is a book that has had some success; it has been translated to Japanese for example but it is far from being a bestseller. I have recently written another book in Swedish Bortom BNP. Nationalekonomi och företagsekonomi för hållbar utveckling which in translation becomes something like ’Behind GDP. Economics and Management Science for Sustainable Development’ (Studentlitteratur 2011) and the latter book is already competing well in terms of sales with the Earthscan book.
The motives for writing a particular book are more or less conscious and what follows is a fragmented story of the more conscious motives. Each one of the mentioned books is written with the hope of being used both as a textbook for students and a contribution to public debate. I want to provide students with an alternative way of understanding economics generally and in relation to sustainable development but also to participate in and have an impact on public debate. Influencing public debate is not an easy matter but the good thing is that you are not alone and that your voice adds to that of other actors with similar messages.
The two purposes or motives are interrelated in the sense that education and textbooks is a way of influencing public debate and that what happens in terms of public debate may pave the way for specific textbooks that would not otherwise be considered. But public debate of course plays a more direct role in politics and practice than by influencing the choice of textbooks in university courses.
As already argued influencing actors in power positions within and outside universities is not easy. There are both facilitating factors and barriers when approaching textbook markets or various arenas for public debate. Actually, this is a field where the actor perspective proposed in the book can be applied. One way of understanding the book is to look at its author as an actor among other actors in a democratic society. I want to participate in an academic as well as public debate about present unsustainable trends and the challenges that follow. I am curious and find it exciting to see what happens and what does not happen.
We learn more and more about environmental problems of different kinds and we speak of sustainable development and the need to deal seriously with ‘our common future’. But at the same time ‘establishment actors’ in Sweden, in the European Union and largely in all the so called Western countries are locked into traditional post-war perspectives on theory of science, on theoretical perspectives in economics and on ideology. Positivism (as an understanding of good science) tends to lead to extreme forms of technocracy (rather than democracy), neoclassical economic theory together with neo-liberalism can be seen as market fundamentalism. Progress is still essentially thought of as profits in business, economic growth in GDP-terms and market solutions to every possible problem (threats of climate change included).
Establishment actors have learnt economics in a particular way (from neoclassical textbooks and from journalists presenting economic issues by referring to a neoclassical conceptual framework). These habitual and established ways of understanding economics may be useful for some purposes (although today one may even sometimes doubt the analysis and recommendations of neoclassical economists in traditional fields, such as monetary policy, financial analysis and banking operations).
However in relation to the present challenges of sustainable development, dominant perspectives about progress in social sciences, about economics and about ideology appears to be part of the problems faced rather than any solution. One purpose or motive with the book is therefore to question mainstream perspectives and argue that options with respect to perspective has to play a central role in agenda setting for politics and public debate.
Can you point to (a short version of) essential conceptual and other parts of your message?
Such a short version of my conceptual and theoretical message starts with democracy as a meta-ideology. Democracy tells us about the rules of the game in attempts to change society and democracy can be strengthened in every country. In a democracy, it becomes relevant to look upon individuals and organizations (business corporations included) as political actors. I am referring to a political economic person, PEP (to be compared with neoclassical Economic Man) and political economic organization, PEO, (rather than the neoclassical profit-maximizing firm).
Ideology and ideological orientation are central concepts in understanding PEP or PEO. If there is ideology at the collective level (for political parties for example), then something similar must exist at the level of individuals. It is assumed that the individual is guided by an ideological orientation and the ideological orientation of an individual is something to be investigated rather than assumed to be given. We may ask for example how individuals as actors interpret sustainable development and how these interpretations are related to their behavior and practice. Our analysis should be ethical-ideologically open rather than closed.
Decision-making is seen as a matching process between an actor’s ideological orientation and expected impacts from each alternative considered. Uncertainty is involved on both sides, i.e. ideological orientation and impacts. ‘Pattern recognition’ and a search for appropriateness are other ways of characterizing this understanding of decision-making.
Institutions change over time or are modified. How can institutional change processes be understood? I suggest an emphasis upon three kinds of related perspectives:
– theory of science
– paradigm in economics
– ideological orientation
Present institutional arrangements are largely the result of dominant actor perspectives among establishment actors and other actors in society. The dominance of positivism, neoclassical economics and market ideology (Neo-liberalism) has given us the institutions at various levels that we can observe today.
Institutional change (like market exchange) is not regarded as a primarily mechanistic process. Change is rather a matter of the perceptions and ideological orientations of individuals as actors. From this point of view a complementary model of institutional change is proposed emphasizing each indivdual’s
– interpretation of a phenomenon
– manifestations of this interpretation
– acceptance of the interpretation and manifestation among an increasing number of actors (legitimatizing process)
In the 2008 book, Environmental Management System (EMS), such as ISO 14001, is given as example but there are many other cases where we can understand ongoing processes in these terms. The Rosa Luxemburg Foundation is an institution with specific characteristics and our workshop can perhaps also be seen as an institution with connected interpretations, manifestations and legitimacy. This institution may be relatively short-lived but some of its results are perhaps not limited to immediate impacts on the participants in the workshop but are carried over to other institutional change processes and other actors.
Neoclassical economic theory can be regarded as an ‘institution’ internalized and supported by many actors. The theory is interpreted in similar ways by actors; it is manifested in textbooks and courses and has become legitimate among actors in the academy as well as in the larger society. Alternative, non-mainstream approaches have been manifested and gained legitimacy in some circles. A dialogue and power game is going on between actor groups advocating different perspectives.
It is claimed that decision-trees in positional terms (Figure 7.1 page 104 in Söderbaum 2008) are helpful in understanding institutional change and absence of institutional change. Inertia is involved in institutional change processes. Phenomena such as path dependence, lock-in effects, irreversibility suggest that a move from an unsustainable institution or trend does not take place easily. We are largely locked into specific institutional arrangements (created for purposes where sustainable development in some sense has played a limited role). However something has ‘already’ been achieved in preparing and initiating moves (in positional terms) toward a more sustainable society.
In neoclassical economics there is an emphasis on prices and the monetary dimension. While not neglecting the importance of money and finance I warn against ‘monetary reductionism’ in the book. Economics has to be understood in broad multidimensional terms and non-monetary resources are as ‘economic’ as monetary ones. An analysis does therefore not become more ‘economic’ by putting a price tag on all kinds of resources and impacts.
‘Efficiency’ should be understood in ethical-ideologically open terms. Economists cannot dictate the one and only efficiency indicator. Rather one has normally to consider competing efficiency indicators related to different and competing ideological orientations. A politician with Green preferences may refer to efficiency indicators based on her Green ideology etc. Rather on has normally to consider competing efficiency indicators related to different and competing ideological orientations.
The approach to decision-making recommended is positional analysis (PA). It is built on a distinction between monetary and non-monetary impacts and between flows (referring to periods of time) and positions, states or stocks (referring to points in time). While Cost-Benefit Analysis (CBA) as the neoclassical approach to decision-making is highly aggregated and ethically closed (in monetary terms built on specific ideas of correct prices for purposes of evaluation), the PA approach belongs to a category of highly disaggregated, ethical-ideologically more open approaches. Once more, the idea is to carry out an analysis which strengthens rather than weakens democracy. Rather that attempting to ‘solve’ an issue in a technocratic sense the idea is to ‘illuminate’ a decision situation with respect to:
– historical background
– different ideological orientations that appear relevant to stakeholders and actors affected or concerned
– alternatives of choice that relate to the different ideological orientations identified or otherwise found relevant by the analyst
– impacts of alternatives in multidimensional terms
– conflicts of interest
– uncertainties
– conditional conclusions, i.e. ranking alternatives in relation to each ideological orientation considered.
Details about how this analysis can be carried out will not be presented here. It can only be mentioned that the decision trees in positional terms previously discussed play an important role. Non-monetary analysis in positional terms is claimed to be of central importance in relation to sustainable development. When analyzing issues that affect environmental pollution, natural resources or human health, it appears extremely important to inform politicians and other actors about any irreversible degradation that will follow upon the choice of specific alternatives. Also risks of such degradation should be analyzed and be illuminated as part of the simple idea that it is good to know beforehand what you are doing. Consider the different (certain and uncertain) impacts of nuclear reactors, and the nuclear industry in broader terms, as an example!
In the political debate today ‘economics and ‘economic crisis’ is largely (if not exclusively) interpreted in financial and GDP growth terms. Is the institutional microeconomics that you suggest relevant and useful for the present financial crisis and if so – in what way?
The subtitle of my book is Towards pluralism in economics. Economics as a discipline has to become pluralist in the sense that more than one paradigm or theoretical perspective is recognized in education and research. The present monopoly for neoclassical economics and the connected standardization of textbooks globally is not compatible with democracy. Neoclassical economics with its specific ideological features can be used and presented for students and the public but should never be considered as the one and only economics paradigm.
Neoclassical theory is often criticized as being based on assumptions that appear too simplified in relation to how many actors perceive reality. Such criticism is of interest but it should at the same time be recognized that all theories and models are based on simplifications. Neoclassical theory can still be criticized for too far-reaching simplifications and primarily for the kind of simplifications made. Ideology is involved in the choice of assumptions and thereby simplifications.
It can even be argued that to understand a particular paradigm, such as the neoclassical one, you need to study alternative and competing paradigms. A way of understanding the neoclassical theoretical perspective is to compare it with some alternative theoretical perspective such as the one presented in my book. According to the same logic the pros and cons of my book’s institutional economics can be discussed in relation to neoclassical theory.
It should be emphasized that the plea for pluralism should not be understood as an “anything goes” argument. It is more a matter of recognizing a diversity of voices and that your position with respect to paradigms in economics (and ideological orientations for that matter) is not the only one. Again we are back to the democracy argument where it is understood that tensions and antagonism between advocates of different perspectives can play a constructive role in society (Söderbaum and Brown 2010). Preaching only one theoretical perspective and arguing that it is good for all purposes then becomes a kind of dictatorship.
1) No doubt something can be achieved within the scope of neoclassical analysis. This conceptual framework and theory appears to me to be better suited to monetary policy and financial issues than to analysis and policy in relation to sustainable development. When a nation (or group of nations) faces a financial crisis, the role of central banks, other banks and financial institutions can largely be discussed in traditional neoclassical terms.
But the language of neoclassical theory is specific and limited and even in relation to financial analysis, a broader knowledge about theories of science, paradigms in economics and increased consciousness about ideological options is relevant. I think therefore that journalists and professors who are limited to neoclassical theory are seriously handicapped as commentators to economic policy. This handicap has to do with the conceptual framework of neoclassical theory and the specific ideological features of this theory.
2) Neoclassical economics emphasizes the monetary dimension. It is an ideological issue whether such a focus is good or bad for society, whether it can be accepted or not. In my judgment (and with my ideological orientation) ‘monetary reductionism’ is a danger for society. No doubt we are facing monetary and financial crises of certain kinds at different times and places and these crises can move around the world in complex or not so complex patterns.
But we have every reason also to speak of hundreds of thousands of ‘crises’ in non-monetary terms connected with environmental pollution and degradation of natural resources in positional terms. Other examples of non-monetary deterioration or degradation of resources refer to the status of individuals in terms of health, employment, human rights etc. Some speak of ‘capital’ when referring to social and environmental transformation but I feel that ‘capital’ is so much connected with the financial and monetary aspect that a different terminology is needed. Reference to non-monetary resources, such as social resources and natural resources appears preferable.
A financial crisis can certainly be serious and imply losses for a number of stakeholders. But degradation of natural resources and ecosystems is an irreversible process in many cases and thereby often extremely serious. If the word ‘crisis’ suggests something that is temporary, irreversible degradation of natural resources is a permanent phenomenon that has to be made visible in economic analysis. A nuclear plant produces a steady stream of nuclear waste that accumulates and has to be stored in some way. So far, there is no satisfactory solution to this storage problem. And when there is a nuclear accident the problems multiply, many impacts being irreversible. It is clear that we need an economic analysis (different from the neoclassical monetary trade-off approach) that makes such irreversible impacts visible.
3. While neoclassical economics focuses on markets and the roles of individuals and organizations in relation to markets, our analysis rather has democracy as its starting point. Individuals and organizations are political actors in a democratic society. As political actors we are responsible and accountable to other actors in society.
While the market in neoclassical theory is regarded as a mechanistic phenomenon with the ‘forces’ of supply and demand etc., our analysis points rather to the intentions and ideological orientation of individuals as actors. The actor, agenda, arena approach to institutional change is an example.
I believe that actors active in finance would benefit from learning about the subjective ethical and ideological aspects of human behavior and about theories of science that deal with the subjectivity of various actors, the scholars or analysts themselves included.
My conclusion then is that just as I can learn from neoclassical economists, even those focusing on environmental issues, neoclassical economists and commentators to financial crisis can learn from the broader economic analysis here proposed. The fact that some of those who essentially build their analysis on neoclassical assumptions are not completely blind in relation to broader issues will be illustrated with by an example.
Among books dealing with the financial crisis, Nouriel Roubini’s Crisis Economics. A crash course in the future of finance (2010) is among the more popular these days. The critical approach of this book makes it appreciated also in some circles of heterodox economists.
Unlike much neoclassical analysis there is a historical and evolutionary aspect in Roubini’s analysis. The 2008 crisis is not the first financial crisis suggesting that it can be fruitful to compare the recent crisis with previous ones. He points to the possibility to learn from earlier crises but does not attempt to single out one specific pattern of events as valid for all cases or one approach to crisis management. Rather each crisis has some specific features.
Rather than looking upon the market in mechanistic equilibrium terms, Roubini furthermore points to the roles of specific organizations and persons as actors.
On the negative side it can be observed that the analysis is still largely neoclassical. This is also so for the concepts of economics and efficiency. References to environmental services, natural resources and the health of individuals are missing. Neither is sustainable development in the Brundtland sense mentioned in the index. The term neoclassical economics is used at one or two places. Theories of science that are complementary to positivism, such as hermeneutics, narratives, social constructivism, are not discussed and neo-liberalism as an ideological basis for globalization in the domain of finance is absent from the index. A rather traditional and limited idea of the responsibilities of banks and other corporations is adopted. The present debate about corporate social responsibility, CSR, is outside the scope of Roubini’s analysis. When these limits and specific features of his approach are understood the book can certainly add to our understanding of financial crises and financial management.
Purpose of workshop
It is not my role to articulate the purpose of our workshop but each one of us may have ideas as part of a dialogue.
The Rosa Luxemburg Foundation deals with theoretical perspectives as well as policies and politics. I guess that all participants are concerned about sustainability issues such as climate change. We can then consider what our message would be to different organizations, institutions and perhaps even individuals in the leadership of
– Single nations (Germany, France, Sweden etc.)
– The European Union
– The UN for example the Rio+20 conference in London, March 2012 (www.planetunderpressure2012.net)
– Specific institutions such as the WTO, the OECD, the World Economic Forum etc.
Do these persons and institutions systematically downplay or avoid issues that we consider relevant and extremely important for attempts to get closer to sustainable development? Again there may be commonalities as well as differences in our views and the differences should not be forgotten as part of our antagonistic ideas of democracy.
I will stop here. Some part of our deliberations before the start of the workshop can be about the desired product or output of our efforts. (And the ideas of a desired output may be completely different from the one suggested above.)
Having written an introduction of this kind, it appears appropriate for me to move into a responsive role. I will listen to all comments and questions.
Uppsala August 23, 2011
Peter Söderbaum
http://www.mdh.se/hst/personal/foa/psm01
References:
Roubini, Nouriel and Stephen Mihm, 2010/2011. Crisis Economics. A crash course in the future of finance, Penguin Books, London.
Söderbaum, Peter and Judy Brown, 2010. Democratizing economics. Pluralism as a path toward sustainability. Annals of the New York Academy of Sciences, Volume 1185, Ecological Economics Reviews, pp. 179-19