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8: Economics and Power

8: Economics and Power

(“Pictures at an Exhibition”) – This is a course of lectures and discussions on economics. Political theory studies power, How it’s gained, how it’s maintained, the different forms of power, why people obey rules and so on. Now power involves coercion, economics at least notionally sets itself up to study
non coercive relationships. The voluntary bargains of the marketplace. Are these two disciplines talking about different dimensions of life? A political dimension shaped
by power and relationships, and a market dimension shaped
by voluntary cooperation? Or are mainstream
economists actually ignoring the extent to which power is always present in economic relations, and in which economics itself plays a very important role in
rendering power invisible? This was the issue raised by Karl Marx, and Marx is going to be the central figure in
this particular session. (“Pictures at an Exhibition”) Well start with a question
which seems easy enough, but in fact it develops some quite considerable complications. What is power? In general it’s the force which compels. In social science it’s the
ability to secure compliance. Power overlaps with authority, but is not identical with it. Power is the force which compels, the ability to secure compliance. Here is a classic image of power. It’s a force which compels
you to do what it wants. Steven Lukes identifies
three types of power which we can call blunt power, agenda power and ideological
or hegemonic power. Blunt power is the
simplest and most familiar. The ability to get people
to do what you want by sanctioning them in one way or another if they refuse. We often think of it as
involving fear or coercion, but these not need be so. Exclusion from privileges
is a form of sanction. Then there’s agenda power. Agenda power is more subtle, it’s about keeping disturbing
ideas out of circulation. It partly depends on
control of the agenda. The chairperson sets the
agenda of a committee. The media and political parties set the language and tone
of public discussion. They decide which ideas are on the page which are off the page or beyond the pale. I think it’s right to call control of the agenda form of power, because there would be no need for its exercise unless there was actual potential opposition. Of course it’s not totally successful. In the United Kingdom Brexit
was not really on the page till popular feeling broke through the barriers against contesting it, which had been erected
by the political parties. Similarly, Donald Trump
wasn’t really on the page till he forced his way onto it through social media and other devices. So then we come to hegemonic
or ideological power, which I think is in a
way the most interesting, and I’ll deal with that
more than with the others. Hegemonic or ideological power isn’t about keeping
disturbing ideas off the page, but about filling the
page with one’s own ideas. Steven Lukes calls it power over belief, thought, preference. One can think of it either as myopia or as false belief. In the words of John Kenneth Galbraith, it arises when the individual submits to the purposes of others, not only willingly, but with a sense of attendant virtue. French sociologist Pierre
Borja and Michelle Virchow, discern cryptic, hidden
forms of domination that are so submerged in subjectivity and habits that we cannot
really become conscious of them. Marxists talk a false consciousness. In Marxist thought religion
was the opium of the people, the belief system which blinded them to their true interests on Earth by offering a blissful afterlife. Power is here completely invisible, because it acts through our own agency. Continuing along these lines, the Italian Socialist
Gramsci coined the phrase hegemonic power to explain why the proletarian
revolution hadn’t happened. Hegemony represents the
intellectual and moral leadership through which a general direction is imposed upon social life by the dominant fundamental group. A favorite example is of
working-class parties in 1914 putting nation above class
in supporting the war. The hegemonic dimension of power is the haziest to grasp. How can we know it’s
exist if it’s invisible? That is a big problem. We hypothesize it must be there in order to explain why it is that people act in ways which seem to harm them. Just as the natural scientists hypothesize that gravity must exist in order to explain phenomena
they were interested in. Economists are experts in rendering ideological power invisible. For example, the doctrine
of consumer sovereignty precludes consideration of
the power of advertisers. Structures of power are perceived
in relation to purposes. We can identify three structures, liberal, Marxist and Machiavellian. The liberal structure is the most benign, it’s the nicest story and most congruent with
neoclassical economic theory. It treats the state as a solution to the public goods problem. Peaceful coexistence in a state of nature is impossible because protection can’t be
guaranteed by private contract. So individuals enter
into a social contract, according to which they
renounced the right to self-help in return for the
protection of the sovereign. In short, the state comes into existence to provide the public good of protection. In the liberal theory, the state has a monopoly
of coercive power. Among its tasks is to ensure
the absence of power elsewhere. For example, the absence
of power in the market, it is the states duty as holder a monopoly holder of
power to prevent monopoly from arising in any of
the social institutions. We can see why the liberal
theory of the state is so congruent with the
neoclassical theory of the market. A second conception of the
state is the Marxist one, in which state power is the instrument and cloak for class domination. The state is simply the
executive arm of the bourgeoisie. It results from capital control
over the means of production and is designed to ensure its continued control over
the means of production. Mostly this is blunt power. Either workers accept a
capitalist determined wage or they starve to death. But agenda and ideological power is not lacking to reinforce blunt power. Control over the means of production includes control over
the production of ideas. Marx wrote, The ideas of the ruling class are in any epoch the ruling ideas. The ruling ideas are nothing
more than the ideal expression of the dominant material relationships that make the one class the ruling class. Therefore they are the ideas of dominance. I think most interesting
conception of power is the Machiavellian theory, which you could call the elitist theory. Here power is sought simply
for the enjoyment of its rents, not to protect any particular
system of rent extraction. Vilfredo Pareto, economist, sociologist, political scientist. What Marx envisaged as a
progressive social struggle for the control of power is simply the cynical struggle for power between incumbent
and opposition elites. The sole appreciable
result of most revolutions has been the replacement of one set of politicians by another. Socialism is a form of
false consciousness, it leads not to the
triumph of humanitarianism but the imposition of
another cage of bondage. Play the sheep, Pareto said,
and you will meet the butcher. How do economists treat power? Well of course economists recognize the potential for
monopoly power to develop in sections of the market. People of the same trade
seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. That is exactly the form in which economics understands a power, power in the market. Smith also recognized the
ability of business monopolies to influence government policy. So the Smith recipe was of course to diminish and liquidate any form of power in the marketplace which is why, “The Wealth of Nations”,
his great classic, was directed against all
forms of commercial monopoly and particularly the state monopolies created in the 18th century in order to gain control of foreign markets. Now this skepticism is healthy, but mainstream economists
avoid mentioning power, except in specific market contacts. Stiglitz writes, mainstream economists have
not only found concepts like exploitation and power to be useless in explaining
economic phenomena, but they worry about introducing such emotionally charged
words into the analysis. Mainstream economics neglect the role of power in the economy, except for monopoly power in the market. And how does power appear in the language of mainstream economists? Well it’s an imperfection. Keeping the market free from monopoly is of course part of the liberal
states protective function. But in treating the market system as a notionally self regulating
domain mainstream economics has to ignore the actual
structure of modern markets, in which big firms,
labor unions, sometimes, advertisers and governments
call most of the shots. Thus most economists minimize the problem of power in an economy, by confining it to a narrow category of business, the ability of
businesses to raise prices. And therefore profits above the optimal level. Well of course we then have oligopoly, a market dominated by a few large firms rather than just one. Each firm knows in an oligopoly, that pricing decision could provoke a reaction from the other. So they cooperate in fixing prices. And if they cooperate
of course conceptually they’re equivalent to a monopoly. It doesn’t even have to be overt. Firms can reach a kind of
tacit truce on a price strategy for fear of a retaliatory price war. Yet the cartel, although it’s an incredibly
important feature of actual market life, economic life, is studied without reference
to the power issue. It is assumed that sooner or later any cartel will break down, due to the economic incentives to cheat, and the producers will end up playing a competitive strategic game. The disintegration of the OPEC cartel has long been predicted, but after almost half a century it still exercises a significant influence over the price of oil. Neoclassical economics also ignores one other
very, very important fact, which is that under conditions
of monopoly or oligopoly, there is a greater potential for economic agents to
exercise political power. The constraints of perfect
competition stop agents from putting money into lobbying. Their profits are too low, and the benefits will be spread out. Under monopoly or oligopoly, profits will be higher and
gains are more concentrated. So cartels are certainly
in an excellent position to argue the case for
their own continuation. Now, the role of economics
in the power system, I think that is really interesting. Because it raises the question of ideas as a form of power. Keynes famously wrote, The ideal of economists
and political philosophers, both when they are right
and when they are wrong are more powerful than
is commonly understood. Indeed the world is ruled by little else. This is a wonderful homage to the power of ideas in the end it’s the ideas that are our ultimate
explanatory variables. Keynes is not just distinguishing here between ideas and vested interests, but also asserting the independence of ideas from such interest. Ideas, economic ideas in particular are treated by Keynes here as
objective sources of truth, not as part of the power system. Now what’s the argument
for the independence of economics from vested interests? Well the main argument is
that economic ideas are the products of the Academy,
not of business lobbies. Pure research has long been recognized as an independent intellectual pursuit, its hallmark is disinterestedness, its purpose is the search for truth. The pecuniary interest of scholars is not directly involved in either the direction of their
inquiry or its findings. One can argue further in Keynes’ spirit that the agenda of economics is set by economists not by vested interests. Its leading ideas are not at the mercy of power in any straightforward way. Once entrenched, economic
theory exhibits stability through time in its concepts, in its techniques and its language. And that’s what makes it very difficult To achieve paradigm shifts in economics. Finally practical people, politicians, businessmen
and civil servants are consumers and not producers of ideas. This gives the producers of
ideas considerable latitude vis-a-vis their users. Thus the Economist
justification of the free market is likely to be both more general and also more circumscribe than that offered by the business class. For example, economists have almost always opposed protectionism, but if even if we accept
as I think we must that ideas are an autonomous
source of authority, does that make them independent
of vested interests? I think not. The question arises why
are some ideas produced in the Academy considered acceptable, and others marginalized? The world may be ruled by ideas, but this doesn’t mean its
ruled by just any ideas. We still need to ask what
gives some economic ideas legs and cripples others. Well, in the natural sciences the answer is their
superior scientific quality. So for this reason quantum physics replaced classical physics. Reality is unchanging,
only the theory changes as it improves our
understanding of reality. That’s the scientific answer. But in social sciences
is this really true? The natural world does not interfere with one’s observation of
it as the social world does. Propositions in social sciences don’t satisfy the universality criteria. They can rarely be successfully
confirmed or falsified, except locally or briefly. What that suggests to
me is that in economics the scope for the intrusion
of ideology is much greater than in the natural sciences. It is therefore not irrelevant to ask who finances the institutions from which economic ideas spring? Who finances the dissemination
of ideas in popular form? Media think tanks. What are the incentives facing the producers, disseminators
and popularizers of ideas, even in a society in
which discussion is free, in which there is no overt censorship? The financing of economic research is mainly done by the
government and business. Even if we assume for the sake of argument that the government does not interfere with the content of research, and I think that’s becoming
increasingly doubtful, this can’t be said about business. Business is Keynes’ classic vested interest so we may ask, what is the interest of the business class in paying for economic research? Marx gave a clear answer. What else he wrote does
the history of ideas proof than that intellectual production changes in proportion as
material production is changed? The Marxist charge is
that the power holders in a capitalist society through their control over the media, the political and the educational systems are able to generate a flow of ideas, which induce a pattern
of working class behavior which suits them, but is contrary to the objective interests of the working class. Specifically these ideas cause workers to accept working arrangements, wages, debt contracts, lifestyles
and form of consumption which may be contrary
to their own interests. In this schema, the state is
without authority on its own, it’s only an agent if you
like of the business class. Bourgeois economics say the Marxists, serve the interests of
the capitalist class by disguising the true nature of things by means of scientific pretension. This causes people to think of it not as connected to ideological or politics, but with disinterested inquiry. Economics is the only social science which gets the Nobel Prize. It’s not really the Nobel Prize, but of course it’s always
called the Nobel Prize, being bracketed together
with the hard sciences. No Nobel Prize exists for history, political theory or sociology. Because they’re not really sciences. So so far, I’m going along
with the Marxist argument, but it’s not entirely true and that means the relationship
between power and ideas is not a simple base superstructure one. And I think the big flaw in the Marxist account of the relationship between ideas and vested interest, is that the base on
which the superstructure of ideas is supposed to be erected is far from being monolithic itself. In practice the business class is divided into conflicting interests between exporters and importers, between creditors and debtors, between finance and industry. We get the phenomenon in the United States of a business class whose
ideological hostility to the state is
continually being subverted by its reliance on state defense and research contracts for its prosperity. A key matter here is how power is divided, how balanced is the power structure between the state and
other vested interests? Between contending
political and social groups. Between capitalists and workers? The more even the balance is, the less likely one is to get
a single story from economics about the way the economy works. The more divided, the more balanced the political forces, the more pluralist the economics you get is likely to be. Since the end of the Second World War, and until the mid-70s, the balance of forces between
capital, labor and democracy were such as to enable a
policy of social compromise. However, in the last 40 years power has shifted decisively
from the old working class to those with superior
birth, wealth and education. And from the old business class to new financial elites. And from democracy to oligarchy. Why has this happened? I think that’s a big, big subject and we can maybe try to get a handle on it in the discussion. But for these reasons there’s never a one-to-one relationship between an economic argument and
a political argument. This gives economics together with the other social sciences, a relative autonomy from
political and economic forces. Wherein lies its authority. But this distance in the
Marxist view is only relative. But economic supports
the dominant power system not just by keeping topics like advertising off
its own research agenda, but by giving scientific support to positive political programs. As I’ve said, specific propositions
of mainstream economics include the following, the market system ensures that business leaders are paid no more, and workers no less
than what they’re worth. Globalization benefits even
those who lose their jobs. Government deficits in a slump make things worse than they would have been. Milton Friedman has
left a charmingly naive and no doubt deliberately
obfuscating account of the relationship between science and ideology in his own work. During my whole career I have considered myself
somewhat of a schizophrenic. On the one hand I was
interested in science, qua science, and I have tried, successfully I hope, not to let my ideological viewpoints contaminate my scientific work. On the other hand, I felt deeply concerned
with the course of events and I wanted to influence them so as to enhance human freedom. Luckily, these two aspects of my interests appear to me to be perfectly compatible.

1 thought on “8: Economics and Power

  1. Finally a sincere move towards truth, which is freeing in the end.
    Not much in absolute terms but huge compared to piles of garbage and spin we are surrounded with.

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