Core general principles of heterodox political economy

The Journal of Economic Analysis

YEAR 2012, VOLUME III, ISSUE I, PAGES 1-24

CORE GENERAL PRINCIPLES OF POLITICAL ECONOMY

PHILLIP ANTHONY O’HARA*

Curtin University

ABSTRACT: This paper examines the core general principles that I have been elaborating on in various forums and journals for the past 5-10 years. Soon this work will emerge as a book, Principles of Political Economy: Applied to Current World Problems. The main principles discussed here include (a) historical specificity, (b) heterogeneous agents and groups, (d) contradiction, (c) circular and cumulative causation, (e) risk and uncertainty, and (f) uneven development. (There are other principles; see O’Hara forthcoming.) These principles are used as core concepts and methodological tools with which to embed political economy problems and policies into the historical juncture, generating a social perspective of the role of human beings and other species, but including geography, in a holistic science of provisioning through protecting and regenerating community assets for present and future generations. Examples of how these principles may be used to examine specific problems such as financial crises, climate change, etc, are given throughout the paper. Ι. THE REVIVAL OF POLITICAL ECONOMY

Political economy has seen a revival since the 1960s when core groupings of scholars sought to develop a holistic social science to scrutinize the world’s major problems. The 1960s and 1970s saw the emergence of core problems that required a broad vision with which to examine the key processes involved. During this time the long boom of the postwar era was coming to an end, which led to a historical view of the boom and bust set within the context of the history of capitalism and its alternatives. The civil rights and feminist movements were set in further motion with the recognition that issues of ethnicity, class, gender and region are critical to real world problems. The core contradictions seemed to thus include class but also went beyond class as ethnicity and gender along with numerous other conflicting forces became more pronounced. The conflict between industry and finance came to the fore, as did core problems of labor migration regionally and from country to city. Numerous other opposing forces became more pronounced, such as between the environment and profit, state and capital, plus core and periphery. It soon became apparent that all problems in the political economy were complex, involving circular and cumulative forces of complexity and interaction. Holistic views of society became necessary as the interplay of multiple factors required a wider vision and a broader set of methodological tools.

* Received: October 14, 2011. Accepted: October 15, 2011. Email: [email protected]. An earlier version of this paper was presented at the Third Plenary Session of The Revival of Political Economy: Prospects for Sustainable Provision, Coimbra Conference 2010, Faculty of Economics, University of Coimbra, Portugal, 21-23 October 2010. I wish to thank many participants for comments.

THE JOURNAL OF ECONOMIC ANALYSIS (Vol. III, No. I)

P.G. Michaelides, National Technical University of Athens © 2012 Kindly hosted on-line:http://users.ntua.gr/jea

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These broad tools implied that the simple mathematics of risk may be relevant to narrow questions such as personal insurance but not investment, financial instruments and crises. A world of uncertainty requires broader tools of historical analysis, multiple causation and institutional inquiry. As the world became more interdependent it also became more urgent to take a global, regional, national and indeed sub-national view of the world’s problems. Core, periphery and semi-periphery analysis developed along the lines of hegemonic stability inquiry, imbalances of power, war and conflict and the struggle over resources. Political economy thus recognised the centrality of uneven development as nations and regions had differential access to corporate, political and social networks and value chains. The scope of political economy is thus broad as this method enabled it to examine a whole realm of problems from apparently narrow issues such as investment and consumption to wider ones such as financial instability and war. Political economy has re-emerged since the 1960s as a multifarious set of groupings and associations. Veblenians started to associate more intensely as they recognised the centrality of institutions, habits and instincts. Marxists broadened their horizon by linking class with ethnicity and gender as well as institutional inquiry into capitalist dynamics. Feminists developed a holistic view of the interconnections between gender, class and ethnicity along with nurturing labor and culture. Post-Keynesians built on the earlier work of Robinson, Kaldor and Kalecki when viewing investment cycles, endogenous money and financial instability. Social political economists transcended homo-economicus towards an understanding of the social individual along with the role of morals, ethics and trust. Environmental scholars sought to comprehend the second contradiction of capitalism, ecology versus profit, as they grappled with problems of climate change and ecological destruction. And international and development scholars deepened their view of the uneven forces impinging on hegemonic rise and fall along with core-periphery problems of differential growth, human development and power. Examining the relationship between these apparently different groupings is a complex task fraught with difficulties. The easiest road would be to argue that there are major differences between them and that while some limited interdependencies may exist essentially they are different schools of thought. But over the past twenty years especially various movements have appeared seeking closer links within and between the various schools. Numerous works have appeared exploring these relationships and seeking closer workings within and between the schools of thought. Some key names of people who have attempted to link most of these schools include Marc Lavoie, Fred Lee, Tony Lawson and Phil O’Hara. Lavoie (1994) sought to unify post-classical scholars through a technical analysis of aggregate demand, uncertainty and money. Fred Lee (2009) examined the social environment bringing these scholars closer together. Tony Lawson (2006) recognised a similar ontology of realism between the schools. And O’Hara (2007) sought to link the schools through a series of principles. My major theme is that there are a number of fusions linking the schools, while several strands seek to extend the individual schools into greater conceptual and empirical deepening. This combination of widening and deepening is a healthy development, since both specialisation and generalisation is crucial for extending research programs. The main differences between the four authors mentioned above seem to relate to international, environmental and development political economy. Lavoie and Lee tend to ignore these trends, while O’Hara and possibly Lawson try and link them into the prevailing political economy paradigm. Ultimately, though, a whole series of different works are necessary for further advancement in political economy. Latterly my speciality has been centring on core principles, since I believe that conceptual development is crucial to the further revival of the area of analysis.



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II. PRINCIPLE OF HISTORICAL SPECIFICITY

The core general principle of political economy is that of historical specificity. This principle states that every element of political economy needs to be embedded in the historical context of the issue at stake. History, in short, is the essence of political economy, since it situates core processes in phases, stages, metamorphoses and social context. Without history, political economy would be a mere formality, abstracting from the central human and ecological processes of change and motion. Real dynamics is the essence of change, and history expresses the sensuality of the human and ecological experience. Embedding political economy in real historical process is thus the key to situating all experiences. The first general issue is to situate all problems in an historical context. This means analysing all political economy problems in time and through social practice. For instance, the subprime crisis, climate change, AIDS, terrorism, growth and development all need to be related to the general as well as specific historical motion in which these problems emerged. The first requirement is to embed all problems in the long historical motion of time and space. The geographical, social and political space in which, for instance, long waves of change and motion have affected all political economy processes are a primary means by which to situate these problems. Long waves by no means need to be analysed deterministically in terms of rigid periodicities, amplitudes and endogenous regularities. On the contrary, the core thing is to express the complexity of space and time through history. Long waves are generally useful, as Schumpeter (1939) recognised, as a mere tool of analysis, helping to link core problems to changing circumstances. For instance, long waves can be expressed through the following general historical conjunctures, starting with the origins of industrial capitalism in the late 1700s and continuing on to the present in the world, regional, national and sub-national spaces of time: Table 1: Long Wave Eras and Forces, 1780s─2050s Long Wave Perodicity

Era LW Upswing LW Downswing

Industries

1.1780s-1840s Industrial revolution 1780s-1810s 1820s-1840s Textile, Iron & Steam Power,

2.1850s-1890s Large-scale Industry 1850s-1870s 1870s-1890s Steam Engine, Railways, Gold

3.1890s-1930s Finance Capital & Imperialism

1890s-1910s 1920s-1940s Electricity, Chemicals

4.1940s-2010s Global Fordism Flexible System & Neoliberalism

1940s-1970s 1970s-2010s Internal Combustion, Assembly Lines, Oil

5. 2010s - … Globalization, Information, Sustainability

2010s-2030s? 2030s-2050s? Electronics, Biotechnology, Environmental Technologies

These long waves provide an outline of the key forces that help to develop an historical analysis of socioeconomic systems through time and space. Institutions and technological systems are the prime requirements for long wave upswings. The first long wave (1780s-184os) was based around the political and industrial revolutions of France and Britain of the late 1700s and early 1800s. When these institutions underwent relative demise the growth and development rates declined into the 1820s through to the 1840s, leading to one of the most intense periods of revolution the world has ever seen. The gold discoveries of the 1850s in California and Australia set the scene



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for the next Kondratieff upswing, based around largescale industry in the key economies of the UK and the US. As overproduction and underconsumption developed into the 1870s the Great Global Depression (as it has been popularly called) emerged into the late 1800s throughout most of the world. The state and business responded to this socioeconomic demise through methods of realising the surplus and expanding markets by the deepening of international finance, accounting techniques, advertising, war and imperialism. This succeeded for a time, but the demise of British hegemony in the late 1880s saw an intense period of imperial over-reaches in the search for a new hegemon. Germany seemed to lose the battle in the first world war of 1914-1918, which unsettled the institutions and set in long wave downswing for the system. This eventually led to the roaring 1920s along with its speculative excesses, followed by the Great Depression of the 1930s. Long wave upswing gradually emerged for much of the world out of World War II (1939-1945), followed by the Long Boom of Global Fordism in the 1950s, 1960s and early-mid 1970s. But as the contradictions heightened within the institutions of business, state, family, finance and global economy during the 1970s, long wave downswing set in. While downswing affected most of the world during the 1970s-2010s, upswing developed in China and much of East Asia (plus several nations such as Chile, Botswana and Ireland, for a time). Core─periphery─semi-periphery (CPSP) uneven development is an important part of long wave motion. Many of the industries that came to the fore in the core nations awaited the next long wave upswing often in the lagging areas, often fifty years later. So while what Hobsbawn (1962) called the first phase of the industrial revolution affected Britain (through industry and markets) and France (science and technology) during the 1780s-1840s, this period was more renowned for the series of wars that reduced competition and led to Britain becoming hegemonic by 1815. During this period in many core nations various solutions were applied to turning the land into capitalist sectors. When large-scale industry developed in the UK in the mid-late 1800s, the industrial revolution of the previous UK wave started to emerge through much of the advanced world. The upswing of the late 1890s and early 1900s was much more synchronised, especially in core nations. And while Fordism became the dominant regime in the West during the 1940s-1970s, these assembly-line processes became the crux of the Chinese long wave upswing of the late 1970s-early 2000s, with crucial links to electronics. Many lags and uneven developments are thus crucial to the complexities of the long wave motion. Relating these long wave developments to recent decades, we need to establish some basic parameters for long wave dynamics. This is indicated in Table 2, below. Table 2: Long Wave Upswing, Downswing, Borderline, Short Waves: GDP Per Capita Jumbo

Long Wave Upswing [JLWU]

Major Long Wave Upswing [MLWU]

Long Wave Upswing [LWU]

Borderline [BL]

Long Wave Downswing [LWD]

Major Long Wave Downswing [MLWU]

Growth Rates

>6.01% for > 15 years

4.01-6.00% for >15 yrs

2.51-4.0% for >15 years

2.01-2.50% 1.01-2.00% for >15 Years

<1.01% for >15 years

According to this taxonomy, jumbo long wave upswing is characterised by at least 15 years of very high growth rates of above 6% per capita; major long wave upswing of above 4%; long wave upswing has below 4.01% but above 2.49% growth; borderline is shown by growth of 2.01-2.50%; long wave downswing between 1.01-2.00% growth; and major long wave downswing of below 1.01% growth.

Table 3, below, illustrates some of the more complex and uneven forces operating in the global, regional and national areas, using this model of long wave parameters:



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Table 3: GDP Per Capita Growth Rates, Areas and Nations, 1950-2005 1950-

1973 1973-2010

1970-79 1980-89 1990-99 2000-10 1990-2010 Long Wave Phase

*World 2.93 LWU

1.51 LWD

2.12 1.27 1.23 1.78 LWD

*Western Europe

4.06 MLWU

1.81 LWD

3.22 2.29 1.95 1.23 LWD

*United States

2.99 LWU

1.75 LWD

2.26 2.12 1.86 1.83 LWD

*Eastern Europe

3.82 LWU

2.43 BL 4.79 1.93 1.06 4.07 Mixed Results

*LACA 2.67 LWU

1.42 LWD

3.14 0.16 1.56 2.47 BL

*SSA 2.02 BL 0.29 MLWD

0.33 -0.76 -0.49 2.26 LWD

*MENA 4.73 MLWU

1.49 LWD

3.11 0.15 1.80 2.29 BL

*Asia 3.68 LWU

6.28 JLWU

4.03 6.06 6.78 7.18 JLWU

*China 2.95 LWU

7.93 JLWU

5.34 8.82 8.76 9.22∞ JLWU

*Japan 8.52 JLWU

2.22 BL 4.08 2.88 1.21 0.73 LWD

Source: Adapted from Bhimo Samudro (2011) LACA= Latin America/Caribbean; SSA = Sub-Saharan Africa; MENA = Middle East/North Africa. This table reveals that there is much complexity to the long wave motion, and that uniformities occur in some places but not others. The results show that there was jumbo long wave upswing during the 1950s-early 1970s in Japan only; major long wave upswing in Western Europe plus the Middle East and North Africa; normal long wave upswing for the World as a whole as well as for (in order of importance) Eastern Europe, Asia, USA, China, Asia, and Latin America and the Caribbean. The only region not to undergo any of the categories of long wave upswing during the 1950s-1970s was Sub-Saharan Africa.

During the 1970s-2000s, Asia and China escalated from normal long wave upswing to jumbo long wave upswing. During this period, most areas experienced (normal) long wave downswing (1.01-2.00%), such as the World, Western Europe, the USA, the Middle East and North Africa, plus Latin America and the Caribbean. Eastern Europe and Japan moved from upswing to borderline growth. Sub-Saharan Africa moved from borderline performance to major long wave downswing.

Then over the past two decades (1990s-2010s) normal long wave downswing continued for the World, Western Europe, and the USA. Japan evolved from borderline to long wave downswing. Eastern Europe moved from borderline to a very mixed performance, including major collapse followed by sharp growth and then crisis. LACA and MENA increased performance from long wave downswing to borderline positions as the debt crisis moderated somewhat, while SSA enhanced their growth from major downswing to downswing. This occurred while much of the World has been experiencing major financial instability and recession, the worst since the Great Depression of the 1930s. The complexity of long wave analysis is clearly seen when GDP per capita growth is compared with other global data, such as the Living Planet Index (LPI) and global social trust, in Table 4 below:



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Table 4: Real GDP Per Capita, Living Planet Index (LPI), and Social Trust, 1960s-2008 [LPI Components: TLPI, MLPI & FLPI. 1970=1000] Average Real Global

GDP Per Capita Growth Rate

Global LPI Global Social Trust

1960s 3.80 (1960-69) 1970s 2.12 (1970-79) 1000 (1970) n.a. 1980s 1.27 (1980-89) 987 (1980) 38.4 (1981) 1990s 1.23 (1990-99) 885 (1990) 34.6 (1990) 2000s∞ 1.51 (2000-10) 730 (2000) 24.3 (1995-97) Later-2000s 712 (2003) 23.3 (2005-07) % ∆ ─68.5% (1960-2010s) ─28.8% (1970-2003) ─39.3% (1981-2007)

Source: Adapted from World Bank (GDP) Samudro (2011); WWF (LPI) (2006, pp. 2, 4) WVS (Trust) (2010) * Note: These figures for trust are not directly comparable, since the number of nations rises through time. The data is indicative, though, of a trend that is to some degree real. These results show that for the global economy, long wave downswing has been ongoing since at least the 1970s, and moreso since the 1980s for real GDP per capita growth. Examining data for LPI and social trust illustrates that long wave downswing is also apparent in these areas, although the data doesn’t extend back as far as GDP does. Hence, long wave downswing is general for all areas of global economic, social and ecological performance. China and other nations recently experiencing long wave upswing in economic growth, however, seem to be undergoing downswing in environmental performance; although their levels of trust has kept relatively high. This example of historical specificity in motion is merely an introduction to the question of how political economies require historical context to their functioning (for more details see O’Hara 2006a, 2011). One can expand on this and apply many different types of historical inquiry, including institutional analysis of the corporation, state, finance, family and global economies; product cycles for major innovations and corporate developments; changes in relationships on the basis of class, gender, ethnicity and nation; plus a whole host of other areas such as patterns of conflict, war, unrest and financial instability. Business cycles linked to crises are also especially useful to complement the long wave analysis. III. PRINCIPLE OF HETEROGENOUS AGENTS AND INSTITUTIONS Political economy in recent decades has seen a modest change to its operational dynamics as structural factors have become moderated while the individual has come into the equation more than previously. Much of this work has been done by scholars such as John Davis, Geoff Hodgson, Samuel Bowles, Richard Wolff and others. Throughout most of the nineteenth and twentieth century, most Marxist, institutional and feminist scholars emphasised factors such as ‘society’, class, gender, race/ethnicity and nation. But from the 1960s onwards these factors came to play a more balanced role vis-a-vis the individual, while genetics came into view as well. Now one could say that structure and agency (including individual agency) both have a role to play in the political economy equation. This is a healthy sign, as clearly in a holistic interpretation one needs to include all the major factors for a full explanation of processes. As to why this is the case, several factors play a role. Thorstein Veblen (1899) specifically incorporated agency in his analysis, while still also emphasising the role of culture, class, gender and ethnicity. Keynes and Schumpeter always had a role for radical individuals and entrepreneurs, along with structural factors, in the course of history and innovation. The 1960s−1970s onwards revival of political economy has a core libertarian thread in its edifice as it sought freedom and a decline in alienation for the citizens of ‘the republic’. The role of public



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choice, Austrian, constitutional, rational choice Marxism and new institutionalist thought made scholars more aware of the role of the individual. No doubt also the negative role played by totalitarian leftist regimes such as Stalinism, and the libertine philosophy of the Mondragon Experiment had some effect. Empirical evidence to the effect that both structure and agency are important played a crucial role as well. If one were to summarise the general tenor of this new, more balanced view of the world that political economy seems to be experiencing, then Figure 1 would likely look close to the mark:

Figure 1: Structure and Agency in Political Economy This new view of the influence of factors shows the interdependency between major structures and agencies. The individual exists within a social setting of biology (including the gene pool), from which his or her traits are drawn. These traits set a potential and often a structure of characteristics for the individual. But the individual also operates with an institutional setting, which usually includes the family, friends, tribe, community, polity, schools and health systems. The individual and also the institutions are inbued with differential impacts of class, gender and ethnicity. All these factors are set within the framework of geographical space, terrain, resources and ecological environment. The myriad of influences are interdependent while the precise impact of each depends upon situational factors. Historical influences, contradictions and chance will also impact on the outcomes that emerge and evolve through time. Institutional factors are crucial to this makeup, especially through the role of habits that individuals, families and groups develop through time. The environment in which people are brought up influence their behaviour through a whole series of influences. In this environment, certain norms and mores operate with varying levels of rewards and sanctions. Families will play a role, depending on the personality of the agents and the influence they have on children and other members. Educational institutions will impact through learning, methods of subordination and the role of personality. Class, gender and ethnicity impact on the process through varying levels of opportunity, resources, capabilities and tacit knowledge. The geography will have an impact as individuals and groups learn to adapt to situational matrices, other animals, plants and space. Individuals are especially able to develop certain habits of behaviour and thought that influence most of their lives. This complex array of structure and agency is not deterministic as every dimension plays a role, from individuals to biological structures, institutions, culture, geography, class, gender and ethnicity. The factors allow a complex interplay of outcomes and processes to impinge on individuals and structures. Individuals may be able to transcend the structures of geography, institutions and class to varying degrees depending on their circumstances and capabilities (which are affected by the structures). But individuals may also be heavily circumscribed by their structure if the array of factors fails to allow them to generate a degree of creative self-direction. Individuals who are especially likely not to stray from their structures are those affected much by a multitude of such forces simultaneously. For instance, those born into an environment of



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lumpen-class factors, female gender, minority ethnicity, peripheral power, minimal environmental space and circumscribed gene set are less likely to develop into self-actualising people. On the other hand, those born into families with many resources, progressive education, elaborate resource choices, superior gene set and positive environment are more likely to develop as creative and proactive human beings. The crucial thing in modern political economy is for one to see all these multifarious forces at work, recognising the complex interplay of structure and agency, and not ignoring any of the major factors such as class, gender, ethnicity, institutions, habits, biology and potential individuality. No doubt Marxists still emphasize class, feminists gender, institutionalists institutions, post-Keynesians aggregate demand, social economists trust and ethics, and so on. But there is evidence from many sources of a blurring of these distinctions as radical political economists, feminists, social economists and institutionalists have been variously interfacing institutions with gender/class/ethnicity; rethinking Marxists realise that class and other categories are simply “entry points” into discourse which do not negate the importance of other factors; while Schumpeterians often merge with regulation scholars in connecting class, institutions and technology. Creative mutations, innovations and converges have been ongoing in political economy, especially over recent decades. IV. PRINCIPLE OF CIRCULAR AND CUMULATIVE CAUSATION

The principle of circular and cumulative causation (CCC) complements the principle of contradiction since CCC recognises how movement often tends to be self-reinforcing while contradiction embeds trade-offs and crises into its operational dynamics (Berger 2009). One without the other often leads to a one-sided political economy which is either obsessed with the problems or with the positives of the system. It is for this reason that David Gordon (1991) said that Nicholas Kaldor’s system of CCC had too much cumulative and not enough contradiction. CCC thus needs to be embedded with contradictions, as Gunnar Myrdal (1968) realised with his system of CCC when he included the oft-common problem of backwash effects and cumulative forces leading downwards. This can also occur in a Kaldorian system when investment dampens due to problematical effective demand and other factors. The roots of CCC go back to many scholars, most who didn’t recognise the principle. But for those who did specifically examine CCC, Wicksell linked it to monetary theory, Veblen to institutional analysis, Alan Young to industrial transformation, Myrdal to money, African Americans and development in Asia, while Kaldor applied it to industrial macro and regional economics. Recently an array of political economists have realised its importance, and Sebastein Berger (2009) has edited a book with the sub-title of The Principle of Circular and Cumulative Causation. In this work are studies of the concept linked to increasing returns, public policy, development, heterodox economics, social matrices, ecological economics and money. CCC is now well-established in the conceptual and policy concerns of political economy. When CCC is linked to contradictory processes set in historical time the nature of change becomes complex and evolutionary. No end point is reached as blind drift sets in as the cultural fabric rolls through several phases of metamorphosis. This is essentially how CCC should be viewed. One can develop deterministic models of CCC but they are unlikely to illustrate evolution as historical process changes. In this context, Veblen and Myrdal’s analyses of CCC are social and cultural, and even industrial metamorphosis is required to be set in this complex, qualitative style of change. The reason for this is that as circular forces are injected with cumulative change, eventually contradictory factors emerge and evolution sets in blind drift through multi-causal complexity. This can be seen through the recent history of heterodox political economy since the 1960s, drawing attention to the CCC effects, contradictions and evolutionary blind drift. Trying to comprehend the historical development of heterodox political economy (HPE) out of the diverse schools of thought that re-emerged during the 1960s and 1970s requires an understanding of CCC. But CCC is really part of a wider sphere of emergence theory, complexity



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and evolutionary analysis. The whole being greater than the sum of the parts, due to HPE being a qualitative leap from the interaction between the schools, is an important part of the process. Emergence comes from having open systems that are flexible, where the interaction between parts is complex and generally non-linear in form, and where positive feedbacks can be linked to damped conditions, both of which have their own motion. We are interested in the process of reproduction of HPE through a whole series of complex networks and human interactions. When there is coevolution between schools and sub-schools mutual adaptation evolves through time. A series of accords and agreements often emerge when they are mutually adapted (Heylighen 2008). The synergistic interaction between political economy agents results in some degree of coordinated network neighbourhood effects such as core general principles, theoretical coherence, and global dynamics. The complex networks between the schools of PE thereby stimulate evolutionary transformation through novel mutations of general (heterodox) political economy. The process whereby the mutation of HPE has been created is summarised below:

Figure 2: Reproduction of Heterodox Political Economy Here we start with political economy re-emerging into the 1960s-1970s. The postwar boom set in motion changes that impacted on economics. New problems and processes emerged, such as the long wave upswing and then downswing, the civil rights movement, wars and military spending, issues of discrimination, pollution, workplace relations, distribution of income and wealth, crime and injustice. In this new context, many felt that the existing body of theory and empirics failed to adequately address these social and political issues in an economic context. Hence existing political economies, drawing from Marx, Veblen, Keynes, Gilman, Schumpeter and others began to link with these new problems, resulting in new groupings of scholars. These groupings tended to identify themselves as being variously institutionalists, radicals, feminists, post Keynesians, development scholars, ecologists and social economists. They developed their own special organisations and journals, started to craft new courses, thesis topics and departmental groupings. In the process they mixed old and new ideas, experimented with new methods, engaged in trial and error, confronted major problems and issues. Old ideas were reinforced, new ones emerged, network linkages became established, and research programs broadened.



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As these various processes were reproduced through several rounds of practical labor and work, several scholars began to engage in creative reflection on concepts and principles. While a large number of scholars kept with established ideas and methods, some began to have associations that stimulated creative synergies and networks between scholars in different places and new organisations. Radical institutionalists emerged, basing themselves around Bill Dugger, Ron Stanfield and Rick Tilman, with dozens of scholars gaining from the interaction. These people saw synergistic benefits from linking Marxian and Veblenian themes, and much later they went beyond this to further networks and ideas. Social structure of accumulation and mode of regulation scholars emerged that linked Marxian ideas with institutions and technologies to examine the instable growth and development trajectory of capitalism. Marxist-feminists began to examine capitalism through the lens of patriarchal dominance and the link between class, gender and ethnicity, Post Keynesian institutionalists saw the advantage of linking the ideas of Hyman Minsky, J.K. Galbriath, Michel Kalecki and others to Veblenian themes of institutions, financial instability and conspicuous consumption. Radical post-Keynesians also began to associate closely with Marxians as they saw that class, accumulation and capital were core themes in any political economy worth of its salt. Through time further synergies were developed as institutionalists started talking with feminists, development scholars associated with many groupings, international political economists came into the picture, and social economists started to impact on the process. ICAPE emerged in an attempt to link these scholars together. The Encyclopedia of Political Economy (O’Hara 2001) had a caste of hundreds from all the major strands of political economy, seeking to build bridges where possible. The various associations started to have joint sessions at conferences, while many authors started writing with others previously of a different tinge. Associations of heterodox economists sprouted up in many nations. Numerous general texts in political economy came into publication. Fred Lee started his newsletter as well as his articles on the history and nature of heterodoxy. New problems emerged that required new ideas and bigger concepts, such as neoliberalism, globalisation, financial crises, the rising power of Asia, climate change, innovations began to deepen in electronic media, biotechnology and transport. Through time, many political economists realised there was still much useful activity from specialisation, but that numerous advantages could be gained from convergence between schools. More scholars saw themselves as simply (heterodox) political economists or heterodox economists. They realised their ideas depended on creative synergies associated with core principles such as uncertainty, cumulative change, historical time, contradictions, heterogeneous agents, institutions and norms, plus gender, class and ethnicity. A number of such scholars had a concern for ontology and argued that realism was the core issue. While links were kept with their usual colleagues, a mutation or metamorphosis was occurring as heterodox political economy grew in stature and position as a holistic science of society. V. PRINCIPLE OF CONTRADICTION

It seems that everywhere in political economy, scholars are talking and writing about “contradictions”, especially in radical political economy, but also to some degree in institutional and post-Keynesian discourse, and even the work in New Political Economy and Feminist Economics. Usually they discuss contradictions as involving problematical conflicts and opposing forces in the institutions, between classes or within situations. They are not logical contradictions, but rather oppositional ones that are capable of promoting problematical reproduction, growth, performance and welfare. The most well known include the contradictions within the institutions (in social structure of accumulation work), and these are closely linked to Claus Offe’s work on the contradictions of the welfare state, and the Regulation School contradictions of Fordism or the Flexible System of Production. Of course the well known contradictions between classes, genders and ethnic groups are established problems in political economy. Schumpeter was interested in the contradictions of capitalism between its revolutionary



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force and the trend to institutionalised rent-seeking or monopolisation (which supposedly introduced a degree of stability), and Marx, Veblen and Keynes (as well as Minsky and others) were well versed about the contradictions between industry and finance that can manifest themselves in booms and financial crises. Work of spatial political economists saw the contradictions of rural verses urban processes, while the environmentalists were especially interested in those between profit and the environment (or between durable fixed capital and ecological capital). Surprisingly no political economist (except O’Hara 2006b, 2007, 2008, 2009) has bothered to examine these contradictions in any detail and to trace out their theoretical and applied implications and terrain. My favourite work on contradiction, which elaborates somewhat on its nature and social importance, is that of Mao Tse Tung (1937). He sought to scrutinise the importance of the term and its processes in a way that communicated well with readers and emphasised practical examples of the workings of contradictions. Noone else that I know has attempted such as task, although Paul Diesing (1999) wrote a very nice book where he applied the idea to real world problems such as oligopoly and competition. However, the term itself in Diesing’s book is hardly ever used and is not in the contents page or index. Hundreds of authors have discussed the notion of contradiction as part of dialectical and historical materialism, but this is usually discussed in such vague and abstract ways as not to be of much significance to practical issues in political economy (perhaps surprisingly). Hence, in political economy I am the only person to have developed the concept in any depth and applied it to issues such as AIDS, terrorism, subprime crisis, climate change and the re-emergence of political economy itself. It find this to be a surprising state of affairs, but such is the case. In an attempt to explain the basic nature of the principle I have come to see it as comprising three things. The first relates to certain opportunity costs which play a significant role in the emergence of socioeconomic problems. These are hence not simply any opportunity costs, but ones of critical significance for society, economy, polity and even psychology. Secondly, these processes are usually associated with the movement of cycles and waves, as the contradictions usually assist both the boom and the crisis in short, medium and long time scales. Thirdly, they are real processes, ones that impinge on people, other species and the natural world; they are practical rather than abstract. This is likely the reason why Diesing argued that dialectics needs to be applied for it to be easily grasped; it is not an abstract logic, but a relational system of thinking and understanding. In this practical sense, the following processes are linked to the most important contradictions of the political economy, as shown in Table 5: Table 5: The Dominant Contradictions of Capitalism

Contradiction

Capital─ Labor

Industry─ Finance

Monopoly─ Competition

Human─ Ecology

State─ Capital

Core-Periphery

Men-Women

Tribe─ Tribe

Main Concern

Dominant Classes

Capitalists v. Bankers

Market Concentration

Business K v. Ecological K.

Public Goods v. Private Goods

Hegemonic Power

Gender Power

Ethnic Power

Distribution Profit-Wages

Profit v. Interest

Profit v. Rent Profit, Wages v. Life

Govt Spend v. Profit

Surplus Production & Distribution

Wages v. Household Work

Land, Resources

Other Factors Work Conditions

Credit and Investment

Stability v. Instability

Climate Change

Education, health, infrastructure

Movement of Labor

Caring labour

Trust & sociality

These contradictions involve, as mentioned, various opportunity costs that impinge potentially greatly on the nature and performance of the socioeconomic, political and psychological makeup of individuals, institutions and systems. The opportunity costs can be viewed as shown in Figure 3, below. These examples of two of the contradictions provide some idea of how the processes work



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in practice. The other contradictions can easily be incorporated into these patterns, with similar results, but ones peculiar to the specific patterns at work. In diagram 1, each of the elements of the contradiction are represented on the axes (e.g., capital v. Labor; industry v. Finance). The distribution of resources are shown by the alternative bars shooting out at 20 degrees (XY) and 70 degrees (XZ), or a more balanced 45◦ position shown by the dotted bar (------) (XW), respectively. The social wealth bar represents the distribution of financial resources (economic surplus) from (eg) capital to labor (or visa-versa) or finance to business. These are bars because the economy is somewhat indeterminate due to uncertainty and the difficulty of gaining specific information. The economy works relatively well within the normal areas of reproduction bounded by the two crisis bars. But if the economy reaches either of the bars a crisis tends to ensure. In fact, the deeper into the specific bar in question the economy moves the deeper the crisis.

Figure 3a: Contradiction between Capital & Labor

Figure 3b: Contradiction between Business & Finance

In relation to the contradiction between capital and labor, for instance in Fig 3(a), if capital becomes too powerful relative to labor then we are likely to see a tendency towards structural crises (eg around area Z), such that the economy moves down this crisis bar to possibly area “A”, and the social wealth may also decline commensurate with area “A”. This is because the profit share of GDP is too high relative to the wages share, and insufficient demand is likely to upset the system. An example could be the Great Depression of the 1930s. On the other hand, if workers are too powerful relative to capital, we are also likely to see a tendency to crises, as the economy moves towards area “Y”, and perhaps a movement downwards to “B”. This is because profits are too low, thus reducing investment and GDP. An example may be the structural crises beginning in the early-mid 1970s in advanced capitalist economies. A similar process occurs when industry is too strong relative to finance, or visa-versa. For instance, if resources move from a balanced position such as “W” in 3(b) to “Y”, then a period of structural crises have a tendency to emerge. The economy thus moves from area “Y” to “B” as the crisis sets in. An example would be the 1870s─1890s during the Great Contraction as it was popularly called (for the world economy) as overproduction set in. Business and the state responded to this structural crisis through efforts to enhance circulation and profit, such as the deepening of international finance, accounting techniques, mergers and acquisitions, imperial adventures overseas and stock market advances. This moved the economy into relative balance, near “W” during the two decades after 1896, but arguably as the 1900s moved in the 1920s and 1930s finance gained too much momentum, resulting in financial dominance of industry, and the movement to area “Z”, followed by a crisis at area “A”. This crisis was also arguably influenced by the associated movement, shown in 3(a), to capital being much stronger than labor. Thus we saw the dominance of finance and capital, resulting in a two-pronged crisis of the 1930s. Some of the other contradictions also impacted. The economy of course is being affected by all the contradictory opportunity costs at all times. Thus every phase and stage of the socioeconomic environment is being affected by these complex and multiple processes. Only a holistic study of political economy can seriously engage

Labor

Social Wealth

X

Y

W

Crisis

Crisis

Social Wealth

X

Y

W

Crisis

Crisis

Z Z Finance Capital



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the real movement of the system through specific temporal and spatial dynamics. For instance, the subprime crisis and the climate change predicament involve all the contradictions in varying levels of conflict and instability. We can briefly see this vis-a-vis the subprime crisis, for instance. The proximate cause of the subprime crisis links to the contradiction between industry and finance. A movement of resources from industrial profit to finance led to heightened debt, increasing growth of subprime mortgage bonds, collateralised debt obligations and credit default swaps. This expansion of finance was also linked to the relative demise of industry in the advanced nations as economic power moves from the core to the semi-periphery (eg, Asia) as services expand in the core nations. The average and marginal rate of return is higher in finance than industry hence the movement in that direction for the core nations. This of course is linked to the decline in Fordism and the rise in the flexible system and financial deregulation. In terms of Figure 3(b), it represents a movement from “W” in the 1950s to 1970s, cyclically back and forwards into region “Z”, and as recession sets in to region “A”. Attempts at more regulation, including lender of last resort, fiscal policy, prudential functions and conservatorships (nationalisations) may push the economy somewhat back into the normal regions of reproduction away from the crisis bar. The subprime crisis is also affected by the other contradictions, to varying degrees. The contradiction between capital and labor is relevant here as relatively low wages (in an era when industrial capital requires greater profit, which is difficult to sustain) generates higher debt and hence greater financial instability. The decline in the capital-labor accord of the 1950s-1970s is thus important as no sustainable institutions are currently operational in the core nations to promote capital-labor accord. We also see the contradiction between monopoly and competition at work as the advanced economies see higher levels of competition (especially from the emerging nations of Asia), which reduces profit for industry (a series of mergers and acquisitions notwithstanding; especially in finance). These problematic processes also impact on the human-ecology tradeoffs, as lower profit places a strain on ecological resources and climate change. State-capital opportunity costs are also impacted as deregulation saw a movement towards business away from the state, while the crisis-response moved the economy the other way. Core-periphery is important as the whole problem is closely linked with the movement of resources and economic activity towards Asia and away from the core nations. Tribe-tribe or ethnic-ethnic relations are similarly affected as subprime borrowers were mostly minority groups such as African Americans and Latinos, while the financial institutions affected were mostly controlled by Anglo-Saxons. I couldn’t properly understand the serious problems and process involved in global, regional, national and sub-national political economy problems without the principle of contradiction. Seemingly many others are of a similar persuasion even if they mention contradictions without going into any real detail about them. It is thus a core principle of political economy and needs to be developed much more than it has been. VI. PRINCIPLE OF RISK AND UNCERTAINTY

In political economy, all the major schools of thought have written to some degree about this subject. Post Keynesians of course have been at the forefront, since Keynes put it in the centre of his analysis, but for Marx and Schumpeter capitalism was always seen as an inherently unstable and hence uncertain system, and for Veblen institutions and habits were the main focus of attempts to stabilise it. Risk is where the potential instability and default are easily accessible through mathematical models of fragility of individual institutions based on regularities, probabilities and likelihoods. Uncertainty, on the other hand, is where one is concerned with the future, and often when the whole system is at stake. These holistic concerns are difficult to model since they involve (a) linkages between institutions, (b) the environment as a whole, (c) future profit and prospective yield, and (d) the system of culture, habit and organisation. As such they concern “emergence”, including holistic process, non-linear relationships, non-equilibrium processes, evolutionary transformations and long-term trends and tendencies.



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The complexities linking to uncertainty demonstrate that individuals and micro structures contribute to but cannot be reduced to the system-level. The system-level generates holistic processes such as climate change and financial crises which are often at odds with what is happening at the individual level. Financial crises demonstrate that while during a boom in the cycle the credit rating institutions usually assume that risk is declining, a study of systemic risk shows that it tends to rise during the boom. Only really during the most recent crisis, the so-called subprime crisis, has this concept moved from heterodox circles to the mainstream, being recognised as a most pressing problem by the Financial Stability Board and the Basle III system. So while at the individual level analysts tended to both assume and demonstrate mathematically that risk declines during the upswing and boom (eg 2003 to 2006), political economists such as Hyman Minsky (1982), Michel Kalecki (1969) and Marty Wolfson (1994), have simply developed the point well known among political economists, that systemic risk rises during these times. As a result, financial crises tend to occur because the individual institutions are dependent upon problematic individual ratings while instability and crisis is increasingly on the horizon. One can examine these crises at the concrete, proximate and general levels (O’Hara 1978). At the general level, an understanding of uncertainty and crisis can be enhanced through the emphasis on historical context, circular and cumulative forces, heterogeneous agents and financial innovation, uncertainty and risk, contradictions and uneven development (O’Hara 2009a). At the proximate level, the current crisis, for instance, can be understand vis-à-vis broad problems such as the (a) increasing levels of debt divided by GDP in most advanced nations, (b) escalating global current account and capital account imbalances, (c) expansion of asset price bubbles, and (d) relative industrial maturation of the major economies and the rise in services. As I have explained the general factors in another paper, let me say something here about the proximate factors helping to explain the crisis. The first proximate factor is the rising ratio of debt to GDP, especially through the major industrial economies. This debt, much of which recently especially is from households, but also a lot from corporations buying securitised instruments, is what one might call a standard factor in political economy. The major financial crisis experts have been discussing this for decades, and it is a crucial factor to consider in systemic risk, where the system as a whole is engaging in more problematic ventures. As Minsky (1982) showed, the rising debt is linked to expanding prospective yield relative to supply price, as the euphoria of the boom enhances the ability of agents to take more risks and engage in more fraudulent activities. Empirical work on this has been well developed, especially for the subprime crisis, where the debt provides a foundation for the evolution of financial aggregates moving from hedge to speculative to Ponzi finance. Here it is important to include households as well as firms in the debt process (Susan Schroeder 2009). The second proximate factor is the rising tendency of global imbalances, especially the combined current account deficits and capital account surpluses. These imbalances form the basis for increasing problems in the global economy between the economies moving up the semi-peripheral scales and the core economies drawing capital in to balance their current account deficits. The reason this factor enhances systemic risk is that we have a movement of debt (portfolio and “other”) moving across frontiers to the core economies while the expanding semi-periphery takes a share of the financial derivatives. This enabled the financial securities to grow in velocity and thus finance the movement from boom to crash, ever while the quality of instruments is declining. This differential between financial velocity and quality is a core contradiction of the process whereby the subprime crisis grew and crossed borders to other economies in the crisis. In the political economy literature, writers such as Paul Davidson (2004), Joseph Helevi & Peter Kriesler (2002), Stephan Schulmeister (2000) and Bill Lucarelli (2008) have variously been drawing attention to these problems for quite a while now. The third proximate cause of the crisis expanding uncertainty and instability is the growing asset bubbles. In a CCC process, the declining interest rates, expanding financial innovations, general euphoria and boom, provides the environmental conditions whereby shares, derivatives and housing prices could expand relative to productivity, long term dividends and long-term growth. Expanding demand for these speculative sector assets was an important part of



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the process of uncertainty about the future. Future real asset prices for industrial commodities were on the decline, and the rising prices of financial instruments enabled the economy to misallocate funds from productive to unproductive sectors. When the real economy has less potential then finance can often take up the slack and grow in importance as uncertainty rises and crisis looms on the horizon. This of course is linked to the fourth proximate factor enhancing uncertainty and crisis: the relative demise and industrial maturation of the core nations while the semi-periphery expands and industrially grows into the future. The crisis was therefore not a global one as such, but rather centred mostly on the industrial nations of Europe, America and Oceania. Those nations heavily built recently on services and finance have been undergoing maturity and demise while the nations especially of Asia such as China have been on the rise. These core─periphery─semi-periphery tendencies are central to any problem in political economy. Below we expand on this principle of uneven development, especially as it applies to the climate change problem. VII. PRINCIPLE OF UNEVEN DEVELOPMENT

Political economy has always been concerned with the global, regional, national and indeed subnational performance of economies. As we saw above, long waves and cycles impact on all economies, with some performing better than others, while hegemonic trends evolve through time. The work of Veblen, Schumpeter, Paul Baran, Andre Gunder Frank, Immanuel Wallerstein, Samir Amin, Amitava Krishna Dutt, Neil Smith, David Harvey, and numerous others examine these uneven forces in the world economy. Core-periphery analysis has become an established field, with production networks, commodity chains and the spread of industry policy impacting on many areas. While convergence may arise from time to time, it is the uneven forces that are more crucial in the global economy. The spread of Dutch hegemony in the 1700s gave way to British hegemony in the 1800s, to be followed by American hegemony in the 1900s, and possibly Chinese hegemony in the later 2000s. Wallerstein saw this relative to the spread of absolute dominance, while other hegemony theories are more interested in marginal power differentials. In the Wallersteinian trend, hegemony is a product of commercial, financial and production dominance, which tend to generate military power and territorial spread. The military power tends to diminish once the economic control can no longer finance the military infrastructure and personnel required for absolute power. This is indeed the situation he finds the US in since the 1970s, for even in the light of the diminished Soviet threat the US finds it increasingly hard to contain forces in the Middle East, Latin America, Africa and Asia. Even forces without national power bases, such as Al Queda, are able to effectively challenge US power. The various models and perspectives on core─periphery─semi-periphery (CPSP) are crucial to uneven development. See Figure 4, below.

Figure 4: Model of Core, Periphery and Semi-Periphery

This model of CPSP is useful for scrutinising the ability of regions to enhance their position in the global power stakes. Especially important is the movement from periphery to semi-periphery and then from semi-periphery to core. The analysis can be applied to any level and to any subject,

Periphery

Semi-Periphery

Core



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including the local, regional, continental and global dimensions. The main factors affecting the state of geographical areas in the CPSP dynamics are imperial and neo-colonial activities and structures; the ability to generate classes of agents to produce, realise and regenerate economic surplus; the nature and quality of production chains and commodity networks developed in the specific regions; the quality of the policy and governance institutions in developing dynamic and progressive social practices; the use of industry policy to develop a complex and multi-tiered structure 0f primary, secondary and tertiary sectors that are relatively articulated; and the buildup of human capital, trust, community and participatory schemes. This is a complex array of systems-making CPSP dynamics notably troublesome for those unable to move beyond the ceiling of the periphery into the semi-periphery, or the moderate semi-periphery into the core.

Some of the factors that link to imperial and neo-colonial factors include the development of artificial boundaries for nations and regions which generate barriers and disaffections between ethnic groups and classes. Another links to the type of elites developed by imperial nations, especially when they put into power ethnic groups that are minorities, often causing trouble, especially when political independence emerges and the majority finally takes power. A further crucial factor is the common practice of imperial powers and business interests using the domestic population as a mere army to develop resources and infrastructure, without properly stimulating human and political capital for development. These measures often lead to underdeveloped structures of commodity chains and production networks along with social and political structures. The current process of climate change is one area especially troublesome in the periphery. Here the process of unequal exchange regularly leads to the movement of potential and actual labor values and economic surplus from the periphery to the core and semi-periphery and from semi-periphery to the core. The more powerful nations and elites are able to extract resources and labor effort from the periphery to their own benefit. This is done partly through the establishment of more competitive industries in the periphery which tend to have lower prices, such as agriculture and mining; thereby moving to the core and semi-periphery as inputs into industrial activities and consumption. The more powerful areas are thus able to import trees, minerals and fertilisers which denude whole areas of the periphery and generate soil erosion. The low prices for these imports usually produce low wages for labor in the periphery and insufficient human capital acquisition. This saves the core from excess pollution and ecological destruction and thereby acts as a powerful factor against development in the periphery. A related factor inhibiting development in the periphery is that climate change is affecting them much more than the areas of the core. Some empirical dimensions of this uneven development and asymmetric climate change impacts are mentioned in the IPCC (2007b), Stern Review (2007: ch 1) and the UNDP (2007: ch 2) reports. The UNDP report (especially) emphasises that the ‘less developed nations’ will be relatively less able to cope with problems of rising sea levels and major climate catastrophes. They are said to lack the resources that the advanced capitalist nations have to respond to such problems. They are also more severely subject to climate catastrophes and excesses than the advanced nations. The severest forms of climate change are emerging, and will continue to emerge at a faster rate in and around the tropics and sub-tropics (along with high latitudes). Less developed nations tend to be concentrated in these areas, and are thus impacted by climate crises in a manner inversely related to their relative contribution to greenhouse gas accumulation (compared with industrial nations).

This uneven impact has been ongoing as the populations of ‘developing countries’ have been affected by climate disasters between 42 times and 114 times more than that of ‘developed’ nations, generally increasing through time. The types of climate disasters becoming more common in developing nations include (a) variable and uncertain rainfall (drought and flooding), (b) many more deaths for females than males, (c) risks being transformed into vulnerabilities as insurance cover deteriorates, and (d) cyclones and hurricanes. These problems especially adversely impact on developing nations since they are most dependent upon agriculture for their existence, tend to exist in the tropics and sub-tropics, and have far lower levels of social insurance.



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O’Hara (2009) shows that in the developing areas there are fewer resources to adapt through dikes and other means of (for instance) physically reducing the impact of rising sea levels; and they are affected far out of proportion to their contribution to climate change. These factors, the UNDP Report (2007:ch2) recognises, are going to continue to adversely impact on their relative and absolute levels of human development. Major climate impacts will retard health infrastructure, increase the incidence of diseases such as Malaria, and reduce levels of government finance for education and nation-building. In essence, this is a problem of circular and cumulative causation, since less human development leads to even less human development, sometimes in unpredictable ways. In the future this impact will get worse, as Cline (2007) shows, since while most areas of the world will get much hotter, it is primarily the ‘developing’ areas in the tropics and sub-tropics which will have much less precipitation as well, generating low agricultural output.

However, the climate change reports mentioned have not adequately explored the extent to which these contradictory core-periphery forces are structurally related. (They are also relatively indifferent to the fate of non-human species.) In discussing ‘developing’ and ‘developed’ areas the reports fail to recognise the strong network, power and corporate relationships that link varying degrees of underdevelopment of the periphery and overdevelopment of the core, with differential results in the semi-periphery. The core nations are the most powerful, the periphery includes the weakest, while the semi-periphery has intermediate power relative to the rest. There are strong connections between the social and environmental costs being felt in the periphery and the relatively lower costs born by the core. To comprehend these relationships we need to situate climate change and environmental destruction within the global circular treadmill of production which generates ecologically unequal forms of exchange, several forms of metabolic rift, plus serious injustices and social costs.

As Foster (2000, 2009) has argued, Marx used this notion of metabolic rift based on his research which drew on various forms of exploitation emanating from the social and spatial unevenness of its motion. One element of metabolic rift is the recognition that the generation of wealth and use value is dependent upon the creative exploitation of labor power through transforming it into labor exertion in the production and reproduction of goods and services. Metabolic rift also applies to capital gaining material resources from the periphery for use in the core. Here there is a continual process of exploiting soil, energy and resources from the countryside and producing capital and consumer goods in the towns and cities. This transfer of materials and energy tends to develop the core while it exhausts the periphery through soil degradation, exhaustion of minerals and energy, biomass depletion of fish, cattle and wildlife, and modification of climate. Soil degradation of the countryside is inextricably linked to the pollution of the towns and cities, the extraction of scarce natural fertilisers in the periphery is necessary for replenishment of soils in the core, and the importation of cheap natural resources and food from the periphery has historically enhanced the industrial development of the core. The metabolic rift of dead and deteriorating workers when the reserve army is high is analytically similar to the degradation of the soil and terrain for the benefit of imperial countries, which constitutes the transfer of high-quality energy and materials from the periphery to the industrial centres of the core and semi-periphery. In short, the uneven global and regional impact of climate change and ecological destruction is structurally linked to the accumulation requirements of powerful business interests, and without these critical social and ecological costs, accumulation and profit would likely cease to operate as required (see Hornborg 2006). VIII. PRINCIPLES OF POLICY AND GOVERNANCE

Political economy principles have a number of clear messages for policy and governance. The first principle of policy is one which recently has come to the fore in policy circles in general, namely, that policy and governance is endogenously linked to the very processes it is supposed to analyse and solve. This is the case with all institutions. But it is often not sufficiently recognised, and it poses some quite severe limits on the ability of governance institutions to rectify problems. The



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most obvious one that comes to mind is that policy-making institutions are closely linked with the vested interests, whether they are business, finance capital, unions, families, or indeed individuals. Veblen emphasised this problem throughout all his major works, but his clear heterodoxy was to recognise a multitude of vested interests, including the Great Union of Interests, even though he realised the dominant one was business (Veblen 1921, 1923). In short, policy-making institutions are not really capable of independent decisions since they are part of the very processes involved in the problems. It is usual for left-wingers to argue that government is closely linked with business, and for right wingers to say that it is closely related to its own interests, namely the need for re-election. Both these views are partially correct, but however usually the state has to link to families or working people in order to be elected; while it may prefer just to link to business it cannot really do precisely this in practice. Similarly, the idea that members of parliament are mainly concerned with themselves can lead to a tautologically meaningless form of discourse when everything they do links to their utility function. This can be stretched to say that even if politicians have a wider vision, and are concerned mostly with the nation or the world peace, that they are “in it for themselves” even at this level (although this is not usually the level emphasised by, say, the Cato Institute in their Cato Journal). Though economists and political economists don’t often say this, most of them clearly think that much that happens at the level of government is so imbued with vested interests, electoral obsession, cantankerous party-politics, disjointed incrementalism and the like as to render it highly unproductive. Those on the extreme left and right probably have lost much interest in practical government policy issues as being lost in this labrinth of waste and uselessness. Nonetheless, this should not stop us from trying to develop some core principles of policy that are specifically engrained in the historical and institutional setting of our economic systems without being subject to the abuses of the system. That this task is inherently difficult needs to be emphasised since most scholars are also endogenously linked (to some degree) into the vested interests and institutions of the system that are of questionable ethics and social conscience. The second principle of policy and governance is that it is of interest to and acted upon by all the major institutions and players. Political economy in essence is a search for republican systems of governance where the people are actively seeking to understand and change the world. A world where governments (or corporations) are the only ones actively engaged in designing solutions to the world’s problems is usually seen by political economists as a second-best solution. But even if citizens (and non-citizens) are not consciously intervening in the institutions to change things for the better, they are to varying degrees endogenously linked to governance processes in that they have certain (evolving) habits of thought and behaviour and hence continue to actively engage in the whole process of life. It is thus a matter of degree that determines whether they are actively involved, and the real task (as seen by political economy) is to enable those with little wealth and power to seek to intervene in the institutions so that they can enhance their interests, being those of the ‘under-dogs’ (Dugger and Sherman 2000). In practice, then, policy and governance is affected by all the institutions, whether they be families, corporations, governments, world bodies and even some influential individuals. Members of families collectedly contribute to the reproduction of everyday life, as well as contributing (directly and indirectly) to the changing norms and mores of this institution. Corporations we know play a big role in affecting our lives and livelihood. Governments are the usual practitioners of policy. Social groups such as schools, churches and NGOs (as well as their members) actively intervene in the welfare of their members and others. No matter what policies are instigated it is up to individuals as well as members of these institutions to act in order to put the measures into practice. Governance and policy is thus a matter of how the institutions are organised and what role individuals have in their reproduction. Civil society is a crucial part of this process. While the ongoing result of policy may transcend specific individuals, specific people are what should activate the process and roll it along at the micro level.

The third principle of governance is that the community needs efficient and equitable institutions concerning households, production, distribution, finance, and the state. We need a



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whole set of institutions that operate well within the context of the environment in place and emerging in the future. This requires, at the general social level, a high degree of trust, association, and community. This is preferable to a system dominated by laws, regulations, and armies to ensure that people do what is required, since these repressive measures are likely subject to abuse, self-interest, corruption, plus exploitation by the vested interests. We could say that there is an element of libertarianism in heterodoxy, which is influenced by liberalism and anarchism, given their systematic critique of Stalinism and the classical Keynesian welfare and regulatory state.

Any economy lacking in trust and community is not going to function very well. Yet, it is difficult to design appropriate policies for these matters, unless perhaps they are in the forefront of policy concern, and exhaustively examined with the help of many teams of scholars and practitioners. Much evidence supports the conclusion that the past three decades of capitalist development has seen a shift of resources from family, society and ecology to market, corporation and finance at the sub-national, national, regional, and global levels. In many of the nations studied, aggregate socioeconomic performance has not improved since the mid-1970s, and measurement of the declining social resources is in an early stage of development (O’Hara 2006a, ch 2). A critical policy issue is the need for much better information and surveys on the relative movement of resources from social and environmental to corporate and market relations.

In like measure, the fourth principle is linked to Polanyi’s disembedded economy; namely, that governance systems require sufficiently well-developed processes of reciprocity, redistribution and social markets. In this line of argument, the current structure of economic growth in most nations is in large measure the process of transferring social and environmental resources to specific corporations, markets, groups, and individuals.1 Capitalist growth is ultimately dependent upon the creation of new products, processes, markets, and relationships, while at the same time destroying old products, processes, markets, and relationships. Destructive creation is forever making and breaking technologies, institutions, and ways of operating. Creative destruction is exploitative in destroying non-market activities while extending markets. Scholars have been trying to calculate the destruction wrought on social and natural resources to provide a balanced assessment of growth and development (see O’Hara 2004). A policy requirement is for this research to proceed at a faster pace and for the implications to be taken seriously once they are suitably analyzed. However, the ceremonial encapsulation and recognized interdependence limits the degree to which this is possible (Bush 2001).

Important in this respect, are the principle of entropy and the so-called laws of thermodynamics (Georgescu-Roegen 1971). The first law says that energy can be neither created nor destroyed, while the second says that energy tends to become increasingly unavailable in a closed system. The Earth as a whole is an open system due to the impact of the sun. But entropy – the second law – does impact to some critical degree. Economic activity cannot create energy and thus produces negentropy. In essence, it destroys environmental resources and biodiversity. The second law also explains the limits of recycling resources. Important for policy is the notion of strong sustainability, where governance systems are required to take into account the need for minimal dislocation of ecological resources, rather than to trade-off between ecological and durable fixed capital, for instance; and to supplement GDP-type figures with measures such as the Index of Sustainable Economic Welfare (ISEW) or the Index of Sustainability (IS), so that a more holistic social policy framework is practiced (O’Hara 2004). The precautionary principle also needs to be taken seriously to recognize the lack of knowledge and degree of uncertainty about the ramifications of changes to the ecological environment, which has implications for such things as global warming.

1 These strands of Polanyi’s disembedded economy link to Marx’s notion of destructive creation, the Foster-Bush-Tool theory of instrumental and ceremonial functions of institutions, Edward Nell’s theory of transformational growth, and ecological views of strong sustainability.



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Hysteresis and path dependency imply that the process of adjustment affects the traverse between two stable states, such that stability may not emerge due to a considerable period of cumulative motion. In the process, in the downward direction skills are destroyed, families dislocated, regions depressed and communication systems upset while ever-new arrangements are being formed through other skills, institutions, areas and communication systems. In a very practical sense, it is critical for governments to provide more embedded resources in the form of safety nets. With the demise of families, skills, and areas, for many people governments are the only other option, despite the limits of governments already mentioned. Neoliberal governments are not likely to provide many such resources because of their closer relationship to business, especially financial and transnational capital.

The fifth principle of policy is the crucial importance of uncertainty in the analysis of social action. This relates to the need to reduce uncertainty inherent in a system of accumulation centered on future prospects that are not known with any certainty. The state, as even conservatives know, is required to provide a system of legality to protect property rights, to support business associations, and ensure that the contract system is firmly embedded in law. Governments need to support the long-term interests of the business system so that investment can be undertaken in the knowledge that credit agreements, investment arrangements and business functions can function relatively smoothly. It is also necessary to prevent widespread fraud, corruption, and cronyism so that a positive business climate can be attained. There must be a certain amount of trust in the institutions of business and government for a positive climate to exist to support long-term accumulation.

However, the sub-schools of IEPE tend to add that the interests of business need to be legitimized through an effective system of citizens’ rights. A truly liberal system of governance must provide ordinary people with rights and obligations. They include the right to privacy, the right to protection from assault and battery, the right to vote and be active in politics, the right to freedom of expression and assembly, and the right to a minimum standard of living. These rights can utilize a considerable amount of resources if they are to be truly active rather than merely formal in nature. The obligations may include the need to pay adequate taxes when possible, the need to accord with other people’s rights, and the need to be actively involved in civil activities in proportion to the extent made possible by the rights. The real test of a governance system to be fair and just is the extent to which the protection of property rights and business are balanced by a system of citizens’ rights. If property rights and business are supported more than citizens’ rights, instability may emerge because the system of governance lacks legitimacy for the people. And, if the rights of citizens are supported more than business – at least under capitalism – it is likely to also lead to instability and decay.

The sixth principle of governance links to resolving or moderating the other core contradictions of the modern world, including those between capital and labor; industry and finance; and profit vis-à-vis the environment. The first of these may be partly resolved institutionally through the power of business being moderated by the power of labor unions and the establishment of political parties that especially have the interests of labor in mind. However, more laterally the institutional dominance of neoliberalism and industrial metamorphosis has reduced both sources of labor representation, resulting in rising inequality, declining power of workers, and the movement to the right of the political spectrum (except perhaps in Latin America and Scandinavia). In short, a critical problem at present through the global transformation of capitalism is that the interests of business are ahead of the interests of the common person. The potential problem of legitimacy seems to have been “solved” by the acceptance of this new power arrangement by most. However, other problems remain; anomalies of reproduction caused by a lack of aggregate demand, a shift of government spending from productive to relatively unproductive areas, and financial instability.

Also of core concern is intra-class conflict between industry and business. The last two decades has not only seen a shift in power from labor to capital, but also from industrial capital to finance capital. This has manifested in deregulation of the financial system (both domestically and globally), the importance placed on shareholder value, and a greater significance given to



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short-term returns to business. While many industries have grown over the past couple of decades, particularly computers, services, and tourism, these are all sectors where the productivity gains are difficult to spread through the general economy. Indeed, Robert J. Gordon (2001) and others, argue that productivity has been low because these new sectors are pale imitations of the radical technologies of the past, such as electricity, transportation, the assembly line system, and the internal combustion engine. The periodic emergence of massive speculative bubbles and lack of correspondence between the growth of industry and finance (Binswanger 2000; Stockhammer 2004) over recent decades has led to the dominance of finance over industry. Financial decisions now dominate industrial concerns, rather than the two being balanced, which creates an environment where there is often little relationship between CEO remuneration and long-term profitability. Monetary policy also tends to be unduly influenced by the stock market. Hot global capital flows can destabilize whole regions when uncertainty suddenly rises.

These issues have led to calls for policy measures to moderate such instabilities and intra-class conflicts. One proposal calls for developing nations not to prematurely deregulate before a suitable institutional and governance structure is in place. A post Keynesian strategy is for surplus current account nations to bear the brunt of adjustment through expanding aggregate demand. A well-known one is the introduction of a Tobin tax to provide “grains of sand” into the wheels of international finance to moderate instability. Thomas Palley argues for the need for asset-based reserve requirements to moderate bubbles. The “Soros proposal” seeks to establish a Global Central Bank that has powers of money creation and regulation. A general policy proposal is for monetary policy interest targets to be supplemented by a wider range of options and policies.

Lastly, the principle of taxes-drive-money must be taken seriously. One problem with neoliberalism is the downplaying of fiscal relative to monetary policy. Numerous studies clearly point to the negative growth impact of the recent switch from productive public capital expenditure to transfer payments. One such study even goes as far as to conclude that all of the 1970s-1990s drop in growth in the United States is due to this switch (Weber 2000). Other, comparative studies, also point to the net crowding-in effects of public capital on private investment, in the form of expenditures on education, health, infrastructure and communications, for a cross section of quite different nations. Transfer payments, on the other hand, tend to crowd-out private investment spending (e.g., Miller and Tsoukis 2001). This points to the global need for more proactive states that initiate productive projects on many fronts, to not only sustain aggregate demand but also promote private spending and social networks.

These issues lead political economists and others to be highly critical of neoliberal budgetary restraints. Numerous theoretical and empirical studies support notions that saving is stimulated through investment as income increases; that state spending through monetization stimulates private investment vis-à-vis taxes that represent a financial constraint; and that budget deficits are usually required when demand is inadequate and creates a positive net prospective yield for investment. The sub-schools generally support Abba Lerner’s principles of functional finance, namely that state spending should be expanded when demand is inadequate and reduced when high inflation looms, and that a critical function of government is to provide liquidity to the system. On these measures they agree. The main dispute seems to be about how public spending should be activated: whether by providing service employment through employment of last resort (Wray 1998); enhancing productive capitals more directly (Kadmos and O’Hara 2000), or some combination of the two. IX. CONCLUSION

This paper has sought to explore the future of principles of political economy and how they can inform debate among scholars and practitioners. These principles emanate from a mutation called heterodox political economy which arose from earlier political economy trends as the various schools coalesced through various networks and theoretical innovations. As a result, some big concepts merged that represent a more holistic and general edifice. Such principles are not



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universal or trans-historical, but need to be linked into the prevailing culture for them to work effectively. Their purpose is to generate a proactive debate about what is the core theoretico-institutional edifice of innovations into the future. These principles have been wittingly or unwittingly used by political economists, especially over the past fifty years since its re-emergence into the 1960s and 1970s. Political economy tends to eschew dualisms of structure and agency, theory and practice, normative versus positive, and private versus public. Nevertheless certain contradictions are useful for analysing the major problems of the contemporary world. These involve various trade-offs and conflicting processes associated with capital and labor, industry and finance, men and women, state and capital, profit and environment, and core and periphery. One must differentiate between unreasonable dualisms and real-world processes that are in potential or actual conflict. Core principles need to be situated in an environment of complexity, where change is ongoing, various forms of novelty tend to occur, and factors tend usually to cumulatively build on each other. Non-linear relationship are often the norm, and non-equilibrium processes tend the social economy towards various phases of evolution and metamorphosis, including blind drift as well as directed motion. Uncertainty, path dependence and asymmetric distribution of resources (including income, wealth, information, capabilities, etc) often lead to the need for both qualitative as well as quantitative indicators of performance. This asymmetric performance manifests in class, gender, ethnic, and species differences in asset accumulation and quality of life. It also manifests in core-periphery differentials as various forms of hegemonic power emerge, stabilise and decline through historical time. At present there is movement of semi-peripheral nations (such as China and other parts of Asia) upwards in performance towards the core, while the advanced nations of the core are suffering from industrial maturity and ongoing cycles of boom and financial crisis, while the periphery is experiencing diverse results.

For policy makers and practitioners to begin to impact on the anomalies they need to cognizant of the power of the vested interests, the need to expand participation to those lower in the power stakes, and the need to instil trust and community in the institutions. Knowledge is both insufficient and asymmetric and therefore governance is required to expand the base of information and knowledge through the community, as well as to recognise that in some measure wealth is a communal process as well as being stimulated by private and institutional forces. The key to governance is to try and resolve the core contradictions of the system associated with potentially conflicting processes, such as capital versus labor, industry and finance, monopoly and competition, profit versus ecology, core versus periphery, different ethnic groups, as well as men and women. Instilling participation and community into the institutions and cultural psychology is the core of political economy. Its principles centre on the various mores and habits of the culture and its members, and how changes in the institutions are able to enhance quality of life and standard of living for the inhabitants of planet Earth. BIBLIOGRAPHY

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