MOKSLINIAI STRAIPSNIAI 

ON THE CHALLENGES TO ECONOMIC SCIENCE: ARE WE ON THE BRINK OF REVOLUTIONARY CHANGES IN THE ECONOMIC PROFESSION?

Ona Gražina RAKAUSKIENĖ[1] interviews Povilas GYLYS[2]

Q. Just recently in Vilnius University’s journal Ekonomika you published an article with the provocative title “Anti-economy, economy crisis and crisis of economics.” What is the gist of this article?

A. For almost a decade I explored (investigated) the phenomenon that I have named “Anti-economy" Anti-economy is the negative side of our reality, which (as can be concisely defined) represents the appearance and the flow of economic–private and public–bads as well as the wasteful behaviour of economic agents. Regrettably our profession wasn’t able to conceptualise these negative aspects of economic life, and this has led to immense cognitive and, consequently, practical losses. Many factors, processes and outcomes remain, for this reason, unrecognized, undetected, and therefore many economic diagnoses suffer from one-sidedness, reductionism. As a result, our actions, the decisions of policy-makers and business people were less effective, sometimes destructive and misled. With the introduction of the concept of anti-economy, new cognitive and economic policy opportunities open. One of them is the possibility to widen the concept of economic crisis and to demonstrate that our profession is in a critical situation. That recognition requires a serious review of axiomatics, of the paradigmatic foundations of economic science and, especially, of its neoliberal part. In short, we argue that the shortcomings of economic theory are the root-cause of massive, gigantic losses in real economy.

Q. Could you elaborate more specifically on the cognitive side of the problem (anti-economy)?

A. At the beginning of my scientific (academic) carrier I encountered the notion that nothing is more practical and useful than good theory. Already at that time I complemented this postulate by adding: “Nothing is more damaging than bad theory" Bad theory is misleading theory. It leads to wrong practical actions and, finally, to losses.

Plentiful evidence exists that entire nations under detrimental influence of, for instance, Soviet economic doctrine, have experienced huge damages.

Another, more recent (actual) example is the influence on economy of methodological individualism. The latter is paradigm, philosophy which is based on the presumption that the only actor of (in) the economic life is the private individual with his self-interest and that communities, nations and other collective entities are just the figments of imagination of the opponents of individualistic worldview. From this individualistic presumption logically follows that there are (exist) only individual needs and correspondingly only private goods which satisfy those needs. As far as the market is the best regime to produce private goods-commodities, it, the market, encompasses the whole economic life. In other words, according to this way of thinking, the market and the economy are synonymous terms. But it is a huge misconception of economic reality, because economy does not coincide with the market. Economy is the sphere of social reality which exists for one reason. That reason is the limitedness, scarcity of resources. This misconception–identification economy with market–is a kind of public bad which should be attributed to anti-economy. Economization means the search for optimal ration between benefit and input of scarce resources and it doesn’t coincide with marketization, privatization etc. They are different, though sometimes overlapping, concepts (notions).

Q. What are practical consequences of application of methodological individualism?

A. Assuming that the only economic actor is individual with his-her egoistic interests and needs, and denying the very existence of collective entities means that the whole world of public life with its common needs and wants, with its regimes of solidarity, regimes producing public goods etc. is excluded from the scope of economic deliberations. This thinking leads to a surrealistic paradox – although, in theory, on a paradigmatic level mainstream economists presume that economy should be reduced to market, but in practice it is impossible to avoid issues and phenomena such as state budget, which by definition are not market elements.

Nevertheless the very treatment of the public sphere as non-economic is very harmful because it causes a negative attitude towards the public sector with its schools, hospitals etc. The very notions that “unproductive” public sector is the “burden” to economy i.e. private business is immensely harmful. The public sector is a legitimate part of the economy. Firstly, it has to economize because it (functions) lives in conditions of scarcity of resources and, secondly, it produces a specific kind of economic goods–public goods–and, thereby, contributes to the wealth of societies by producing these goods. Thus marginalization of this sector leads to the loss of this kind of wealth.

Another negative consequence of the individualistic approach vis a vis public sector is an irrational instinct for its privatization. The public sector is inherently based on the principle of solidarity whereas the private sector—on competition. Reckless privatization, marketization of public institutions means (shows) paradigmatic confusion similar to the one which took place in the Soviet past. Then reckless socialization of regimes, elements which belong to the sphere of private matters, caused tremendous losses, damages.

Q. Do you really reject any market elements, elements of competition in the public sector?

A. Not at all. In fact the whole economic reality is a mixture of public and private elements. For instance, knowledge produced and “consumed” in schools or universities often have features of both public and private goods—they brings benefits both for the individual and society as a whole. Therefore, alongside regimes of solidarity, regimes of competition could be present in education and academia (academic sphere). In other words, good education is, on the one hand, the individual’s desire and, on the other hand, the sphere where common public interest is present.

The problem is how to find the optimal proportion between public and private dimensions in schooling (education) or in universities. Unfortunately, under the massive influence of individualistic thinking, the drive for the marketization of this sector of social life exceeded optimal proportions.

Q. From what you have said follows that the individual’s self-interest isn’t the only motive of human action. Am I correct?

A. Absolutely. A real human being couldn’t survive if his activities, life would be limited to personal interests and needs. In many cases, in order to survive, he has to join groups, communities. A basic need which couldn’t be guaranteed by totally individual behaviour is security. Isolated from the community, a person wouldn’t be able to protect himself from the majority (big part) of threats, be they military, criminal or social. Thus, belonging to the group or society opens up opportunities to get common goods like security, justice etc. But access to these goods in most cases requires certain contributions in the form of taxes or direct personal participation in the production, creation of these goods. That means that solidarity, collective choice and collective action is a prerequisite for the high quality of individual’s life.

Q. All of this contradicts the deeply ingrained in one profession understanding of the concept of homo economicus as a self-interested, egoistic human being.

A. One of the main fundamental misunderstandings of the economic profession is the reduction of economic motivation to the search for individual gain, to egoism. That’s true – human beings are egoistic creatures. Without egoism, without the defence of what is called “I” a person wouldn’t, couldn’t survive. It is an indispensable part of people’s personality.

But reduction of human personality to egoism is a flagrant misconception of the “economic man.” And it is caused by individualistic axiomatics, by the presumption that the only reality is an individual with his private interest and that all kinds of col- lectivities – communities, nations – imagination of collectivists, organisists or, to use the general term –holists.

Human beings are a combination of characteristics, part of which belong to “I” or “My” Another part represents “We” and “Our” Thus, human beings are egoists, individualists in some cases, but are capable of behaving altruistically, to demonstrate solidarity in other circumstances.

Q. But we are used to thinking that solidarity belongs to the non-economic part of social life. How do you explain your position in this sense?

A. If we accept an individualistic mode of thinking, assuming that economy and the market coincide and ignore the fact that existence of the economic aspect of social life is based on the scarcity of resources, the answer is evident. But if we admit that the criteria of economic activities, both individuals and collectives live in conditions of the limitedness of resources and therefore have to economise, then solidarity becomes a legitimate part of economic inquiry. The regimes of economization differ in the market and in public domains, but the very essence is the same—private and communal, public entities must be driven by the search for an optimal ratio between input of scare resources and benefits.

Q. Could you present examples of how a theoretical blunder can lead to a serious negative outcome (consequence) to massive damage and waste?

A. The most vivid example is reforms in the majority of post-Communist countries. A radical and revolutionary shift from extreme and coercive collectivism to an individualistic paradigm, which is characterised as market fundamentalism, caused many deformations. One of them is a derogatory attitude towards the public sector and its reckless privatization. As a result, the procurement of public goods in these societies was seriously jeopardised.

Another example is the recent crisis in the Euro zone and European Union as a whole. In our view, the European Union, by definition, is a holistic project, but most of its designers are guided by individualistic principles. They practically don’t use the concept of public goods; instinctively identify the economy with the market. Solidarity or social capital, for a big part of them, is more slogans than scientific concepts (notions). As a result, the European Union lacks viable public infrastructure, beginning with effective political and administrative institutions and ending with pan-European solidarity. Regimes of individualistic by nature realpolitik, instead, are playing dominating role.

Q. What is the alternative to individualistic thinking, to methodological individualism?

A. It is methodological holism or simply holism. Its axiomatic basis is different from individualistic in the sense that holists recognize not only the individual, but collective entities as well. A true holist explicitly admits that communities, nations, and states are not figments of somebody’s imagination. They are part of the social and, thus, economic reality. If he is not an extremist, a holist recognizes that an individual has his own private needs, that private goods and markets are part of economic life. But, at the same time (alongside) a holist asserts that a fundamentally important part of the economy is the public sector, the existence of which is based on common public needs. Needs for the country’s security, for a national legal system, for roads, a post system and other networks, infrastructures are common needs, which are satisfied from public resources such as a public budget or readiness of the citizens to act for the common good.

Q. What are the advantages of holistic approach for economic science?

A. Adoption of holistic thinking gives the opportunity to avoid major discrepancies between economic theory and reality. For instance, individualistic paradigms in their pure form limit economic analysis to a micro-economic level, because macroeconomy deals with a supra-individual, aggregate phenomenon and does not fit the individualistic worldview. Though Milton Friedman and other famous distinguished members, representatives of individualistic thinking (camp) demonstrated their negative attitude to macro-economy, economic science would loose a sizeable chunk of its explanatory and predictive power if such macroeconomic concepts as aggregate demand and aggregate supply, gross domestic product, fiscal, monetary policy are excluded from economic inquiry. Thus, we have a paradoxical situation: individualistic thinking and rhetoric prevail in our profession, nevertheless, textbooks in macro-economy exist, macro-economic policy is pursued, executed.

Application of holistic paradigm allows avoiding this inconsistency. Holism admitting the very existence of supra-individual, higher levels of economic reality “legalizes” macro-economic analysis.

Q. Could you name other advantages of the adoption of a holistic world-view?

A. Another major cognitive benefit given by the adoption of a holistic paradigm is legitimization of the public sector as part of the economy. For orthodox, neoliberal economists, the public sector is a sheer nuisance. According to a strictly understood individualistic creed there are no such economic matters as public, common goods, public choice. But orthodox economists are forced to discuss such issues as public budget, public debt, taxes which cannot be explained on the basis of a fundamental individualistic premise—that only the individual with his private needs exists. State budget, taxes do not evolve from individual, private interests and needs. They are part of a supra-individual, public, common life. But it is not visible through individualistic lens. Therefore they are treated with dislike as “alien” to the economy i.e. market elements.

When a holistic approach is employed, this discrepancy between economic theory and practice disappears, because holistic panorama encompasses both private and public matters, both market and public economy. Budget and taxes here don’t seem as alien elements of the economy.

Q. Is this the end of the list of the advantages of a holistic approach in economics?

A. No, it isn’t. I would like to add at least one advantage of a holistic world-view. That is the possibility to include in the scope of economic explorations the negative, “black” side of reality. In the framework of individualistic thinking it is assumed that in principle the “economic man” acts rationally in pursuing his individual gain. At least implicitly it is held that deviations from rationality are rare and minor. Thereby they could be neglected, marginalized, pushed to the margins of the scope of economic investigations (science). So are the cases of harm and waste of resources.

But it contradicts our practical experience. Our individual, family, and national life is full of damage and waste, thus, irrationality. That means that special attention should be paid to these cases, otherwise our understanding of reality is “amputated,” partial and too rosy. Introduction of the concept of anti-economy—which contradicts the idealized world of pure market, but is quite appropriate in the holistic paradigm, putting emphasis on the whole reality with all it sides—gives major gains both in cognitive and practical terms.

Q. It’s time to summarize, to make conclusions. What are the main challenges for economic science in this respect?

A. Our profession is in a serious crisis. Some leaders of our profession concede that. But the majority still is in cognitive inertia. They, mostly implicitly, hold that the situation is normal and some partial improvements would suffice to calm down heterodox economists and the general public. But, in fact, our profession needs a major paradigmatic shift from individualism to holism. The fact that this challenge remains undetected by the majority of economists and the conscious or instinctive resistance to the shift (process) by all-mighty power centres (media and private corporations first of all) proves the process of paradigmatic change won’t be easy. But it will take place sooner or later. The worst scenario would be changes forced by massive economic shock.