Battle For the Economy
Institute of Ideas Seminar 16 May 2009,
Goodenough College, London
by Graham Mummery
In the Great Hall of Goodenough College, London, its founder looks down on the proceedings. I am familiar with his name from induction courses during my, now defunct, banking career. He was Barclays Bank’s chairman in the 1920’s. A speech of his on monetary policy was described humorously by none other than John Maynard Keynes as “rational, even risqué.” So it seems some of the right spirits are here for debates on the economy in the aftermath of the G20 London Summit.
The day has been organised by the Institute of Ideas, a think-tank of academics and post- graduates aimed at creating debate and dialogue on ideas, in particular those related to social sciences. Their aim and the programme advises us to get “beyond sound-bites” and to “help us get to grips with the political and economic battles ahead.”
The day starts with IOI’s director, Clare Fox who begins with a speech chairing the first session entitled, “Demystifying the Crisis.” Its speakers have two heavyweights in the economics world: Richard Portes, professor of economics, London Business School and Dominic Lightfoot a former economic advisor to two Chancellors of the Exchequer. Perhaps predictably, they concentrate of the economic matters while the other two speakers—a journalist and a consultant—look at structural and cultural causes.
Professor Portes tells us that the crisis is “macro-economic,” and advises it has new aspects that “we in the economics profession, as yet, don’t as yet understand.” He advises us not to blame the usual suspects (e.g. bankers, politicians) and pours scorn on the ideas of such “black swans” as not telling us much. He clashes with the consultant, even saying he is talking rubbish. Mr. Lightfoot is politer with his fellow speakers, advising us that the cause of the crisis is “lax monetary policy.” Having studied monetary economics, I know what he means. It’s a monetarist position: control of the money supply is the be-all and end-all of controlling the economy. He also talks about the need for more de-regulation of the financial markets.
Later in the day, I will meet Mr. Lightfoot. He is a very agreeable personality and highly intelligent. His political opinions differ from mine, but he isn’t dogmatic and is aware of the magnitude of the problems. But when I suggest that the crisis may lead to changes in our spiritual attitudes, he looks at me in amazement. I’m impressed with his mind, but worried that he is too bound in economic ideas that were valid in the eighties but now have been overtaken by events.
The same applies to Professor Portes. Economics’ reputation has taken a battering in this crisis because it has got stuck in old thinking. This debate highlights a problem in economics as a subject as much as in the economy that is being much discussed in the financial press. For not the first time in the day, I find myself wishing for those brilliant flashes of intuition that Keynes shows in his writings which came from an all round vision, which even sixty years after his death, seems more insightful than what we are seeing so far.
The next session has different speakers and is about how much bankers are to blame for the current crisis. I have a kind of vested interest, having left banking just before the crisis reared its head, and am sure there’s the link between them. The chairman of this session is an investment banker, and requests any “boos” are addressed to him and not the speakers who are mainly financial journalists. Much of this debate is over banker’s bonuses and financial markets. What comes out of this is a difference in attitude between some members of the audience and the speakers over what some call the “productive economy”. It’s a division between services and manufacturing. Yet as one of the speakers reminds them, all sectors are interdependent.
It’s afternoon when the day takes off. The first seminar is entitled “Can the state save the economy” and is billed as a debate on whether this is Keynesian moment. This follows a different format. The main speaker is Frank Furedi, a sociology professor at University of Kent. He is given star billing, having read books of therapy and the impact of intellectuals on society. He gives a thoughtful talk about the impact of markets on cultures in academia, and he is dubious about whether reflation can bring about an end to the crisis.
Responding is Professor Erik Reinert, professor of economics, Tallinn University of Technology, and I find him more inspiring. He comes from a different tradition to the Anglo-American consensus in economics. He suggests the explanation for the current crisis can be found in terms of the two economists who he believes best explained the great depression. The first is Joseph Schumpeter who brought the idea of “creative destruction” into economics. Schumpeter noticed how there were sociological, cultural and technological changes that freed up capital that flooded the money markets and yet did not go back into industries. This is also, Reinert suggests, the root of the current world crisis. New technologies are making old industries redundant. Keynes, he suggests, worked out the medicine: deficit finance to get the new established.
What Reinert is saying makes sense for me. It appears to be looking beyond just economics in to a bigger picture. But he is aware that for the destruction to be creative, state interventions have to be creative, as well. In countries such as Germany and France this has happened where new industries have been given loans, and nationalization has been done to force through innovation; while in Britain we propped up ailing industries to prevent unemployment. It’s the nearest I will hear all day to an integral economics, one that looks at the whole picture. He adds also that we need to reform economics.
I don’t get to hear more from Professor Reinert as I chose to attend a debate on behavioural economics. From the program I see he is taking part in a debate on protectionism, global co-operation and the environment. I’ve since followed his work up with his book How Rich Countries Got Rich…and Why Poor Countries Stay Poor. It’s a fascinating tome on development suggesting the free-market competitive approach needs to be replaced by one where poorer countries can emulate richer countries without destroying their cultures and eco systems. It has references to thinkers who don’t usually appear in economic texts such as Nietzsche, Kafka, and Giambattista Vico.
It has become fashionable to say that the crisis has sounded the death knell of “rational economic man”. The rise of behavioural economics has been a cause of this. Instead of a view that business people engage in rational activities to obtain maximum profit from any good or service, it looks to psychology, and even neurology, to explain economic behaviour.
The idea of applying psychology to economics appeals to me. Like many people, I came to Integral via psychology. I am dissatisfied with the traditional view as it fails to properly explain either the people or the motivation of business people. It ignores the fact that some people do their jobs out of love of the job, sometimes for the fun of it, and make decisions on the hoof. Curiously this would take economics back to some of its roots. Economists like Adam Smith, Keynes and Hayek for example all saw their subject as enquiry into human nature.
We are reminded of this in the session by Dr Michael Savage, an investment banker and writer on economic matters. He talks about Adam Smith’s theory of moral sentiments being a counterweight to self-interest. Leigh Caldwell, a consultant, who uses behavioural economics in his work, gives us a demonstration to show what behavioural economics can do. We are invited to put on a piece of paper the day and month of our birthday and then put in a bid for a bottle of wine that he produces. Apparently, the later in the month of one’s birthday, the higher the bid will be. This is borne out by pieces of paper that are collected.
However, there’s a psychologist here, Dr. Stuart Derbyshire. He is less impressed by this demonstration. advising: “Now you know it, you won’t be fooled again.” He is even less impressed with behavioural economics. It tells little we don’t already know, and what it does are banalities like “people are irrational.” He therefore thinks behavioural economics has little to contribute in terms of solutions to the current crisis, which must be institutional, not psychological.
The final session winds up with discussion on barriers and opportunities for growth. Clare Fox takes this session again. She reminds us all that the economic crisis affects us all, that the solutions to the crisis are up in air for all the talks of international co-operation, and also that some of the debate has been left too much to experts. But we all have our own part to play in our lives. The speakers are mainly from business, though the one economist there, Deepak Lal, suggests some of the changes may be because of shifts in economic power. Solutions may not re-establishing the old economic status quo and new countries such as India and China may emerge as the new economic powers.
How much of this is Integral? I’m not certain. What impresses me about many speakers, agree or disagree, was the intelligence and commitment to looking for solutions. I’m most impressed by those who look beyond the limits of their own subjects (especially the behavioural economists, Professor Reinert and the multi-disciplinary approach of the organisers). Even if this is not Integral in name, it has some of the same spirit. It confirms my feeling that the spirit of our time is integral. At the same time, I’m disconcerted some of the same solutions are still being touted. In the nineteen thirties Keynes wrote:
“Practical men, who believe themselves to be quite exempt from any intellectual influence of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back…soon or late, it is ideas, not vested interests, which are dangerous for good or evil.”
This seems to me applicable here. It’s probably an example of resistance to shifts in consciousness. So I’m not completely pessimistic. To change things just needs more time. What‘s more nothing will change if we don‘t enter the dialogue.
About the Author
Graham Mummery was born in Altrincham, Cheshire, but has lived most of his life in or around Sevenoaks, Kent. He was educated at Ravenís Wood, Bromley and at the Judd, Tonbridge. He now works for an investment bank at Canary Wharf.
His first pamphlet collection, The Gods have Become Diseases, was published in 2006 and his poems and translations have appeared in various magazines including Ambit, Brittle Star, Equinox, Obsessed With Pipework, Poetry Street, Psychopoetica as well as on the BBC Kent Website and in the anthology Gobby Deegansís Riposte.
He has written poems on and off for many years but did not do this seriously until he enrolled at a creative writing course at his local Adult Education Centre. He has been on several Arvon Courses and attends a workshop at the Poetry School led by Moniza Alvi and another with John Stammers. He is also treasurer of the Kent & Sussex Poetry Society.