Davos & Inequality Continued: What does an alternative economic vision for the future look like?

Deborah Hardoon, who really ought to be resting on her laurels after her report for Davos went Deborah Hardoonviral yesterday, springs to the defence of (the right kind of) economics.

Nerd Alert. As a student of economics, I always found the technical aspects of the subject deeply satisfying. Getting to the ‘right’ answer using algebra and statistics, solving ‘proofs’ and finding that stable equilibrium. Bliss.

But what’s always been more fascinating is that economics is a social science, it’s about real places, human behaviours and complex environments and governance systems. This is messy and diverse, so in order to derive textbook ready models, principles and theorems, economics has had to cut through the mess to make simple standard assumptions about the world we live in. ‘People’, with different characters, abilities and oportunities are replaced by identical ultility maximising individuals. Echo chambers, propaganda and manipulative marketing are replaced by the assumption that all consumers and businesses have perfect information about each other.

Put the messiness back in and the models soon start to look a whole lot less satisfying. Economic growth doesn’t always trickle down to benefit the poorest. When people receive higher wages, they tend not to work fewer hours (as the backwards bending labour supply curve would suggest). Production is not just a function of capital and labor, but also environmental resources and impacts,not to mention unpaid labour.

Dilbert on forecastingAnd of course, hardly any economists saw the financial crisis coming… The reputation of the ‘dismal science’ is facing further derision. Last week Andy Haldane the chief economist at the Bank of England said that economic forecasting was in crisis.

But before we throw the baby out with the bathwater (has anyone ever actually done that?) and deem all economists irrelevant and useless, I think it helps to be more specific about the ‘problem’ with economics and economists today.

So let’s start with why at least some economics deserves the current kicking. If we look at economic orthodoxy, there is a lot that Oxfam can take aim at.

Take the captain of economic measures, GDP and GDP growth. As a measure, it completely ignoresHardoon Economist cover who get’s what from the economy – people living in poverty can be netted off by high incomes elsewhere. It is indifferent to the kind of production (cigarettes or vegetables) that’s growing or what’s happening to the environment. Yet it remains at the forefront of economic decision making and it’s the first economic indicator listed in the back of The Economist every week, despite a recent (April 2016) special edition that highlighted its flaws and limitations.

Neoliberal economics promotes markets as the most efficient way to allocate resources, as the forces of supply and demand fight it out, free from distorting government intervention, and the most efficient price and output is achieved. But unfettered ‘markets’ also allow medicines to be priced out of reach of the most vulnerable, bankers to take risks which destabilise the global economy, more investments in dirty energy at a time when we know our environment can’t handle the impacts.

But despite the flack that economics is getting today, I still think it’s a pretty exciting, relevant and dynamic subject– if you look outside of that orthodoxy. Innovative academic Institutions and think tanks are promoting new ways of using economics to understand our current reality. This is a reality which includes a warming climate, societies that are built on patriarchy and value that can’t be monetised. Degrowth, alternative economics and new economic paradigms – the ideas are flowing, the mutations are proliferating. Students are challenging their professors in the rethinking economics movement.

Last month 13 of the world’s leading economists, including Nobel laureate Joseph Stiglitz and four former Chief Economists of the World Bank, released a statement that said ‘It is now evident that some of the recommendations of more traditional economics were not valid’ and proposed an alternative set of principles for organising economies.

economic fundamentalsAt Oxfam, Kate Raworth published work on the donut economics in 2012, which brought together the need to meet the basics for people whilst respecting the planet boundaries. She left Oxfam to turn it into a book, which is out in April – it could be very influential. Last week my colleague Katherine Trebeck, who has been exploring New Economic Paradigms for some years, published (with two other authors) Tackling Timorous Economics, using Scotland as an example but with much wider application of how to manage our economies better.

And yesterday we published ‘An Economy for the 99%’, timed to coincide with the week that the super rich and powerful convene in Davos for the annual World Economic Forum. First and foremost, the report highlights the extreme level of economic inequality, by way of a killer stat that is great clickbait: 8 men now have the same amount of wealth as the bottom half of the world’s population. Get beyond the headline and you will read our analysis of how we got to such a perverse, unequal and unfair situation. We unpack the assumptions on which governments, businesses and individuals base decisions, find them to be false and driving our societies and our planet off a cliff.

Inequality is increasingly recognised as a problem in our societies. We saw in the UK referendum on the UK and the election of Donald Trump in the US, how people are feeling left behind, deriding experts and blaming immigrants. But what we need now are solutions, not scapegoats. And economics, which attempts to unpack, model and understand the world in which we live can continue to be helpful, provided we embrace an understanding of where it has gone wrong in the past. In this report we provide a compelling alternative to the economic orthodoxy – a human economy, where people and planet are put before profits.



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5 Responses to “Davos & Inequality Continued: What does an alternative economic vision for the future look like?”
  1. This is really exciting. Make sure the report becomes part of syllabus in leading universities. Produce a popular version with cartoon.Translate them in other languages. Let us also design a training module that can absorb local peculiarities.
    The most important thing is not to loose the momentum.Do not wait for the next Davos for the next report.
    Just a few quick ideas.
    Congratulations to the team.

  2. Simon Coulson-Day

    I’m afraid calculating GDP alone, and using economic principles to solve this problem never will. Economics is not an exact science, as if it were ‘Economic scientists’ would have seen the crash coming. Economics is always about gaining the most, so the half full half empty argument is by nature in economics stacked towards the optimistic, but rarely ever predicts the pessimistic. I studied business and economics as part of my education, but alongside a Law major, specialising in constitutional matters, and found the problem to be far deeper set in culture than the flighty characteristics of economics. The matter is deeply historic, constitutional, and needs law and government to change businesses and peoples habits from kleptocratic, oligopolic, and general self serving practices, to more future facing ones. If economics and those with extreme wealth (that economics itself created) will not follow suit to build a new world, as Bob Dylan said ‘get out of the new one if you cant lend a hand… the times they are a…’ Capitalism and economics were not meant to be the competitors of the constitutional needs of people, but the tools for people to trade more equally in society. But has ended up thinking it is the supreme social practice, and created through its estimates, guesses, and predictive calculations creating the very thing that is didn’t predict, that its system would mess up, wealth would end up in the hands of a very small percentage of individuals, and leave the rest of the capitalist world in poverty. Has capitalism and economics run its course, as if the aggregate amount of money in circulation cannot circulate, cannot flow freely to do the job it was meant to do, how will the capitalist ideal work… it needs the flow of money to exist. These individuals who have more money than they will even spend are doing the world a favour, slowly bringing capitalism, and a culture of office dwellers and customer service workers rather than crafts people and producers in the UK, like Rome, to their final end. Bring back real workers not just speculative economists, who outsource labour to poor countries and exploit people, and leave the UK workforces lacking in skill and places to practice those skills for decent wages. Change a culture of techies, dependence on information technology, pc and phone addicts. Whatever happens personally Ill watch the crash like the New Years day firework display, but capitalisms old uncertain predictive optimism as an acquaintance will never be forgot.

  3. Anna Coryndon

    Thanks to Pushpanath for some great ideas. For info, the report is already available in 6 languages including Vietnamese and Chinese, and we hope more to come. Training module is also an exciting idea – at Oxfam we’ll be piloting a MOOC (online course) on How Change Happens – based on Duncan’s book. If people like it, maybe someone will put together an inequality MOOC?

  4. Jason

    The statistics in the report are on many accounts extremely worrying. And I think Deborah has done good work trying to find a way forward. I am especially impressed by the questions she asks, and the suggestion that the way forward should be a shared agenda. I’m however not convinced that the problem of inequality will be solved by better government-accountable and effective. Keep in mind we’ve had governments for over 6000 years, and we’ve had social inequalities even longer (about 7000 years when European farmers would have differential access to land during the stone age, those with carving skills would access the more fertile areas). Writing about South Africa, Lucien van der Walt has shown how the state and the markets are actually not mutually exclusive, and that for South Africa at least, those who rule are elites-black and white elites. The ‘elitism’ discourse cuts across political elites and corporate elites. That is to say, the state is not some benevolent entity. It consists of people, who have vested interests. At the University of Pretoria [UP] (Human economy programme-Interestingly and pleasantly, the same term Deborah uses!), we are trying to understand /research how we can move debates beyond state versus markets. These, as the legend anthropologist Keith Hart argue, have reached a cul de-suc, and perhaps a real human economy -as we conceive it at UP must move beyond this redundancy. The alternatives might not be as clear, but may be we need to start pushing boundaries beyond these die hard theoretical fences.