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Keith Rankin
is a political economist and economy historian |
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People who criticise the "Economic Reforms" tend to
be portrayed as congenital pessimists and doomsayers. The real
merchants of doom are in fact the merchants of business - the
"mercantilists" as they are known in economics - who
see the world as made up of winners and losers and who are forever
telling politicians that the only way for their nation to avoid
being a loser is to follow their policy prescriptions.
Economic liberalism emerged gradually in the eighteenth and nineteenth
centuries as a cosmopolitan worldview which sought "winwin"
outcomes from economic exchange: winwin between individuals
and winwin between nations. The most prominent nineteenth
century economic liberal was John Stuart Mill, who recognised
that properly constituted governments played a crucial role in
generating winwin outcomes. "Market competition"
- to a liberal like Mill - is a form of cooperation; it is a bargaining
mechanism that coordinates resources so as to facilitate genuine
winwin outcomes.
An earlier manual of liberalism was Adam Smith's Theory of
Moral Sentiments, published in 1759, and still a classic text,
though little known by economists. (Smith's later book, The
Wealth of Nations, was by comparison a nationalist text.)
The contrary world view to that of Smith's liberalism was Sir
James Steuart's 1767 Principles of Political Œconomy,
the most complete statement of mercantilism. (A useful sympathetic
account of Steuart's vision of national competitiveness can be
found in: Robert Urquhart (1996) "The Trade Wind, the Statesman,
and the System of Commerce: Sir James Steuart's vision of political
economy", The European Journal of the History of Economic
Thought, 3(3):379-410.)
The antiliberal mercantilist philosophy has been the dominant
economic philosophy of England for over 500 years: from the reign
of Henry VII to that of John Major. (Tony Blair's economic philosophy
is certainly less mercantilist and more liberal than that of John
Major, but it is too early to label Blair as a genuine economic
liberal.) Mercantilism is "winlose" economics;
it is the economics of "rivalry", of "zerosum"
games, of nationalism. Mercantilism is practiced widely by many
politicians and business interests who are convinced that they
are promoting economic liberalism. Furthermore, economists employed
by those interests tend to turn a blind eye to the distinction
between mercantilism and liberalism. Either that, or their education
is so lacking in the conceptual aspects of their discipline that
they also share the same mercantilist view without realising that
it is contrary to liberalism.
Major gave a very clear statement of contemporary mercantilism in a Panorama interview in 1995:
"It has often been in the case in the past that if one country is taking a fairly high moral stance, their competitors would take that as a wonderful opportunity to get out and sell."
McCloskey takes her inspiration from Adam Smith's Theory of
Moral Sentiments. As such, she emphasises the concepts of
"socialisation" and "socialised selfinterest".
To act out of socialised selfinterest is to take a collective
view of individual selfinterest. We vote in elections, for
example, because we believe that democracy is in our individual
selfinterest, and not because we think that our particular
vote will make any difference to the result.
McCloskey contrasts socialised selfinterest with the alternative
"Hobbesian" form of selfinterest which assumes
that individuals act in a shortsighted calculating way (following
from Thomas Hobbes' seventeenth century political philosophy as
expressed in his book Leviathan), lacking any moral basis.
Hobbes is thus seen as the founder of the "economic man"
axiomatic to most economic theorising. Under socialised selfinterest,
we, as individuals, choose to not drink and drive because we understand
the social cost of drinking and driving. Under Hobbesian selfinterest,
any of us may choose to drink and drive without care as to the
social consequences. But those of us who would like to drink and
drive may choose to not do so if they calculate that the likelihood
of getting caught is too high or that the consequences of getting
caught are likely to be too costly. A Hobbesian world is economically
inefficient because it is populated with cheats, and therefore
requires agents (public servants) to impose negative consequences
upon cheats. Voluntary compliance, based on socialised selfinterest,
would enable us to do without those agents.
The mercantilist thinking above by Major, Clark and Levine, represents
an unsocialised understanding of a nation's selfinterest.
Hobbes's "economic man" becomes Steuart's "economic
nation". The perception of Clark and Levine is that the British
nation will be made better off by being more competitive as an
exporter of armaments than Britain's rivals, regardless of the
bigger point that global society is itself compromised by the
international arms market. The perspective assumes that Britain's
rivals take an equally amoral view of the international economy,
and that, if Britain did take the moral high ground, then Britain's
rivals would somehow gain at Britain's expense, by exporting more
weapons. Thus the rivals would be the winners, and Britain the
loser.
Real economic nationalism - mercantilism - is based on a view
that there is an economic war on out there, and that national
self interest is to win that war. The arms trade is a classic
example of economic war; of the "prisoners dilemma"
problem, whereby competing Hobbesian nations actually produce
a "loselose" outcome rather than the "winlose"
world supposed by mercantilism.
On the other hand, the prisoners dilemma theorem shows that an
international community of socialised nations produces "winwin"
outcomes. This alternative view - that of a socialised international
community of nations - is that international trade is a means
of cooperative resource allocation conducted without the visible
hand of a global bureaucracy. If conducted within a properlydefined
international public domain, and with appropriate mechanisms to
stabilise investment, migration and trade flows, then the international
economy becomes the exact opposite of a sporting contest between
rival nations. (Deirdre McCloskey holds that this metaphor of
economic competition as being like a sports contest is perhaps
the most dangerous fallacy held by today's "macho" economics
profession.) Socialised selfinterest on the part of national
governments would be to pursue actions on a moral basis; actions,
that if followed by each country's government, would yield the
best outcome for all. The McCloskey perspective prescribes unilateral
action by each national government that is consistent with the
general interest of all nations.
John Major, in expressing the world view of an unsocialised political
leader, acts as a prophet of doom. Defeating the French, the Germans,
the Japanese, the Pacific Basin Countries and the United States
in economic warfare is a big ask!
New Zealand, like Britain, is not short of doom merchants pushing unsocialised economic nationalism. Two good examples appeared in Ian Templeton's column "Political platitudes as expected" in the Sunday StarTimes of 2 November. Expressing the view of the National Bank's Economics Department, he says:
Here the National Bank argues that businesses are driven by sentiment, and that business sentiment will lead us to disaster unless our government does everything it can to pander to that sentiment. In this case business sentiment is said to include sufficient cuts in public expenditure to ensure both tax cuts and a budget surplus. Tax cuts are seen as a means to gain a competitive edge over rival nations. These kinds of views, repeated in each nation, are really attempts to blackmail each sovereign government into making organised business interests the winners of a global sporting contest. Templeton continues:
This is a wonderfully simple presentation of the illiberal zerosum world view. Winning means getting "better seats on the bus" by making sure that others get worse seats. The world economy is seen as a destructive contest that will bring doom to the losers. The prisoners dilemma theorem suggests that if all nations are trying to get to the front of the bus, then they will all end up at the back. McCloskey suggests, however, that New Zealanders don't want better seats on the bus. Rather, they want a better bus; they want to contribute more rather than to take more.
An interesting quote on today's XTRA's Internet news page says:
"Tau Henare says we still have a government, and the country
is not going to go to the pack [emphasis added] because New
Zealand First hasn't made a decision." The prophets of doom
present the ideology that our country - indeed, any country -
is inevitably "going to the pack" (or, using Templeton's
metaphor, "going to the back") unless overtly procapital
policies are pursued. Politicians are forced onto the defensive,
because of the political blackmail by the real prophets of doom.
Another Hobbesian economic nationalist with a penchant for political manipulation is former Chairman of the Business Roundtable, Doug Myers. In a feature by Carroll du Chateau in the Sunday StarTimes (16 November), he says:
What we and all other nations need is a productive rather than a competitive business sector. Real average incomes in the world are around 10 times higher than they were 200 years ago. But people do not work 10 times harder today. It is not hard work that makes us productive, but shared capital which has accumulated as a social inheritance. The use of the term "competitive" instead of "productive" leads easily to this error of reasoning. If we work harder we just make bigger surpluses for organised business, while suffering a wage cut. Furthermore, we don't actually want a better health system than, say, Canada or Australia. We just want a better health system tomorrow than what we have today. Myers' choice of words simply reflects the nationalist perspective that underlies the lobbying style of organised business. He says "with a smile", about the electoral system which he strongly opposes:
Myers here presents a near perfect example of Sir James Steuart's metaphor of economic nationalism: that of the political leader as a Chris Dickson or a Grant Dalton navigating the Southern Ocean, as per the metaphor of "The Trade Wind, the Statesman, and the System of Commerce". Steuart's vision, for all its merits, is not a liberal vision. The liberal vision is that vision of the Scottish Enlightenment, contemporaneous of Steuart, based on the "moral sentiments". The most effective proponent of that worldview today is Deirdre McCloskey.
By taking McCloskey's "socialised approach" to selfinterest,
nations, through their governments, can ensure that capital and
other interests can all be winners. As nations, we protect our
futures by unilaterally doing what is right, and not what seems
expedient. A sense of morality is a prerequisite to the achievement
of efficient economic outcomes.
{ This document is: http://www.oocities.org/Athens/Delphi/3142/krf30-doom_busin.html
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